NEWS

‘Teeing off’ for the autumn

Stephen Averill Phoenix Legal Services’ Managing Director and Association of Costs Lawyers Council Member, has recently had this published in the Thomson Reuters Dispute Resolution Blog

This provides an overview of the October 2020 rule changes affecting budget variations and costs management

It is already important that budgets are maintained, but the changes bring this into keener focus. You must revise a budget promptly (i.e. upon determining that a significant development in the litigation warrants a revision). It is insufficient simply to agree this with the other side as the revised budget must be submitted to the court for approval.

We have been living with budgeting and costs management for over seven years. There have been some unpleasant growing pains as practitioners have learnt the sometimes harsh reality of the significance of the rules and a failure to comply with them.

I have been surprised that, whilst practitioners have adjusted to the need of budgeting, there is still a significant lag in the willingness to engage with the second part of the process – costs management. There appears to be relief once the first CCMC has taken place and the budget is approved. Time to mop the brow and put the budget at the back of the file until the case concludes.

That was never a good idea as the onus has always been on the practitioner to maintain the budget, ie, ensure that it does not deviate unless something unforeseen happens. The only way to ensure the phase totals are kept within the amounts set – or identify the need to revise the budget – is to regularly update them by costing the file. Judges continue to express surprise at how few requests or applications to amend budgets they see. Waiting for a detailed assessment to plead for an increase is unlikely to succeed as the court will rightly ask why you did not do anything about it at the time you became aware of an issue. You are suddenly out of pocket by many thousands of pounds.

The Civil Procedure Rule Committee has clearly taken this on board with its new update. The casual observance of the costs management process is at an end.

Technical part

The Civil Procedure (Amendment No.3) Rules 2020 and the 122nd update hit the Civil Procedure Rules (CPR) homepage on 24 July 2020 and sets out changes to “Cost Budgeting and Variations” with the aim of “[rationalising] the current structure of the rules on variations to cost budgets. The changes have reduced the existing structure which involved three sources of rules (CPR Rules, a PD and a lengthy Guidance Note) into two documents, a set of rules and a PD which is intended only to include practice guidance”.

Of significance is the introduction of a new Precedent T (budget variation summary sheet), as part of the changes to Practice Direction 3E effective from 1 October 2020, to be used in the event of variation of a budget.

The statutory instrument introduces a new provision (rule 3.15A) to deal with variation and codifies the practice currently set out in CPR PD3E, para. 7.6.

By way of reminder, CPR PD3E, para. 7.6 provides that:

Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions. Such amended budgets shall be submitted to the other parties for agreement. In default of agreement, the amended budgets shall be submitted to the court, together with a note of (a) the changes made and the reasons for those changes and (b) the objections of any other party. The court may approve, vary or disapprove the revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed.

The new rule 3.15A retains the concepts of “significant developments” and inter-partes agreement. However, as to the latter, parties can no longer simply agree revisions between themselves. While the new rule provides that “Any budgets revised in accordance with [rule 3.15A(1)] must be submitted promptly by the revising party to the other parties for agreement” (emphasis added), it is qualified: the revised budget must be submitted “subsequently to the court” for approval.  

Further, the new rule now directs that a party “must” (not “shall”) revise its budget, and adds that such revisions must be done “promptly” and using the new form (Precedent T).

Commentary

The change addresses the issue of budget variation by, in effect, upgrading PD 3E Para. 7.6 to rule status and, in so doing, determines the process which must be followed. The varying party must submit a Precedent T to the other side without delay. The Precedent T will allow the parties (and ultimately the court) to understand, in a recognisable format, what the proposed variations to the budget are.

The peremptory instruction, that a budget “must” be revised, applies equally to upward and downward revisions. It remains to be seen how this will play out, given that downward revisions are uncommon in practice, but practitioners will need to engage in active costs management and be aware that significant developments may be outwith the assumptions which underpin their budget such that they need to take action. Indeed, the effect of the change is to place costs management and budgets (and their variation) at the forefront of the minds of practitioners.

Further, given the peremptory instruction, the likelihood is that the saving provision at CPR 3.18, of good reason, may well become a higher threshold to overcome at detailed assessment (i.e. where a party could, and should, have varied their budget during the substantive case). Conversely, a paying party could use this to its advantage, to reduce the bill on assessment, by establishing good reason to depart from the approved budget where the receiving party failed to revise a budget.

Conclusion

One could argue that the change is coming at the right time or, with equal force, that this is inopportune. Covid-19 pandemic has affected litigation across the board and we don’t need a crystal ball to predict the impact on budgeting. There will be swathes of cases where coronavirus has caused delays, departures from (previously safe) assumptions, additional steps being taken (including additional remote hearings) and the loss of trial windows/vacation of hearings.

Coronavirus has changed the way we all work, but citing the pandemic as a ‘good reason’ to depart from a budget at detailed assessment may result in a short shrift.

The moral: engage in robust costs management and revise budgets promptly when necessary during the course of the substantive case.

Final words

You have been warned!

This can also be found at: http://disputeresolutionblog.practicallaw.com/costs-management-teeing-off-for-the-autumn/

Remote control – remote hearings to continue even after the pandemic has passed

The coronavirus pandemic has changed the way many of us work. The Senior Courts Costs Office is no exception. The SCCO has adapted to and has coped well with the pandemic, most business at court has progressed and very few hearings have been adjourned.

The Senior Costs Judge, Andrew Gordon-Saker, has issued a practice note, leveraging the experience over the last few months to consider how hearings in the SCCO will need to be conducted going forward. The SCCO envisages the continued use of remote hearings, alongside in-person hearings, for the foreseeable future. This continued, greater use of video and telephone will be bolstered by the electronic filing of papers, which is something which the courts particularly encourage.

We have the facilities and expertise to conduct remote hearings, and to save cost by not having to travel to courts.

Back in time for T

Having been on hiatus since lockdown, we restart the Alerters with news of the Civil Procedure (Amendment No. 3) Rules 2020 and the 122nd Practice Direction Update. This hit the MOJ Civil Procedure Rules (CPR) homepage on 24 July 2020 and sets out changes to:

Cost Budgeting and Variations: rationalises the current structure of the rules on variations to cost budgets. The changes have reduced the existing structure which involved three sources of rules (CPR Rules, a PD and a lengthy Guidance Note) into two documents, a set of rules and a PD which is intended only to include practice guidance”.  

Of significance is the introduction of a new Precedent T (Budget Variation Summary sheet), as part of the changes to Practice Direction (PD) 3E effective from 1 October 2020, to be used in the event of variation of a budget.

The Civil Procedure (Amendment No. 3) Rules 2020, which, as its title suggests, amends the Civil Procedure Rules 1998, will introduce a new provision (rule 3.15A) which will deal with “variation costs” and will codify the practice currently set out in CPR PD3E, para. 7.6.

By way of reminder, CPR PD3E, para. 7.6 provides that:

Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions. Such amended budgets shall be submitted to the other parties for agreement. In default of agreement, the amended budgets shall be submitted to the court, together with a note of (a) the changes made and the reasons for those changes and (b) the objections of any other party. The court may approve, vary or disapprove the revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed”.

The new rule 3.15A retains the concepts of “significant developments” and inter-partes agreement, but now directs that parties “must” (not “shall”) revise, and adds that revisions must be done “promptly” and using a new form (Precedent T).

Summary

The change addresses the issue of budget variation by, in effect, upgrading PD 3E Para. 7.6 to “Rule status” and, in so-doing, determines the process which must be followed. The varying party must submit a Precedent T to the other side without delay. The Precedent T will allow the parties (and ultimately the court) to understand, in a recognisable format, what the proposed variations to the budget are.

The peremptory instruction, that a budget “must” be revised, applies equally to upward and downward revisions. It remains to be seen how this will play out, given that downward revisions are uncommon in practice (see, for example, our July 2019 Costs Alerter), but practitioners will need to engage in active costs management and be aware that significant developments may be outwith the assumptions which underpin their budget such that they need to take action. Indeed, the effect of the change is to place costs management and budgets (and their variation) at the forefront of the minds of practitioners.

Further, given the peremptory instruction, the likelihood is that the saving provision at CPR 3.18 of good reason may well become a higher threshold to overcome at detailed assessment (i.e. where a party could, and should, have varied their budget during the substantive case). Conversely, a paying party could use this to its advantage, to reduce the bill on assessment, by establishing good reason to depart from the approved budget where the receiving party failed to revise a budget.

We are happy to discuss any aspect of costs management (and all other areas of costs for that matter) and our team is available to talk you through the process including the pitfalls of non-engagement.  Please ring or email for further information.

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“If there is an order for indemnity costs, then prima facie any approved budget becomes irrelevant”

In Lejonvarn v Burgess & Anor [2020] EWCA Civ 114 the appellant was awarded indemnity costs of not less than £725,000 against a budgeted sum of £415,000. The respondent argued that the court should not make an order for indemnity costs as this would provide the appellant with a way round her own approved costs budget. The Court of Appeal rejected this argument.

Lord Justice Coulson noted the difference between an approved budget, determined prospectively, and the retrospective final assessment of costs. While generally the approved costs budget will be the starting point for assessment, that does not detract from the underlying proposition that they are different figures produced by different considerations with different purposes.

In reviewing the applicable principles Lord Justice Coulson noted that “if there is an order for indemnity costs, then prima facie any approved budget becomes irrelevant” citing, amongst other cases, Denton and Others v TH White Limited [2014] EWCA Civ 906: “If the offending party ultimately loses, then its conduct may be a good reason to order it to pay indemnity costs. Such an order would free the winning party from the operation of CPR r.18 in relation to its costs budget”.

Indemnity costs – speculative/weak claims; unreasonable refusal to accept offers

When a Claimant discontinues, he/she is liable for the Defendant’s costs (CPR Part 38.6). By CPR Part 44.9(1)(c) “where a right to costs arises under… rule 38.6 (defendant’s right to costs where claimant discontinues), a costs order will be deemed to have been made on the standard basis”.

Sometimes a Defendant, in such circumstances, will seek indemnity costs relying on the principle that the conduct of litigation may justify such an award. This is what happened in Wates Construction Limited v HGP Greentree Allchurch Evans Limited [2005] EWHC 2174 (TCC) where the Claimant, alleging that the Defendant’s design of a roof was negligent, discontinued the claim on the first day of trial because it had known (for some time) that it had deviated from the Defendant’s design such that allegations which had looked, on their face, to be allegations of inadequate design were, in fact, allegations concerning the Claimant’s defective workmanship. The authorities, considered in Wates, pointed to the need for the conduct, justifying indemnity costs, to be unreasonable to a high degree (see, for example, Kiam II v MGN (No. 2) [2002] EWCA Civ 66). In Wates it was found that the Claimant maintained a claim which it knew was doomed to fail (on the facts and on the law) and that this was so unreasonable as to justify an order for indemnity costs.

In Excelsior Commercial and Industrial Holdings Limited v Salisbury Hammer Aspden and Johnson (A Firm) [2002] EWCA Civ 879, concerning an application for indemnity costs made by the successful defendant having beaten his own offer , it was said that “before an indemnity order can be made, there must be some conduct or some circumstance which takes the case out of the norm”.

It has long been the position that a defendant’s eventual defeat of a speculative, weak, opportunistic or thin claim can give rise to indemnity costs. In Three Rivers District Council v The Governor and Company of the Bank of England [2006] EWHC 816 (Comm) the following was said: “where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails”.

In Mireskandari v the Law Society [2009] EWHC 2224 (Ch) the Law Society was entitled to indemnity costs following discontinuance because the claim was “from its inception a hopeless [case] and that [the claimant’s] conduct of the proceedings has throughout been unreasonable to a high degree”.

In Lejonvarn v Burgess & Anor [2020] EWCA Civ 114, an architect, providing free-of-charge help to her neighbours, was found, on a preliminary point, to owe her neighbours a duty of care. On appeal, in April 2017, the Court of Appeal upheld the finding while stressing its limitations: it applied only to services which the architect in fact provided; in other words, she could have no liability in respect of any alleged omissions. In fact, she had provided very few services and had not been negligent.

The neighbours pursued the case to trial and lost, and the architect claimed costs in the “eye-watering” sum of at least £724,265. The High Court ruled that the costs should be assessed on the standard basis. The architect sought indemnity costs before the Court of Appeal.

The Court of Appeal considered that the High Court had failed to address the speculative/weak nature of the claim, noting that the High Court found that, as the claim went to trial, it was not speculative. Lord Justice Coulson, in the Court of Appeal, said “[The judge in the High Court] appeared to consider that an order for indemnity costs was only appropriate where it could be shown with hindsight that costs had been unnecessarily incurred. I do not accept that this was the right approach as a matter of principle”.

The question which should have been asked (by the High Court) was “whether, at any time following the commencement of the proceedings, a reasonable claimant would have concluded that the claims were so speculative or weak or thin that they should no longer be pursued”. Lord Justice Coulson found that the neighbours, having considered the Court of Appeal decision in April 2017, would have known (or should have known) that their claim was likely to fail – “It was, in my view, out of the norm for these respondents to continue to pursue … these speculative/weak claims… beyond that date”.

The architect was awarded indemnity costs from 7 May 2017, being one month after the Court of Appeal judgement.

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1 in contrast with the position of a claimant who makes a Part 36 offer and then subsequently beats it, a defendant in the same position is not automatically entitled to indemnity costs

That’s a relief! Relief from sanctions for late budget

In Manchester Shipping Ltd v Balfour Shipping Ltd and Anor [2020] EWHC 164 (Comm) the Defendants, having failed to file and serve their costs budgets in time, were granted relief from sanctions.

The timetable is relevant: the CCMC was fixed for 17 January 2020; costs budgets were to be filed not later than 21 days before the CCMC (CPR Part 3.13(1)(b)); on 16 December 2019 the parties agreed a timetable of 19 pre-CCMC procedural steps (avoiding any ‘deadlines’ in the holiday period of 12 December 2019 to 6 January 2020); the timetable was silent as to the filing and exchange of costs budgets; the Claimant filed and served its costs budget on Christmas Eve.

The Defendants had assumed that the pre-CCMC timetable did not make provision for any costs management steps because, they understood, the Claimant intended that costs management be dispensed with. The Defendants filed their budget on 8 January 2020 – 13 days late.

By the time of the CCMC, on 17 January 2020, the Defendants had not made an application under CPR 3.9 for relief from sanctions.

The Claimant submitted that “it is incumbent upon a party seeking relief from the sanction to make a timeous application for relief from sanctions under CPR 3.9” and directed the Judge to BMCE Bank International Plc v Phoenix Commodities PVT Ltd & Anor [2018] EWHC 3380 (Comm) (“where there is a failure to comply with rules … an application for relief from sanctions should be made promptly, supported with evidence…”). The Judge, however, noted that the “Draconian” sanction provided by CPR Part 3.14 included a saving provision: “Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees” (emphasis added). The saving provision was considered in the guidance to the White Book (2019 Edition) at paragraph 3.14.2: “A party in default of r.3.14 need not make a separate application for relief from sanctions under r.3.9. Instead it may seek to invoke the saving provision in r.3.14 itself (“Unless the Court otherwise orders”) by seeking to persuade the court to adopt that course at the hearing convened for costs management purposes …”.

There is no doubt that reliance on the saving provision in CPR Part 3.14 is a very high-risk strategy (the Judge in fact stated that “There will no doubt be cases (BMCE being one such) where a party seeking to invoke the saving provision would be well advised to do so by making a prompt CPR 3.9 application”). Our view is that, regardless of the nature of the default or the reasons for it, there is no excuse for any delay in making an application for relief. Delay may well prove fatal, rendering a forgivable breach unforgivable.

Having allowed the invocation of the saving provision, the Judge considered the three stage Denton test: first, the seriousness and significance of the breach; second, the reason for the breach; and third, all the circumstances of the case.

As to the first, the failure was serious but “The paperwork was all in order by the time the bundles were filed for the CCMC and the Claimant was able to deal without difficulty with the Defendants’ budget”. As to the second, the judge accepted that the default was inadvertent, borne out of reliance on the agreed table of procedural steps which was silent as to budgets.

In all of the circumstances it was appropriate to grant relief from sanctions.

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Budgets, they are a changin’ (2)

The Guidance Note on Precedent H identifies, inter alia, where within a budget various items of work, in so far as they are required by the circumstances of the case, should be included. Highlighting the changes from the previous guidance:

  • Amendments to statements of case now fall into the Issue/statement of case phase (and should no longer be included in the contingent costs section of the budget)
  • Any further CMC that is built into the proposed directions order should now be included in the CMC phase
  • Counsel’s brief fee now falls within the Trial Preparation phase (and not, as formerly, in the Trial phase). Counsel’s trial refreshers remain in the Trial phase, as before
  • Mediation is now included in the ADR/Settlement phase (mediation should no longer be included as a contingency). Likewise, approval of settlement (if required).

The Guidance Note also sets out the recent change to Paragraph 7.4 of Practice Direction 3E (considered in September) which moves the line between incurred and budgeted costs, formerly drawn on the date of the budget, now drawn up to and including the date of the first costs management hearing/order. Budgeted costs are now all costs to be incurred after the date of the first costs management hearing/order.

The Guidance Note also adds a short statement of principle, not included in the previous iteration, that estimated costs may have to be justified at the CCMC along with the grade of fee earner doing the work.