Cap on costs budgeting fees
The post-Jackson CPR remains a mess of badly drafted and confusing rules.
The Glossary to the CPR defines “Budget” as:
“An estimate of the reasonable and proportionate costs (including disbursements) which a party intends to incur in the proceedings.”
The words “intends to incur” suggests that “budget” is limited to future costs. However, PD 3E para.6 states:
“Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction.”
There is no doubt that Precedent H requires both past (“incurred”) costs and future (“estimated”) costs to be included. A completed budget (following Precedent H) will therefore include, by necessity, both past and future costs.
PD 3E para.7.4, under the hearing “Costs management orders” states:
“As part of the costs management process the court may not approve costs incurred before the date of any budget. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all subsequent costs.”
It is therefore clear that a costs management order can only “approve” future costs. This is well established and not disputable.
PD 3E para.7.2 states:
“Save in exceptional circumstances – (a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved or agreed budget”
What though, for these purposes, is the “approved or agreed budget”? The court cannot “approve” costs already incurred.
I am sure that this was intended to mean that if a budget filed by a party totalled £110,000 which was agreed/approved in full, the costs of completing that budget would be limited to £1,100 (being 1% of £110,000).
But, what if the budget includes £110,000 incurred costs and £110,000 future estimated costs and the same is agreed/approved in full? Which of these applies:
- The cap of the total for preparing the whole budget is £1,100 (being 1% of the £110,000 future costs) with nothing recoverable for the work including in the budget the incurred costs?
- The cap on preparing the part of the budget relating to the future costs is £1,100 (being 1% of the £110,000 future costs) with no cap on the recoverable costs for the work including in the budget the incurred costs?
- Is there a distinction depending on whether the budget is approved or agreed? PD 3E para.7.4 prevents the court approving incurred costs but does not prevent the other side from agreeing incurred costs. If a party agrees a budget without further comment, are they taken to have agreed the incurred costs or is it implicit the incurred costs are excluded from the agreement as the court has no control over such costs?
Cook on Costs 2015 identifies this problem and concludes the cap is calculated by reference to the future costs only:
“There appears to be some confusion as to what constitutes the ‘approved budget’ for the purposes of the percentage calculation. As the court may only budget costs to be incurred, it seems clear that the percentage is only of the sum approved by the court/agreed by the parties as the ‘to be incurred’ costs within those phases budgeted. This view is supported by the fact that CPR PD 3E, para 7 refers back to CPR 3.15. CPR 3.15(1) makes it clear that a costs management order may only be made in respect of costs to be incurred and CPR 3.15(2) makes it clear that budget for these purposes relates to the agreed or court approved figure after revision by the court. As the court cannot revise ‘incurred’ costs’, then the agreed or approved budget seems to be only the figures included in any costs management order. The alternative construction appears to us to rely upon the budget after a costs management hearing including both the costs managed costs and the non-costs managed costs, being described as an agreed or approved budget. This would have a curious effect at subsequent assessment as this would mean that even in respect of non-costs managed costs a party seeking to depart would need to show ‘good reason’.”
This does not seem to answer the problem as to whether the work done preparing the incurred part of the budget is covered by the same cap or whether those costs are entirely at large.
Cook on Costs introduces the subject with:
“Inevitably the costs management process adds an additional expense to litigation. Rather than allow for protracted argument about how much, the rules prescribe the sums that will be recoverable.”
This suggests nothing is recoverable for the work done concerning the incurred costs, otherwise a potentially significant part of the process is not prescribed and protracted argument is inevitable.
Now imagine the poor District Judge (or Deputy District Judge) trying to get their head around this issue based on points of dispute that are “short and to the point” and replies that are “limited to points of principle and concessions only”.