New bill of costs format released

The committee developing the new bill of costs format has released the following documents:

Guidance Document

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Print Version

This was accompanied by the following:

“We are inviting comments/suggestions on the draft new bill of costs by 18.9.15. It is planned that there will be a Practice Direction in force from the start of October 2015 which will enable parties to use the new bill of costs in cases in the SCCO instead of the existing model (although at this stage there is no requirement to use the new bill, only that it is voluntary and you would not be in breach of the rules if you adopted it). The longer term plan at present is that there will be a pilot in all SCCO cases where the costs order giving rise to the right to costs has been made on or after 1st April 2016 where the new bill of costs will be the recommended form of bill in place of the existing model.

Please email any such comments or suggestions to alexander.huttonqc@hailshamchambers.com and david.nelson@pathfinderconsulting.com (both please) by 4pm on 18.9.15. Please do not expect an instant response from us as we will be collating comments together and considering them as a whole. But we value your help in hopefully improving the current draft of the new bill. Please also read the guidance documents carefully before you email as some of the answers to queries may well be in them.”

Defendants’ artificially low costs budgets

I previously commented on the Coulson J, in CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd & Ors (Costs No. 2) [2015] EWHC 481 (TCC), as to the suggestion a defendant might try to submit a knowingly low costs budget:

“In his written submissions on behalf of the claimant, one of the points made … was that the court should not have any great regard to the costs budget figures put forward by the defendant and the additional parties because they had ‘an incentive’ to advance low figures in their costs budgets. This suggestion of manipulation of the figures by the other parties was, understandably, the subject of considerable protest. It seemed to me to be an unwarranted accusation. In truth, the party who was most vulnerable to such an accusation was the claimant itself.”

We can now add the comments of Stuart-Smith J in GSK Project Management Ltd v QPR Holdings Ltd [2015] EWHC 2274:

“Counsel for the Claimant in the present case submitted (rather faintly in the end) that the Defendant had underestimated the resources that were necessary. To my mind, if such a submission is to be made at all in the face of a Solicitor’s statement of truth that his costs budget is a fair and accurate statement of incurred and estimated costs ‘which it would be reasonable and proportionate for my client to incur in this litigation’, it needs to be properly substantiated; and that substantiation will probably require evidence and not mere assertion. It has not been substantiated in the present case.”

Empty threats

We all have our own bugbears about the things our opponents do.

What really annoys me is an opponent who threatens to do a certain thing (eg prepare a formal bill, issue Part 8 proceedings, make an application for relief from sanctions, set a matter down for assessment, etc) if they have not heard from me (eg making an improved offer, consenting to relief being granted, etc) by a certain date. The threat is often reinforced with the statement that this step will be taken “without further notice” in the absence of a response. The deadline passes. I then receive a chase-up.

Feel free to threaten to take a certain step by a certain date in the absence of a particular response. If you have had no response, you can take it as read that I am happy for you to proceed as threatened. What annoys me is threatening to take the step and then simply sending a chase-up.

Breakdown of costs by phase

The Civil Procedure (Amendment No. 4) Rules 2015, coming into force on 1st October 2015, introduces an amendment of CPR 47.6 as to the documents to be served when commencing detailed assessment proceedings:

“8. In rule 47.6, in paragraph (1) -

(a) at the end of sub-paragraph (a), omit “and”; and

(b) at the end of sub-paragraph (b), insert -“; and

(c) if a costs management order has been made, a breakdown of the costs claimed for each phase of the proceedings”.”

About time to, although would it not have been simpler to require the bill to be drafted in different parts for each phase of the proceedings? As it is, there no doubt will remain scope for argument as to how detailed a “breakdown” needs to be. Although this comes in on 1st October 2015, parties are unlikely to receive a sympathetic reception from the courts if they serve bills before that date that are not accompanied by such a breakdown or drafted by phase.

Coventry v Lawrence

In what is unlikely to be the shock judgment of the year, the Supreme Court has declined to strike down the pre-Jackson funding regime in Coventry & Ors v Lawrence & Anor [2015] UKSC 50.

Perhaps more surprising is that as many as two of the seven judges dissented with powerful reasoning as to why the old regime was incompatible with Article 6.

One is rather left with the impression that the majority decision was as much reached as a result of the fear of the Pandora’s Box that would have been opened if a different conclusion had been reached rather than on the actual merits of the arguments.

Cost of preparing trial bundle

The Guidance Notes on Precedent H includes the following work as not to be included when preparing a costs budget:

“Assembling and/or copying the trial bundle (this is not fee earners’ work.)”

Why is extensive work therefore routinely claimed for preparing trial bundles? Cleary careful thought needs to be given as to what to include, but the time putting it together is not chargeable.

Applications to set aside default costs certificates

There appears to be an unfortunate tension/conflict in the wording of the CPR and corresponding Practice Direction as to applications to set aside default costs certificates.

CPR 47.12(2) states:

“the court may set aside or vary a default costs certificate if it appears to the court that there is some good reason why the detailed assessment proceedings should continue”

This provision appears to be purely concerned with future matters (as to whether there is a good reason for the assessment proceedings to proceed). The reason for the failure to serve the points of dispute is irrelevant in this context. A “good reason” will be where the costs are likely to be reduced by a reasonable amount, and at proportionate cost, should the matter be allowed to proceed.

On the other hand, PD 47 para.11.2(3) states:

“As a general rule a default costs certificate will be set aside under rule 47.12 only if the applicant shows a good reason for the court to do so…”

This is not the same thing as whether there is a “good reason why the detailed assessment proceedings should continue”. It implies the court will give consideration to other matters.

Of course, to the extent to which there is a conflict between the CPR and the Practice Direction, it is the CPR that will prevail. Nevertheless, this is unfortunate and badly drafted.

This is the same wording as existed in the pre-Jackson version of the CPR/Practice Direction and it is therefore far too much to hope that there is any prospect of an amendment being made now to make the issue clearer.

Dividing bills of costs by phase

I’ve commented before on the fact that whatever the merits of the Jackson costs reforms, the implementation process has been truly botched. Nowhere is this more apparent than the introduction of costs budgeting.

There are obviously myriad problems with costs budgeting as it currently stands but one of the most serious issues, that is only now becoming truly apparent, is the introduction of costs budgeting without amending the bill of costs format.

Although work progresses with a new bill of costs format, to mirror the phases of costs budgeting, we are still many months away from anything being formally introduced.

This is not simply a dry theoretical issue, but a problem that is beginning to cause serious problems as part of the detailed assessment process.

CPR 3.18 states:

“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

(a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and

(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.”

The first problem stems from the fact that it is “each phase” of the proceedings the court must consider and not depart from the same. This means it is not sufficient for a budget to be approved at £100,000 and for the costs to come in at £99,000. The court must consider whether costs have come in on budget for each phase (Precedent H containing 10 main phases plus contingencies).

For a judge on assessment to fulfil their duties under CPR 3.18 they therefore need to know what costs have actually been incurred for each phase. The “good reason” to depart from the budget must, in this context, clearly refer to each phase. For example, if a case was budgeted based on a one-day trial but the case runs into two days, that may be a good reason to depart from the Trial phase of the budget. It would be no reason to depart from the budget in relation to the Witness Statements phase, Disclosure phase, etc.

The second problem comes from PD 3E para.7.4:

“As part of the costs management process the court may not approve costs incurred before the date of any budget.”

This provision is easily overlooked. What is often referred to as an approved budget, is often a budget consisting of two elements. The first being the “incurred” costs that the court has not (and cannot) “approve”. Those costs are subject to detailed assessment in the ordinary way. The second part of the budget is the future estimated costs that are the part the court has approved and which are subject to CPR 3.18(b).

This means that a judge on assessment needs to know not only what costs have been incurred by phase, but also how this is split between pre and post-costs management order. It might be arguable that there is no need to split the pre-costs management order work between phases, as this is all open to assessment in the normal way, but this is unlikely. Where a budget has been served showing incurred costs by phase, it would be doubtful a court would allow a party more costs that those shown in the budget for that phase and period. It does not mean the figures would be allowed as reasonable between the parties simply because they mirror the costs shown in an estimate for incurred costs, but it is likely they would act as a cap (the purpose of the “incurred” section of the budget being to allow the other party to know what their potential liability is for the work done to date).

The problem with the implementation process is that there has been no formal amendment to the standard bill of costs format and the current rules contain no requirement to draft a bill by phases or identify pre and post-costs management order work. A bill that enables the court to undertake its job properly would potentially need to be divided into 20 parts (10 phases each divided between pre and post-costs management work) plus further phases for any contingencies.

Anecdotal evidence suggests some courts are already striking out/ordering to be redrawn bills that are not properly divided where there has been a costs management order made. Other anecdotal evidence is that some courts are striking out bills that are clearly divided by phase on the basis that such bills do not correspond with the current rules (this is nuts as PD 47 para.5.8 is drafted widely enough to give a discretion to divide bills into two or more parts where this is necessary or convenient to do so).

I’ve previously commented on Lord Justice Jackson’s recent recommendations concerning costs budgeting that:

“Until the new form bill of costs is developed, in those cases where detailed assessment proceedings are commenced, the receiving party should lodge a summary of its bill in a format which matches Precedent H”

That appears to be the absolute minimum as to what should be expected but why are we now over two years down the road since costs budgeting was introduced (more if you count the pilots schemes) with still no proper rules to deal with this? Common sense dictated that the existing bill of costs format would no longer be fit for purpose when the costs budgeting rules were introduced in April 2013.

Costs of detailed assessment in costs budgets

PD 47 para.5.19 states:

“The bill of costs must not contain any claims in respect of costs or court fees which relate solely to the detailed assessment proceedings other than costs claimed for preparing and checking the bill.”

Implicit in this is that the costs of preparing and checking the bill are part of the detailed assessment proceedings.

This is consistent with the Court of Appeal’s comments in Crosbie v Munroe [2003] EWCA Civ 350:

“the assessment proceedings cover the whole period of negotiations about the amount of costs payable through the Part 8 proceedings to the ultimate disposal of those proceedings”

However, CPR 47.6 states:

“(1) Detailed assessment proceedings are commenced by the receiving party serving on the paying party –

(a) notice of commencement in the relevant practice form; and
(b) a copy of the bill of costs.”

Self-evidently, in this context, the bill must be drafted before the detailed assessment proceedings are “commenced”.

Precedent H, the document used for costs budgeting, states at the bottom of page one:

“This estimate excludes … costs of detailed assessment…”

Should the costs of preparing a bill therefore be included or excluded from a budget?

The wording of the CPR remains confusing and contradictory as to what work falls within the definition of detailed assessment proceedings (and continues to cause confusion relating to issues over recovery of Part 8 costs and what is included in the provisional assessment cap).

Come on Rules Committee. Sort it out.

Costs of an application for relief from sanctions

The recent decision in O’Brien v Shorrock & The MIB [2015] EWHC 1630 (QB) deals with a number of interesting costs issues.

One of these concerned an application for relief from sanctions by a party who had given incorrect information concerning the date a CFA had been entered into.

Pre-Jackson, one could be fairly confident that a defaulting party would have to pay the cost of such an application even if successful. Post-Mitchell, the position was believed to be the same except for the fact the prospects of obtaining relief were significantly diminished. Post-Denton, the position appears to be more complex. The problem comes from the following warning in Denton:

“We think we should make it plain that it is wholly inappropriate for litigants or their lawyers to take advantage of mistakes made by opposing parties in the hope that relief from sanctions will be denied and that they will obtain a windfall strike out or other litigation advantage. In a case where (a) the failure can be seen to be neither serious nor significant, (b) where a good reason is demonstrated, or (c) where it is otherwise obvious that relief from sanctions is appropriate, parties should agree that relief from sanctions be granted without the need for further costs to be expended in satellite litigation. … Heavy costs sanctions should, therefore, be imposed on parties who behave unreasonably in refusing to agree extensions of time or unreasonably oppose applications for relief from sanctions. An order to pay the costs of the application under rule 3.9 may not always be sufficient. The court can, in an appropriate case, also record in its order that the opposition to the relief application was unreasonable conduct to be taken into account under CPR rule 44.11 when costs are dealt with at the end of the case. If the offending party ultimately wins, the court may make a substantial reduction in its costs recovery on grounds of conduct under rule 44.11. 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 rule 3.18 in relation to its costs budget.”

The innocent party now appears to be at risk of paying for an application caused by the other party’s default.

In O’Brien, relief from sanctions was granted. As to the costs of the application, the judge ruled:

“The costs of the application for relief from sanctions are small, because it was served so late. Nevertheless, I consider that in principle they must be paid by the claimant (or his solicitors) because it was their default in giving an erroneous date on the Notice of Funding which required the application.”

A sensible decision, although this was in the context that the judge had ruled the breach to be “significant”.