Costs management

From the Association of Costs Lawyers’ Judicial Round Table on costs management earlier this year:

Neil Rose: Has the SCCO seen any cases come through yet?

SCJ Gordon-Saker: Not one, as far as I am aware…we are still in the dark as to what will happen.

Neil Rose: Any ideas?

SCJ Gordon-Saker: I anticipate lots of histrionics.

2015 Award for Most Bizarre Argument Advanced in Replies

2015 Award for Most Bizarre Argument Advanced in Replies goes to the following included in reply arguing why costs were not disproportionate in matter which settled pre-trial for £2,500:

“At the start of the claim, the Claimant made a Part 36 offer to settle the matter in the sum of £10,000. Relative to the costs that have since been incurred by both parties, had the Defendant’s accepted this sum or a lesser but similar figure the total figure for costs and damages would have been substantially lower than have ultimately proven to be.”

Dividing bills of costs

The Senior Costs Judge Master Gordon-Saker has given definitive guidance as to how bills should be divided in the case of BP v Cardiff & Vale University Local Health Board [2015] EWHC B13:

  • Divided between periods where different proportionality test applies:

“In any case in which both approaches need to be taken it will be necessary to identify the work which falls before and after that date and to identify the sums claimed for the work done before and after that date. In my judgment where the case commenced on or after 1 April 2013, the bill covers costs for work done both before and after that date and the costs are to be assessed on the standard basis it must be both convenient and necessary for the bill to be divided into parts so as to distinguish between costs claimed for work done before 1 April 2013 and costs claimed for work done on or after 1 April 2013.”

  •  Divided by phase where costs management order:

“In order for the paying party and the court to know which items of work are claimed in relation to each phase the bill would need to be drawn in parts which reflect the phases. Although multi-part bills tend to obscure the overall picture, it seems to me that (unless a sensible alternative can be devised) in a case in which a budget has been approved or agreed and the costs are to be assessed on the standard basis it will be both necessary and convenient to draw the bill in parts which correspond with the phases of the budget.”

  •  Divided between work done before and after a costs management order is made:

“Within each part it will also be necessary to distinguish between the costs incurred before and after the budget was agreed or approved. This could be done without further sub-division by use of italics, bold, superscript or some other formatting device.”

  •  Divided to show work relating to costs budgeting work:

“Where a costs management order has been made and the receiving party’s budget has been agreed by the paying party or approved by the court it will be both necessary and convenient that the bill be divided so as to identify the costs of initially completing Precedent H and the other costs of the budgeting and costs management process, unless those costs can be clearly identified in some other way.

I use the phrase “definitive guidance” advisedly. There is absolutely no prospect of a higher court overturning the guidance given by the Senior Costs Judge on matters of costs practicalities. The judgment also gives a costs warning where bills are not clearly divided:

“In the present case it was necessary for the parties to spend time in the hearing to identify the items of work which related to the budgeting and costs management process. Had the overall result been different the [receiving party] may have been expected to pay the costs of that in any event.”

Cost of drafting Precedent H

PD 3E para.7.2 is a deceptively simple provision:

“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”

Without any further qualification, the £1,000 figure must be taken to be inclusive of any success fee or VAT claimed. (Readers will recall a similar issue arose with the first version of the rules concerning the £1,500 provisional assessment cap. It required an amendment to allow for VAT in addition but remains inclusive of any success fee.) This means that for a costs budget of up to £100,000, the base costs recoverable (assuming a 100% success fee and VAT are claimed) would be limited to £416.67 for preparing Precedent H.

The 1% figure is more problematic.

Again, without qualification, this must be taken to include VAT and any success fee. However, Precedent H expressly excludes VAT and success fee. This would appear to mean, for example, that for an approved or agreed budget totalling £150,000 the recoverable costs are limited to £1,500 fully inclusive, even if with success fee and VAT the recoverable costs at the end of the case (once VAT and success fee is allowed) might be well in excess of £300,000.

The problems do not stop there. What is the total of the approved or agreed budget?

As explained in Cook on Costs 2015:

“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.”

So, for example, a budget is prepared totalling £200,000 (excluding VAT and success fee). Of this, £50,000 represents costs already incurred and £150,000 costs to be incurred. If the budget is approved/agreed in full, the 1% is calculated on the £150,000. This equates to base costs recoverable (assuming a 100% success fee and VAT are claimed) limited to £625. All the work undertaken calculating the incurred costs is irrecoverable.

Since writing the above post, but before posting, the Senior Costs Judge Master Gordon-Saker handed down judgment in BP v Cardiff & Vale University Local Health Board [2015] EWHC B13. In relation to the above issue, he stated:

“In my view the caps imposed by paragraph 7.2 of Practice Direction 3E include additional liabilities but do not include value added tax. In practice the only additional liability that will be relevant is a success fee.

It seems to me that value added tax also falls within the expression ‘recoverable costs’. As between the receiving party and its solicitor value added tax is tax for which the solicitor must account. As between the paying party and the receiving party it is not tax but a sum recoverable by the receiving party under the indemnity provided by the costs order (i.e. costs).

On that basis the capped ‘recoverable costs’ would include both success fees and value added tax. However it would seem highly unlikely that the intention of the Civil Procedure Rule Committee was not to follow the only other example where a cap is imposed: CPR 47.15(5). The cap on the costs of provisional assessment is £1,500, including additional liabilities, but excluding value added tax and any court fee.”

Although Master Gordon-Saker may well be correct as to what the intention of the Rules Committee would have been if they had given any thought to the issue, the fact remains that the wording of the rules is silent as to VAT being payable in addition and has not, yet, being amended to mirror the wording of the rules concerning the provisional assessment costs cap.

Master Gordon-Saker does share my views that VAT is an item of costs (thus making the £75,000 provisional assessment cap inclusive of any VAT).

Fixed costs working party

The Association of Costs Lawyers is inviting members to apply to join a Fixed Recoverable Costs Working Party to consider the potential extension of the fixed recoverable costs regime and draft a consultation paper.

What are the odds the response to any consultation paper is overwhelmingly that the extension of fixed fees is a “bad thing”?

Listing Questionnaire fee

The Civil Proceedings Fees (Amendment No.2) Order 2013 read:

“Fees 2.1 and 2.2 [being the fees payable when filing a Directions Questionnaire and Listing Questionnaire] are payable once only in the same proceedings.”

The Civil Proceedings Fees (Amendment) Order 2014 has dropped the fee for filing a Directions Questionnaire. However, I can no longer see a note stating the Listing Questionnaire fee is payable only once. This issue sometime arises where there has been a split trial and more than one Listing Questionnaire was filed. In the past, if a claimant wrongly paid the Listing Questionnaire fee twice, there was no doubt the defendant would not be liable for the second fee.

Is the omission of a similar note in the 2014 Order an oversight?

VAT and provisional assessment

I’ve commented before on Regional Costs Judge Middleton’s view that the £75,000 provisional assessment limit does not include VAT.

He expands on this in the White Book supplement Costs & Funding following the Civil Justice Reforms: Questions & Answers.

“Q8. Does the £75,000 limit for provisional assessment include or exclude VAT?

This is a purely procedural point. CPR 47.15 and its PD provisions describe the limit of £75,000 as being in respect of costs. The definition of ‘costs’ in CPR 44.1 does not include a reference to VAT – in fact, VAT is defined separately in the same rule. Accordingly, it seems that the £75,000 limit does not include VAT and refers to the total profit costs and disbursement sum.”

CPR 44.1 is actually headed ‘Interpretation and application’ rather than ‘Definitions’.

‘Costs’ is defined as:

“‘costs’ includes fees, charges, disbursements, expenses, remuneration, reimbursement allowed to a litigant in person under rule 46.5 and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track”

‘VAT’ is defined as:

“‘VAT’ means Value Added Tax”

It is actually rather a stretch to say this “defines” VAT. It does no more than explain, if it was not otherwise self-evident, what the abbreviation stands for.

This section also defines ‘fixed costs’:

“‘fixed costs’ means costs the amounts of which are fixed by these rules whether or not the court has a discretion to allow some other or no amount”

I believe this highlights Regional Costs Judge Middleton’s error. There can be no doubt that ‘fixed costs’ falls within the wider definition of ‘costs’ even if it is also given its own separate definition. ‘Fixed costs’ is simply a subcategory of ‘costs’. Equally, ‘VAT’ is also a subcategory of ‘costs’. The definition of ‘costs’ is not an exhaustive list, it simply states some of the subcategories it includes. ‘VAT’ clearly falls within ‘charges’ in any event. HM Revenue & Customs’ guides use the word ‘charge’ in relation to VAT (eg “You should charge VAT at the rate of 20 per cent on any sales of standard rated goods or services that you make on or after 4 January 2011”).

In any event, as previously mentioned, if I am wrong about this and VAT is not included within the definition of ‘costs’, on what basis can VAT be recovered on the back of an order for ‘costs’ alone?