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”.

Contents and timing of Replies to Points of Dispute

The Association of Costs Lawyers recently set up a working party, which I was roped into, on the new(ish) provisional assessment process.

One of the problems identified (although this is not strictly a problem limited to provisional assessment) is the timing and content of Replies to Points of Dispute.

CPR 47.13 states:

“(1) Where any party to the detailed assessment proceedings serves points of dispute, the receiving party may serve a reply on the other parties to the assessment proceedings.

(2) The receiving party may do so within 21 days after being served with the points of dispute to which the reply relates.”

What are the consequences of serving outside 21 days?

As to content, PD 47 para.12.1 states:

“A reply served by the receiving party under Rule 47.13 must be limited to points of principle and concessions only. It must not contain general denials, specific denials or standard form responses.”

Other than the very limited examples given in Precedent G, what does this allow and not allow?

The decision in Pipe v Electrothermal Engineering Ltd (SCCO, 2014) from Costs Judge Master Rowley gives some guidance on the issue. At the risk of doing a serious injustice to a very carefully considered, reserved, judgment, it might be summarised as: serve what you like when you like and the only adverse consequence is likely to be in costs.

Of course, this is not a binding decision (even on Master Rowley) and I have had different results before other judges. The Regional Costs Judge in Manchester struck out Replies that had been served late and without permission and ruled that if the receiving party wished to rely on the same they would need to make a formal application for permission to serve late. The Senior Costs Judge Master Gordon-Saker disallowed late Replies where the application for permission to rely on the same was made orally at a detailed assessment hearing, as there was no good reason for late service. He did observe that the argument was really about the costs of the late Replies, as opposed to the admissibility of the same. Replies are optional and the receiving party could simply recite orally the contents of the Replies even if permission for late service was refused. Nevertheless, the consequence was that the costs of drafting the Replies would not be recoverable and the outcome for the receiving party might have been different if the matter was proceeding to provisional assessment (where there would have been no opportunity to make oral submissions).

In any event, this is a helpful judgment and sets out the competing arguments.

Costs budgeting and detailed assessment

I note one of Lord Justice Jackson’s recent recommendations concerning costs budgeting is:

“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”

Is it just me or is it hopelessly naive to believe that a receiving party who discovers they have overspent on one phase of a budget but underspent on another will not simply shift the work over in the summary from the overspend to the underspend? In the absence of a detailed bill showing what work has actually been done by phase, how is the true position to be established?

I also find it difficult to see how the information provided by a summary (even if accurate) is then meant to be applied to a detailed bill that is not drafted by phase. For example, if the summary shows an overspend of £10,000 on a particular phase, where does the judge make the deduction from the detailed bill? Does the judge just not knock £10,000 off the total bill at the end of the assessment?

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:

  1. 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?
  2. 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?
  3. 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”.

Costs budgeting here to stay

In a surprise development, Lord Justice Jackson, the architect of the costs budgeting regime, has come out in support of the retention, largely unchanged, of costs budgeting.

The one thing we can now be certain of is that the extension of fixed fees will come sooner rather than later. This would immediately:

  • Remove the need for costs budgeting in those cases and thus save court time avoiding the need for costs management hearings.
  • Ensure “proportionality” of the costs recovered.
  • Save further court time by reducing the number of provisional/detailed assessments.

I am becoming increasingly convinced that the total balls-up of the introduction of the Jackson reforms is a cunning plan to make fixed costs across the board inevitable.