Legal Cost Specialists

Measuring costs budgeting success

The aim of costs budgeting, that will be rolled out nationally from April 2013, is to control the level of costs that are incurred. There are a large number of unpredictable factors as to whether this aim will be achieved. However, let those make a couple of assumptions:

1. Claimants’ costs are currently reduced, by agreement or assessment, very roughly by one-third (obviously this masks an enormous amount of variation).

2. Come April 2013 claimants are able to produce accurate budgets that broadly reflect the level of costs that are currently incurred. (The likelihood of accurate budgets being produced is, of course, a very big assumption.)

If the judiciary hopes to limit costs to no more than the levels currently been incurred they would need to reduce the budgets submitted by claimants by an average of one-third.

In fact, if the aim of costs budgeting is to reduce the amounts allowed below current levels it would be necessary to go further than that one-third. Reducing the budgets submitted by an average of 50% would only produce a relatively minor reduction on current figures.

Are judges really going to routinely reduce budgets by this margin?

The danger is that judges may think they are being “jolly robust” reducing budgets by an average of 25%, and thereby avoiding the need for matters to proceed to detailed assessment, and conclude that costs budgeting has been a great success.

The difficulty is that I have not seen any suggestion that the judiciary will have any accurate yardstick with which to compare the budgets being submitted with what might be deemed a “reasonable” allowance under the current system.

I would certainly not suggest that the very small proportion of cases that proceed to detailed assessment are indicative of “average” figures, let alone “reasonable” figures, but at least that would represent a starting point. I have heard no suggestion that the time or resources needed to analyse the data from detailed assessment hearings is being spent to give judges a guide as to what to allow in the budgeting process.

How is success therefore to be measured? A reduction in the number of cases that proceed to detailed assessment cannot be an adequate guide if the costs allowed under the budgeting process exceed current figures.

7 thoughts on “Measuring costs budgeting success”

  1. Obviously being asked at the start of a case to set out in detail the time required to deal with it, through to trial, by different fee earners, on different tasks etc etc is not going to be easy. Too many unknows at that early stage. Surely as data is collected from the numerous budgets prepared as time goes on, people (claimants, defendants, Judges, LCD) will get a better idea of what to expect on different types of case in terms of reasonable time required on certain tasks. It wont be a simple stab in the dark; from the claimant’s point of view what would be the point? Furthermore the situation isn’t going to be helped by the (inevitable) underselling of the time required on a case when Defendants produce their budgets/comments on Claimants’ budgets, when compared with Claimants who will be more focused on ensuring things are not missed.

    For someone with your experience and knowledge on costs, I am often suprised to note there are very few proposed solutions on this blog

  2. Simon makes a very valid point, which others have been making, that the process of costs budgeting carries a very great risk that it will have the opposite effect to that intended.

    At a CMC, with little time and no facility to carry out the sort of detailed scrutiny that happens on assessment, and also faced with the risk that if they act too harshly they may ‘deny’ a Claimant their access to justice, there is a real possibility, if not probability, that the ‘budget’ fixed will exceed, possibly substantially, the sum a judge would have allowed on a retrospective assessment. At the end of the case, without ‘good reason’, that budget will stand and the Defendant will end up paying more than would have been the case on assessment.

    Of course, the costs of assessment will have been avoided – but that can often be avoided with sensible negotiation between the parties, with the threat of assessment hanging over them, or alternatively is a costs of litigation which falls to be paid by the loser and against which a paying party can protect itself.

    The one factor which may make a difference, and which has been rather overlooked in discussion of budgeting, is the new proportionality test. It certainly appears arguable that a judge setting a budget will be able to ‘step back’ from the figures and, using the new ‘backstop’ approach to proportionality, simply impose a ‘proportionate’ figure – a judicial tariff (“back in my day, we used to do a trial like this in half an hour for £3.50” etc).

    That may even matters up for paying parties – but quite how just such a system of judicial tariffs will be is anyone’s guess.

  3. Charles Wheatcroft

    The costs budgeting exercise is surely just an extension of the summary assessment process isn’t it?

    I recall when summary assessment was introduced and the uproar that this created. “What happens if the hearing lasts longer than the listed time?”, “If the court is running late, I won’t be able to claim for my waiting time!”

    The simple answer is that you win on some, lose on some and the rest should be broadly in line with the actual cost. Overall, you should be even unless you’re doing it wrong.

    The same will be so of costs budgeting. The thought of avoiding lengthy costs negotiations and receiving early payment fills me with joy. I work in-house so this work is not my bread and butter and my practice manager will happily accept a reduction in fees if they can be paid early.

    Another positive note is that the paying party will have an idea of what is at stake. There is nothing worse than drafting a bill for £60k including a success fee when the matter settled at £15k. At least with a budget in place the defendant knows the risks, and issues of proportionality will have been dealt with by the court.

    Maybe there will be earlier settlements because of this? If so, the budgeting exercise will impact upon the figures positively as the average cost of case will reduce rather than being paid less for the work carried out.

    Where a case leaves the beaten track, PD 3E provides the facility to revise budgets if developments in the case warrant a revision. Indeed, the parties are required to agree the costs budgets and revisions where this is possible AND any reasonably unforeseen interim applications will be allowed in addition to the budget.

    Finally, whilst PD 3E does not require solicitors to provide their clients with the costs budgets, it would be beneficial to do so – and to provide them with a copy of the other sides – as the client can see what their potential liability is and make it easier to extract payments on account from the client.

    Sending budgets to clients should also head off the increasingly frequent complaints about costs that the Legal Ombudsman warns of. If a client has a copy of the budget and the court approves it, where is the complaint?

    The flip-side to this is that you are almost certainly bound by what the court deems reasonable rather than the actual cost incurred.

  4. Pingback: Costs budgeting – success or failure? | Legal Costs Blog

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