Discrepancy between incurred costs in budget and bill
Preparation of the Precedent H costs budget requires figures to be inserted for both past incurred work and future estimated work.
PD 3E para.7.4 provides:
“As part of the costs management process the court may not approve costs incurred before the date of any costs management hearing. 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 budgeted costs.”
Therefore, although Precedent H includes both incurred and estimated costs, any costs management order will relate only to future estimated work.
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 budgeted costs for each phase of the proceedings;
(b) not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so; and
(c) take into account any comments made pursuant to rule 3.15(4) or paragraph 7.4 of Practice Direction 3E and recorded on the face of the order.”
In light of PD 3E para.7.4, the “approved or agreed budgeted costs” in CPR 3.18 appears to relate only to the future estimated costs, as opposed to the incurred pre-budget costs, and CPR 3.18(a) or (b) cannot act as a limit on the incurred pre-budget costs.
What happens when the pre-budget costs claimed in a subsequent Bill of Costs exceed the costs that were shown in the earlier Precedent H?
Absent something going seriously wrong, the main reasons for a discrepancy between the incurred costs shown in a Precedent H and a final Bill are:
(a) The costs draftsman drafting the Bill identifies some additional pre-budget work that was not included by the fee earner who prepared Precedent H.
(b) The costs draftsman drafting the Bill places some of the pre-budget work into more appropriate phases than the fee earner had done when preparing Precedent H.
The generally accepted starting point is that the incurred costs simply fall to be dealt under detailed assessment by reference to the ordinary reasonableness and proportionality tests.
However, matters are not necessarily that straightforward where the costs shown in the incurred part of Precedent H are inaccurate.
I have had a number of first-instance decisions where the court has limited the incurred costs to those shown in the receiving party’s Precedent H. The reasoning has included:
- As PD 3E para.7.4 requires the court to “take [incurred] costs into account when considering the reasonableness and proportionality of all budgeted costs”, the court may well have allowed less than it did for the future budgeted costs if it had been aware of the true level of the incurred costs.
- Precedent H amounts to a statement of costs in relation to incurred costs and the paying party may well have acted in reliance of it. The court should not allow more than the figures contained within that statement in the absence of a good explanation for the inaccuracy.
- Precedent H contains a Statement of Truth that the budget is “a fair and accurate [emphasis added] statement of incurred” costs. A receiving party’s costs should be limited to the amount set out in such a statement.
It will be interesting to see if the higher courts follow this approach.