A discussion with our very own Paul Kay and Louise Beamish

WHAT IS A PRECEDENT H AND WHEN DO I NEED ONE?

PK: Let’s start at the beginning with what is a Precedent H costs budget and when do they have to be prepared?

LB: A costs budget is used in cases at allocation stage to ultimately cost manage litigation costs through to the conclusion of the claim to enable the court to award costs proportionately.

PK: I agree. LJ Rupert Jackson’s idea was that it allows the court to control and ensure that a party only have reasonable and proportionate costs, but it also gives certainty to both parties as to their potential legal bill in the event they lose. It can’t control costs that pre-date the date of the budget – they are still controlled in the old-fashioned way by detailed assessment, but it does control the costs going forward once approved subject to some of the get outs, we might talk about later.

LB: So obviously an extremely powerful document.

PK: Yes, and you need to get it right because if you get it wrong at the start you are pretty much stuck with it. The old days of being able to fix costs problems at the end in a bill aren’t the case anymore, you have to get it right at the start. When a budget is required to be prepared depends on the case, however. If the stated value on the claim form is less that £50,000.00 what are the rules?

LB: In that case, the budget is to be filed with the directions questionnaire but if the value is above £50,000.00 it is 21 days before any listed CCMC unless it is ordered alternatively by the court at any given time.

PK: Absolutely, it is an is odd rule and completely contradictory to the purposes of budgeting as in a case worth less than £50,000, the budget is going to be much more straightforward, only having to be on one page. Yet the rules make us prepare that type of budget far more in advance than a budget for example, of £10 million that only has to be filed 21 days before. I guess we need to look at what happens if a budget isn’t filed on time, which is obviously a big one!

 

WHAT HAPPENS IF I DON’T FILE A BUDGET IN TIME?

LB: Yes, court fees only!

PK: Yes, basically if you miss the deadline you lose all your costs. Presently, there is no case law that states you will lose all incurred costs pre-dating the date you should have filed the budget or not. I was involved in a case where that had happened, and the party had had the sanction applied and although we never got as far as assessment, the paying party opponent never took the point and said incurred costs should have been recoverable.

LB: That’s interesting and surprising, I thought it would apply to costs throughout the duration of the entire claim.

PK: Well, what the rule says is the party’s budget should be limited to court fees only and of course the budgeted costs are the ones the court can control going forward. It is open to challenge in absence of any case law on it, and in my experience, costs in that scenario incurred were recovered.

LB:  If you find yourself in the situation of not having filed in time, you can apply for a relief from sanction which needs to be done as soon as you are aware the deadline has been missed. We always advise you seek your opponent’s agreement as soon as you realise the deadline has passed to assist with any application you may make in accordance with the Denton test. We have seen many successful applications, haven’t we?

PK: The vast majority of the time they are, but don’t rely on relief being granted as par for the course. The difficulty with this sanction is that it is so severe that it encourages parties to act disproportionality – ironic given budgeting is all about keeping things proportionate. Routinely you see relief granted for those small errors as although there has been a breach, and it is a serious one given the level of sanction the third stage of the Denton test means the Court will grant relief as there has been “no prejudice” to use the old pre-Denton language. I’ve seen cases where the budget is filed a day or two before the hearing and relief hasn’t been granted. It is not uncommon that the solicitors will get advised of a CCMC less than 21 days before it is meant to take place and the breach is therefore out of their control.

LB: I have seen this happen.

PK: Another common situation is where a case is potentially fast track, but a solicitor wants to seek multi-track.

LB: That is quite an interesting and difficult one that we deal with quite regularly.

PK: This can go a number of different ways. The normal run of events is where the court will send a notice of proposed allocation to the fast track, so directions questionnaire will not include provision for filing a costs budget. If you are applying for directions however to put something in the multi-track, I would always advise to do the budget.

LB: I agree, do the budget at that stage.

PK: If you are claiming for £50,000 or less, send it with the DQ and if more than £50,000, I always tell clients advise costs budget will be filed 21 days in advance of CMC as per CPR 3.13, what should then happen but doesn’t always, is the court should list for a very short (15-30 minute) hearing to determine that issue.

LB: Unfortunately, you don’t see that very often. What about if the claim has been proceeding on the fast track, you’ve exchanged directions questionnaires and then there’s a change in, for example the Claimant’s symptoms, so the valuation goes up. Should you look to agree with your opponent for it to be re-allocated to the multi-track?

PK: I think you have to wait because say it has been allocated to fast track, there is no requirement to do a budget. If you are going to apply to have it re-allocated and that application is contested, you would get budget directions put in the order. If you are agreeing to reallocation you would file a consent order providing for parties to file budgets by a certain date. The court would then list for a cost only CMC.

 

OK, SO I’VE FILED MY BUDGET – WHAT NEXT?

LB: Yes, it usually happens at directions stage, but can happen at later points in the case. Moving on to what happens once budgets have been filed, regarding agreeing budgets and the CCMC. There is a process for this, so once you’ve filed and exchanged budgets you review your opponent’s budget.

PK: In personal injury and clinical negligence claims where liability is admitted, the budget from the paying party tends to be very low because in practice the defendant knows they aren’t going to be recovering costs because they have admitted liability. There is only really one scenario where they can recover costs.

LB: That is when there is failure to beat a part 36 offer.

PK: Yes, but then they can only recover costs for a certain period, so really their budget just becomes something to get their opponents budget reduced arguing proportionality. Procedurally what happens is 7 days before the hearing you file your precedent R.

LB: Yes, the budget discussion report.

PK: This is a court mandated form setting out what phases you agree, what phases you don’t agree and why with counter proposals. Again, in PI/clinical negligence litigation where liability has been admitted, 99% of the time the claimant is the receiving party and the opponent’s budget will be so much lower it is agreed. So, in that situation there would be no need to file a precedent R.

LB: Usually the parties will then open negotiations prior to the CCMC to see if they can narrow the issues or agree any or all of the phases. I have found in my experience that if there are disputes in relation to the directions themselves it makes it very difficult to negotiate budgets because the phases are still open regarding work required. So, I only tend to really agree full budgets when the directions are agreed. Where directions are still disputed it is possible to agree some phases which is helpful. But where there is a dispute for example in relation to trial estimate or expert evidence then obviously you need to proceed to the CCMC hearing and agreement of most of the budget phases is highly unlikely.

PK: Of course, as a lot of those phases are interlinked. I think there are some common misconceptions with solicitors who often feel that you discuss budgets first and you then do the budget discussion report but the Precedent R is the initial opening point for negotiations. There is a real choice for solicitors in terms of style and approach here ahead of going to the CCMC. Many will instruct counsel for directions and to deal with the cost’s element. If this is the chosen route, we would strongly recommend that your costs expert work with Counsel ahead of the CCMC to advise as to how negotiations have progressed.

LB: And even how the budget has been constructed, obviously the costs draftsman knows the costs element inside out and what exactly is required to conclusion of the case and can work with Counsel to recommend where reductions can be workable and where it will cause issues in the litigation – this will of course assist if the Court makes an order against Counsel’s/cost experts recommendations and increases need to be later sought to the budget. Complex issues can also be discussed and highlighted to Counsel in situations (such as multi-party cost budgets)

PK: I would always advise to clients that if they as the solicitor are going to deal with the hearing directly, then it is beneficial to have the costs draftsman with you. Costs draftsman fees come out of the 2% allowance. If directions are agreed, and I do a lot of hearings in this situation, it is cost effective for your costs expert to deal with the budget element. At the very least, I would say work with the person who prepared your budget prior to and during the CCMC to avoid your budget being stripped down extremely heavily at CCMC. This way, it ensures that all relevant points are raised at the CCMC. It is common a judge will simply say; “okay you wanted 4 experts you only got 3, so I will take 25% off that phase of the budget”, but it doesn’t always work like that. We always try to provide a disbursement addendum attached to a budget. From my experience most barristers that deal with this sort of thing are more than happy to get an email setting out phase by phase the arguments in relation to the Precedent R and why they might not be right. Simply put, your costs draftsman is the expert in cost budgeting, and therefore well equipped to represent you at your hearing.

LB: I rarely see disputes in final bills of costs that are even related to draftsman’s fees for attending a hearing, as you say they come within the 2%.

PK: So, if you spend £500 to £1000 for your costs expert to attend CCMC, and your budget gets assessed £10,000 to £20,000 higher than it would have without them, its money well spent.

LB: Now with your recent article Paul I thought you would be well versed at telling us what happens when a budget is approved and then needs amending if costs need increasing. The new Precedent T seems to follow our own example we were using too?

PK: It is coincidental, but the rules committee didn’t take my template and use it. We literally only got this in October as a formal precedent, so 7 ½ years after costs budgeting came in, they have only just given us a mechanism to update costs budgets.

LB: This was much needed.

PK: The thing about it is that it follows on from the Sharp v Blank Ors [2017] case; that the line between estimated and incurred costs is forever fixed at the date of the first budget. You have the Precedent T form now, and it is envisaged that it is done entirely on paper so the party that wants the revision fills the form out with a box at the top for what you think the significant development is. Then you fill in the extra amounts you want per phase which can be either agreed or disagreed based on the proposed significant development. You fill the form out and send it to the court; there is no need to make an application and the court will either determine it on paper or list it for a hearing.

We get a lot of requests to seek updates to budgets and unless there is a significant development, we have to advise that unfortunately if you didn’t get the budget right at the start and you signed it, this isn’t a good reason to depart, so you are stuck with it. Louise do you want to deal with how your costs budget can assist after this point with interim payments.

 

CAN I USE MY BUDGET TO GET AN INTERIM PAYMENT?

LB: Well, the approved costs budget is a great tool to decipher the amount you can request as an interim payment. What I always advise clients to do is that when you are just about to settle the case and decide on an appropriate amount, use your approved costs budget. Make it clear that you want to be paid an interim payment and include the provision within the final settlement order, to be paid in 21 days. That would be the best way around it.

PK: The case to cite for this is Thomas Pink Ltd v Victoria’s Secret UK Ltd [2014] which will say you will get 90% of the budgeted costs and generally if you go back to the pre-budgeting case law  Mars UK Ltd v. Teknowledge Ltd [2008] ,that will give you 50-60% of your incurred costs so that’s how you work out what interim you should get.

LB: Agreed

PK: Another question is whether you can serve a budget to seek recovery of costs?

 

SO, SHOULD I USE MY BUDGET TO SETTLE MY COSTS?

LB: That can only really be done if you have dealt with the case throughout the whole of the budgeting stage i.e., up to trial. Even then however, seeking settlement from an approved budget still has its problems.

PK: Agreed, the other huge thing to consider is incurred costs which the budget has absolutely no control over as they are determined by detailed assessment and quite often. If a case settles pre-trial the trial, pre-trial and PTR phases have not been touched etc. You could have 50/60% incurred costs, so to get a settlement just off the budget when those costs are open to detailed assessment is probably a little bit foolhardy.

LB: yes, particularly in clinical negligence and PI cases a lot of the work is done in the pre-action stages so to maximise cost recovery its always beneficial and strongly recommended to have a detailed bill done.

PK: You recover your costs of bill preparation and assessment too, and in terms of getting cash in you can obtain an interim payment for a large majority of costs at settlement stage, so you don’t have to worry about cashflow. If a defendant says we’ve looked at your budget and want to offer you this, they are generally wanting to get rid of a case quickly and cheaply. Let’s move on to bill preparation once settlement has been achieved and there’s an approved budget.

 

WHAT HAPPENS IF I CHOOSE TO HAVE A BILL PREPARED AND I’VE GONE OVER MY BUDGET?

LB: So, as we all know when there’s a costs management order (CMO) and the costs budget has been approved you have to prepare a fully phased bill which includes the costs separated between incurred and estimated. For all costs post-06 April 2018, this is in electronic format. With the phased bill it allows you to look at your budgeted costs within the phases, whether you have kept within the budget or not. So, with the bill a Precedent Q is served which allows the paying party to see at a glance those phases exceeded and those remaining within the budgeted allowance which is a very useful tool when negotiating. This is another huge reason why you need to get the costs budget right at budgeting stage as if you have phases that run off on a tangent and a lot of work has been done which hasn’t been allowed within the budget you won’t be able to recover it.

PK: A good costs draftsman can hopefully draft the bill which enables you to be closer to your budgeted costs than you think you are – the same person preparing the Bill from Budget also knows where they placed the initial costs at budgeting stage. You see it very often with defendants where they say for example this expert fee said it would be £1200 and its actually £1700 so that’s £500 off but that’s not true. You get a total for each phase and you can then spend it how you want. If you want to exceed your counsel estimate fee and spend less time in a phase that’s fine. It’s a total per phase to work within.

LB: Absolutely, it’s about remaining proportionate and within the budgeted allowances that have been made at the CCMC stage. I mean obviously there are some justifiable reasons to depart from a budget, but I would say it’s incredibly difficult to establish wouldn’t you say Paul?

PK: Yes, generally this is why you have to do a Precedent T as you go along. It’s one of those things, you hate to say to clients, but every case is different. Where you are over the budget you will be arguing that there is good reason to depart upward and when you are under, the defendant will be arguing good reason to depart downward. CPR 3.18 says the court will not depart from the budget unless there is good reason; every case is different, but in all of the cases we have going back to 2014/2015 the general tone of all decisions is that good reason is a pretty high bar. We had Harrison v university Hospitals Coventry & Warwickshire [2017] which was one of the first cases which really talked at all about CPR3.18 and good reason to depart, and then Salmon v Bart Health NHS Trust [2019] which paying parties incorrectly used as an authority to say simply being under budget in any phase is good reason to depart and that that phase should then automatically be subjected to a full Detailed Assessment. This wasn’t really what this case said and more recently we were successful representing the Claimant in our own case of Utting v Norwich City College [2020] where it was clarified that simply being under a phase doesn’t mean that there is automatically considered to be a departure such that the entire phase goes to full detailed assessment. The courts can use their discretion and case management powers and can leave the costs sought as they are or can reduce costs proportionately by knocking out a certain amount depending on the submissions heard as to why the phase allowance was not fully utilised.  So, you need to have all of this discussion through the detailed assessment process; don’t just get bounced by defendants who will say you need to knock this out or this out or round it down etc. We would always encourage you to  send your case to a costs draftsman to prepare a formal bill. We had a case settled yesterday, which we both dealt with involving multiple problems. The defendants agreed at the JSM that even though the offer was being accepted out of time, they would still pay costs for that period. Once it was passed to us the Defendant tried to say there was good reason to depart from the budget and costs should be assessed at £0 for this period; they were basically just trying to back out of what was already agreed.

LB: It should also be said that they did agree to an updated budget for the surveillance footage and some of the other problems including additional evidence. So, they were fully aware of what the costs were.

PK: yes, it had all been done properly and the client was quite nervous and worried about it and was potentially thinking about accepting a low offer but once we actually did full a bill, served it and met their arguments head on we actually ended up reaching a settlement within our valuation, which did not allow for any reduction of costs on the challenges made by the Defendant. So there is definitely more to it than meets the eye in any budgeted matter.

LB: I think having a bill done against the budget hopefully by the costs draftsman who drafted the budget wherever possible is very beneficial, as we said earlier, the draftsman can add so much more detail to help recovery of costs and argue a good reason to depart should there be any overspend. Which is a massive assistance at negotiations and Points of Dispute/Reply stage.

PK: Absolutely, it’s definitely helpful for us as costs draftsman that we get involved with cases earlier now rather than being presented with a box of papers at the end that may have all kinds of problems buried in it. We can face any problems earlier.

LB: Yes definitely, for example if you are faced with a file and the retainer has fairly low rates you can address this at budgeting stage and tell your client that the case could be subject to much higher hourly rates and increase them appropriately and get that in at budgeting stage to increase recovery.

PK: I think we have covered our key tips.

LB: Just budget, budget and monitor and seek continued advice

PK: Get it right from the start, amend it and don’t get tricked into agreeing a low-cost settlement without seeking expert advice.

Paul Kay

Paul is a highly experienced costs draftsman and advocate, specialising in complex high-value cost budgeting matters and CCMC’s. Paul has in excess of 20 years’ knowledge having attended a considerable number of CCMC and Detailed Assessment hearings across the country and provides seminars and training on all costs matters to solicitors and cost experts’ alike.

Senior Costs Draftsman

Pau.kay@rcostings.co.uk

Louise Beamish

Louise is one of our highly regarded cost drafting experts with 28 years’ experience. Louise is the ‘go-to’ expert for complex multi-track Budgets and Bills of Costs having prepared an abundance of multi-million pound catastrophic and clinical negligence cost claims. Louise provides comprehensive guidance on costs recovery and budgeting claims throughout a case and following settlement.

Senior Costs Draftsman

louise@rcostings.co.uk

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