“The Costs Budgeting Paradox: What is an inherently unjust system within a system designed to achieve justice?”
(As it may be posed as a question in the English re-make (‘Double Jeopardy’) of the popular American television show ‘Jeopardy’)
In April 2013, following a long and detailed review of the costs within the legal industry, Lord Justice Jackson’s now famous ‘costs budgeting’ came in to force, a process by which a budget of costs likely to be incurred during the progress of a case must be calculated and, allowing for only a minor amendment here and there, adhered to.
Under the new regime, which is compulsory for the majority of multi-track cases, the process of submitting a ‘bill’ for work carried out on a case became somewhat less straightforward; especially complex medical negligence cases involving a birth trauma.
Here, PIC’s National Training Manager, Dominic Woodhouse, talks about the trials and tribulations faced by the legal costs industry further to the introduction of the new rules, as well as some of the measures our expert team have implemented in order to continue to maximise recovery on the cases on which they are instructed.
‘Loving can hurt, … you know it can get hard sometimes’ sings Ed Sheeran, and whilst many may have greater cause to complain, the costs draftsman’s lot is such that he or she will have reason to question their love of the Civil Justice system with at least as great a frequency as any other practitioner.
In the world of legal costs, and with the judiciary now finding their feet with the various changes brought about in April 2013, loving can hurt, and is, indeed, hard sometimes.
Wedded as we are to the introduction of costs budgeting – with Lord Dyson MR and Lord Justice Jackson both confirming there will be no early annulment, and that budgeting is here to stay – a quote of some no doubt worthy, but for present purposes, anonymous, with Google being unable to assist (answers on a postcard please), writer is often brought to mind: ‘marriage is the exchange of ill humour during the day, and bad odours during the night’.
We fortunately contend only with the former, though the dog-eared copy of the White Book that endures the journeys back after a long day in a hot and humid judge’s chambers may tell a different story.
It does nothing for any person’s mood when their ‘other half’ exacts absolute compliance with their every, sometimes contradictory, dictate; while being months behind on their own responsibilities and oftentimes appearing manifestly unfair.
Have regard, if you will, to the case of ‘The Long Over-Due Precedent Bill for a Matter Subject to a CMO’. It has been more than two years since costs budgeting was introduced for multi-track claims, and probably a not dissimilar length of time since the first cost management order was made.
Notwithstanding the obvious need for guidance on how a budgeted matter should be presented at the conclusion of the claim, we do not have a revised precedent to cater for this situation; and the CPR remains that it exhorts compliance with the existing template, though introduction of a new format bill is now imminent.
Now, central difficulties for the just implementation of budgeting in any particular case are the combined strictures of sections 7.3 and 7.4 of PD 3E:
‘…The court’s approval will relate only to the total figures for each phase of the proceedings, although in the course of its review the court may have regard to the constituent elements of each total figure. When reviewing budgets, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.’
‘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.’
However, the court has been seen to be grappling with these issues in various reported cases now (see for instance CIP Properties – v – Galliford Try  EWHC 481 (TCC)).
Whilst not undertaking a detailed assessment, nor being in a position to realistically perform any form of ‘fair’ assessment of incurred costs in most matters (in the sense of being able to take an informed view of their actual reasonableness), the court is able, and indeed mandated, to take those costs into account in deciding what it is reasonable for that party to spend in costs on the remaining elements of the case.
If it is acknowledged that the court is not in a position to give meaningful consideration to incurred costs, and that therefore to allow those costs to colour the view taken of future costs is inherently unjust, the alternative approach is often for the court to express no more than ‘a view’ in circumstances where, though admittedly ill-informed, it is likely to carry substantial weight with the judge ultimately seized of assessment of the costs.
This still carries with it an inherent injustice directly from its original premise; the court is not in a position to give meaningful consideration to those costs within the confines of the budgeting ‘regime’, and therefore not able to make a properly informed pronouncement on those costs.
The actual approach taken is often a hotchpotch of the two and, as a result, brings with it potentially double the trouble.
The recent case of BP – v – Cardiff & Vale University Local Health Board  EWHC B13 (Costs) sees these points brought to the fore. The claim was subject to a CMO, the bill for assessment was not split by phase, or split at the date that the CMO was made, both matters Master Gordon-Saker considered should have been done.
And why, pray tell, should the bill be split at the date of the CMO? So that the costs incurred before the CMO was made could be assessed and reduced, the costs that the court took into account when assessing, and reducing, the future costs when the matter was budgeted. Double jeopardy at its finest. I refer you back to my earlier statement: What is an inherently unjust system within a system designed to achieve justice?
At PIC we do our best to protect your costs recovery from the potential for inherent injustice in costs budgeting.
By way of an example, here is a matter recently concluded after being subject to a CMO in the first quarter of 2014, so the comparatively early days of budgeting in the ‘wild-west’ of ‘Mitchell-mania’.
At the costs case management conference (the CCMC, to me and you), the court was troubled by how it should interpret and apply PD 3E. Counsel for the defendant acknowledged that the court could not interfere with, or reduce, the incurred costs, and therefore submitted that the only recourse left to the court was to reduce the future costs on the basis that in the defendant’s view the incurred costs were excessive.
The costs subject to scrutiny related to a fully-defended clinical negligence case in which the claimant was alleged to have developed cerebral palsy as a result of hypoxic brain injury at birth. The solicitors had first received instructions five years previous, during which time they had incurred costs in excess of £250k. To the judge’s mind, that was an awful lot of money.
We made submissions to the effect that, for reasons outlined above, it was inappropriate to take into account the incurred costs bearing in mind they had been incurred over five years in a complex and high value claim; a detailed assessment of those costs (a method presumed to be necessary to achieve a ‘fair’ assessment of the amount of reasonable and recoverable costs) would occupy perhaps two or three days of the court’s time, and the budgeting process and the resources allotted to it were not sufficient to the task.
The court, though troubled, was not persuaded; having regard to the apparently mandatory provision that when making a CMO it ‘will’ take such costs into account.
We therefore sought to justify the costs in broad terms, and were successful to some extent in explaining what had gone before. Even for judges experienced in clinical negligence cases however, £250k remains a substantial amount of money, and the court would ‘express a view’ in the recital to the order that the costs were disproportionate.
And so, we protested. And despite opposing counsel’s efforts the court was persuaded to alter that wording to ‘appearing to be disproportionate’. The court then assessed the future costs in isolation, taking into account the future work still to be done AND without specific regard to the costs already incurred.
When it came to assessment of costs, the defendant predictably referred to the order and the court as having already ruled that incurred costs at that time were disproportionate. We referred to the specific wording obtained, and, in the context of a five-day detailed assessment, were able to demonstrate by detailed reference to the complexities and the difficulties encountered in the claim that the costs were, in fact, not… disproportionate that is.
As in almost every matter costs were reduced, but not to anything like the extent sought by the defendant in consequence of its reliance on the central issue of proportionality. Double jeopardy was therefore avoided in this instance, though we continue to wrestle with ‘The Costs Budgeting Paradox’ on a daily basis; ‘For better or worse, in sickness and in health, ‘til death do us part’.