Busting your Budget!

Lee Dixon – Costs Lawyer

Busting your Budget


CPR 3.18 states that 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.


This is supported by CPR 44.3 (3)(h).


When you have a document that is clearly prepared too early, based on conjecture and speculation, and subject to the draconian test of proportionality, then you need to be aware of how you can depart from it, or more accurately how you can depart from any particular phase within it.


As you monitor your costs throughout a case, whether by case management digital shenanigans or the involvement of your friendly neighbourhood Costs Lawyer, perhaps the most important factor to bear in mind is speed.


Don’t breach the Phase and then apply; apply as soon as you suspect a breach is likely. This means keeping a tight grasp on what you’re doing balanced against the Phased allowance.


However, what can you do if, at the end and as you’re having your Bill prepared, your Costs Lawyer advises you that your Phases are in tatters and your recorded WIP of £45,000.00 could be reduced down to £30,000.00 before we even start…


Well don’t lose heart and purchase that book of knots and a length of rope just yet. There may be several “good reasons” and, in particular, there may be a “good reason” to be found within the concept of proportionality and how this is applied.


I think it’s fair to say that proportionality is fundamental to modern costs and is the cornerstone upon which costs management is built; CPR 3.12(2), CPR 1.1(1), PD 3E(2) and (7.3) to CPR 3, CPR 44.3(2)(a), and PD9.10 to CPR 44.6) are unequivocal on this point.


CPR 1.1(2)(c) and CPR 44.3(5) essentially define those factors relevant to proportionality.


However, when approving budgets is an application of proportionality fundamentally flawed?


It was all the way back in 1989 that Hobhouse J said, “…at the end of any assessment of this kind he [the judge] should stand back for a moment and consider the implications and the overall picture presented by his decision on the detail” (Finley v Glaxo Laboratories Ltd (1989) Costs LR).


Thirteen years later Lord Woolf LCJ said, “The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the [seven pillars of wisdom]” (Lownds v Home Office [2002] EWCA Cov 365).


Then we have the guidance given by Jackson LJ I his final report, endorsed recently in several Judgments, when he said, “…in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR rule 44.5(3). The court should then stand back and consider whether the total figure is proportionate.”


In short, in order to properly determine whether costs are proportionate, with reference to those factors set out above, then the Court must stand back and, frankly, apply the test of hindsight. It absolutely must do this if it is going to have any chance of realistically deciding whether costs are proportionate by reference to those factors outlined at the start.


The ramifications can be harsh when we look at the current guidance on the new proportionality test, which states that it should be, “the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances (Kazakhstan Kagazy Plc & Ors v Zhunus & Ors [2015] EWHC 404 (Comm) (20 February 2015)).


How can the Court confidently apply this test if it does not have access to “all” of the relevant circumstances?


Let’s look at the guidance in a neat little table I knocked up in the Caribbean:-


Guidance Hindsight needed?
the amount of money involved; Yes if “involved” means the amount “settled/agreed/ordered” rather than the value on issue or at any particular stage.
the importance of the case No, this is usually self-evident.
the complexity of the issues Yes the complexity of the issues are unlikely to be apparent until all of the issues have been identified, all evidence has been exchanged and an overview can be taken AT THE END.
financial position of each party No unless this changes.
the sums in issue in the proceedings If we assume this means the claim value in the Claim Form, then No. However, that is not a reliable guide as often the Claim Form is issued before the claim has been properly quantified.
the value of any non-monetary relief in issue in the proceedings As above.
complexity of the litigation Yes. Litigation is different to the issues. We may know the issues, but cannot guess how the litigation itself will proceed; what tangled web of arguments and procedural hurdles may conspire to derail a claim. CMC is far too early to consider this point.
additional work generated by the conduct of the paying party YES. This is only ever evident AT THE END and this is probably the single greatest reason for disproportionate costs.  Last time I looked you cannot rock up to the CCMC stating the Defendant has made no offers…
wider factors involved in the proceedings, such as reputation or public importance Probably no.


Of the nine factors, four require some use of hindsight to be properly applied. Well I suppose that is less than 50%, although if you were to try and rank these reasons in order of importance, the four that require hindsight are probably in the top half of any such ranking.


Thus, if the Court needs to refer to all of these factors in order to address proportionality, and the most important ones cannot be properly determined without hindsight; how can anyone apply hindsight at the CMC stage to determine whether a budget is proportionate? I would suggest they cannot.


If a Judge cannot make full and proper use of the guidance on how to apply proportionality as demanded by Woolf, Jackson and every other Judge forced to wrestle with this slippery test, then it follows that any finding on proportionality at CMC stage is in effect a sham. The Budget cannot be proportionate, nor can any Phase within that budget, as the full test has not been properly applied.


So let’s go back to a “good reason”.


Well I would suggest a good reason would be the Court’s inability to properly address those factors relevant to proportionality means that if you can argue that any of these missing factors apply to your case, then they must be a good reason that applies to any Phase, as the Budget itself is unreliable.


So what to do? Well:


  1. Keep a close watch on your costs by Phase as the case progresses; use software or your Costs Lawyer – the CPR allow 2% of the Budget for just this task.
  2. Act proactively to amend / update (the above arguments are just as valid).
  3. Address those proportionality factors that can be addressed within your Budget Assumptions. Those that cannot will be fundamental to your arguments at the end for seeking costs over and above the budget.
  4. Whoever drafts your breached Bill must address the missing factors and drive the point home that there is (are) a good reason (s) for breaching the Budget, and these begin with the fact the Court did not properly apply the proportionality test when determining that your Budget was proportionate.


If you need any advice or assistance on busted Budgets, or Budgets generally, then please do not hesitate to contact PIC.