Changes in the profession are taking place at a galloping pace, and while attempts can be made to resist change, history shows us that this does not usually work. The general consensus is that we must embrace change - and work with those who wish to bring it - to ensure a balanced and just result for all. This is doubly true in the world of costs.
Central to such an approach is access to justice, of which cost is usually a driving factor. The recent court fees rise being the most obvious example, with many small businesses reportedly hindered in their ability to pursue claims for money owed.
Perhaps one of the greatest and most difficult changes to effect will be in relation to the introduction of information technology in the administration of justice. Sir Brian Leveson in his report, Review of efficiency in criminal proceedings, sets out proposals for increased use of information technology in the courts.1 The Ministry of Justice has taken on board these suggestions and has proceeded to implement the proposals. It appears that use of information technology in the criminal courts is at a more advanced stage than in the civil courts, which are trying to catch up. As a result, there will be a significant impact on the practitioner and none more so than in the areas of budgeting, time management, time recording and presentation of the claim for costs for determination.
Lord Justice Jackson’s solution to controlling what was seen as the excessive costs of litigation included a call to ‘harmonise the procedures and systems which will be used for costs budgeting, costs management, summary assessment and detailed assessment’ .2 Following the publication of Jackson LJ’s final report in January 2010, ACL set up a working group to look into how this might be achieved. The working group’s October 2011 report recommended that, in the first instance, an England/Wales version of the Uniform Task Based Management System (UTBMS) codes be created as a pre-cursor to any bill of costs being devised, otherwise known as J-Codes .3
It should be noted that the codes were approved over a year ago, and it is therefore somewhat surprising that there is still so little awareness of them among the legal community. This was brought home to me forcefully when my ACL colleague and the association’s chairperson, Sue Nash, attended the recent Law Society Commercial Section conference, where only around 20% of the attendees said that they had heard of them before that day!
This is of as much concern as it is of bemusement; a new format bill of costs has been devised by the New Bill of Costs Committee (now known as the Hutton Committee). The Civil Procedure Rule Committee, at its July meeting, endorsed the adoption of this new format bill along with a pilot scheme for its implementation.
Clearly, there is a need for greater communication to ensure that anyone who is trying to cope with changes is equipped to do so. With regard to preparation of budgets, these are done via ‘Form H’ . There may be criticism of the use or design of this form, but at present it is the one that is stipulated and which practitioners must use. The ingredients are the costs, whether incurred or estimated, which will in turn be calculated by reference to either actual time expended, multiplied by an appropriate charge rate or the time estimated to bring the case to a conclusion.
It follows that there needs to be a method by which the time is recorded, categorised and assimilated for the purpose of preparation of Form H, a statement of costs or a full bill. There appears to be universal agreement that it is far better to start this process from the day a retainer commences, although this may not be required in every case. In some cases, solicitors will undertake work for fixed fees and will argue that it is not necessary to record every iota of time expended. This might be, but it does leave one wondering how, without such information, one assesses whether the fixed fees charged are at the level which is most beneficial to the firm to cover overhead costs and produce a profit.
Case budgeting requires input of costs information that will be derived, in most cases, from time ledgers inputted by fee-earners using defined categories. Software providers and law firms have used a differing range of codes, with sadly no general consistency, which J-Codes now attempt to rectify. However, coding, current time recording or the inclusion of those figures within the budget is not, in itself, sufficient to enable the court to form a proper view about what may be a reasonable and proportionate amount of costs.
The budgeting exercise should be a fairly straightforward - and not a very time-consuming - procedure for the judge to carry out when considering case management directions. Unfortunately, this does not always prove to be the case. In this and other legal journals, readers will have seen many instances where decisions have been reported in respect of case budgeting, with differing approaches being adopted to achieve what the judge considers to be a balanced approach to the case in question.
Even if a practitioner is not tasked with the job of producing the actual budget or analysing an opponent’s budget, it is nevertheless a fundamental requirement that they will have regard to the overriding objectives of the case and the ensuing expense of the proceedings. This is not only for the purposes of satisfying the court, but also to meet client obligations and funding protections. Therefore, while fee earners may not have a burning desire to read case reports, articles, consultation documents or any other material relating to costs, it is worthwhile doing so. This informs the fee earner of what may or may not be required in a particular case: knowledge is power after all and can be extremely beneficial in relation to the management and conduct of the case and for negotiations.
Practitioners have ... to keep in mind that ... the work should be done efficiently and cost effectively for the client, the business and the courts
While the question of consideration of budgets is not expected to take a lot of judicial time, there are instances where it is apparent that budgets have been deliberated in some depth. An example is the judgment of Mr Justice Stuart-Smith in the case of GSK Project Management Ltd (in liquidation) v QPR Holdings Ltd [2015] EWHC 2274 (TCC), which was decided on 29 July 2015. The transcript is now available on BAILII and is, in my view, recommended reading for the purpose of illustrating the issues and extent of detail that may have to be considered when deciding on the reasonableness and proportionality of costs.4
The dispute related to works done at Queens Park Rangers Football Club’s Loftus Road training ground. The claimant submitted a budget for over £824,000, including over £310,000 of incurred costs. The defendant’s cost budget was around £456,000, but the judge said that a straight comparison was not appropriate because of the widely differing hourly rates charged. While the claimant’s solicitors, Manchester firm JMW, cited partner rates of £275– £300, the defendant’s solicitors, City firm Macfarlanes, charged £575– £600. The charge-out rates for associates were £175– £200 for the claimant and £410– £450 for the defendant. Macfarlanes charged out a trainee for £210, ie, at almost the same rate as the defendant’s counsel was receiving, which was £250.
As a result, Mr Justice Stuart-Smith nearly halved the claimant’s costs budget after finding that it was so disproportionate to the sums at stake and complexity of the case that ‘something has clearly gone wrong’ (para 9). StuartSmith J said that his starting point was that a case would have to be ‘wholly exceptional’ to render such a budget proportional to what was at stake (para 12). However, this case was straightforward, he said, and his initial reaction was that ‘good reason would need to be shown to justify more than about half that figure on proportionality grounds’ (para 13).
The judge rejected a submission that the correct approach was to take the other party’s costs budget as a starting point ‘because different parties to litigation have different roles and responsibilities which are likely to distort one party’s costs when compared with those of another’ (para 14). Going through the budget item by item, Stuart-Smith J reduced it to £425,000, ie, 52% of what had been claimed.
He was harsh on pre-action costs, saying that the claimant had not justified 52 hours of partner time and 138 hours of associate time. The judge suggested that the firm could not have it both ways: it had also incurred costs on issue/statements of case, including 96 partner hours, 429 associate hours and 162.5 hours of counsel.
Stuart-Smith J was also particularly severe on witness statement costs, reducing them from more than £75,000 to just over £25,000: ‘[ T]hese hours are quite simply absurd for a straightforward case where the claimant intends to call two (or possibly three) witnesses’ (para 32). He also reduced the amount budgeted for settlement/alternative dispute resolution/ mediation from nearly £85,000 to £25,000.
The judge concluded that while the court may not approve costs already incurred, it may take them into account when considering the reasonableness and proportionality of all subsequent costs. However, this ruling did not make specific provision for the situation ‘where, as here, taking the incurred costs into account reveals a disproportionate level of expenditure with no consequential benefit being reflected in the estimate of future costs’ (para 56).
It is, therefore, essential that underlying information and material is readily available to explain and support the budget as presented. If this is not done, as evidenced in the GSK decision, it can have a dramatic effect on the amount of budgeted costs which will be allowed.
The ruling also highlights the need constantly to review the position in relation to budgeted costs and ensure that the work budgeted for is actually being carried out. Any extra elements that had not been anticipated may require an early application to file a revised budget.
Budgeting is now a major element for the preparation and conduct of a case, and is another element of a lawyer’s responsibilities in advising their client. A case plan supported by a costs budget is an essential tool in offering advice to clients.
Furthermore, there may be instances where it is necessary to either make or oppose an application for an order for security of costs or for a payment on account following settlement. Mr Justice Smith, in the case of Sarpd Oil International Ltd v Addax Energy SA and Glencore Energy UK Ltd [2015] EWHC 2426 (Comm), rejected an application on insuÿcient grounds to order security against the claimant, but considered the appropriate level if he had granted the application.
The approved budget was for nearly £407,907 and, in the light of the specific provisions of CPR 3.18 for the court to have regard to an approved budget when assessing costs, Smith J indicated that had he ordered security, it would have been for the sum of £380,000, ie, approximately 93% of the value of the approved budget. He would also have been likely to have ordered payment in tranches. This is a clear indication that budgets are playing a part in a number of different areas, and further illustrates that - like it or loathe it - budgeting needs to be mastered.
Practitioners have a duty to keep abreast of all the latest developments, and to keep in mind that the common thread in most of the changes hitting the legal market is that the work should be done efficiently and cost effectively both for the client and the business, and also for the courts.
1 Available at: http://tinyurl.com/z698cae
2 Review of civil litigation costs: final report (paras 5.8, 6.1 and 107), available at: http://tinyurl.com/h9jzvjs
3 Modernising bills of costs: first report of the Jackson working group of the Association of Costs Lawyers, available at: http://tinyurl.com/6ny6tt6
4 Available at http://tinyurl.com/zklbbcg