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The cornerstone of costs budgeting is transparency – do the new rules erode this concept?

30 September 2020
The 122nd Update to the Civil Procedure Rules, including Practice Directions, includes a number of amendments to the Costs Budgeting Rules that are somewhat concerning. 

On costs budgeting, a number of elements formerly in the Practice Direction ("PD") have moved to Rule 3 of CPR and a new PD 3E is being introduced, all from 1 October 2020. The amendments include in particular, Precedent T, a new mandatory form applicable when budgets are revised. 

Steve Dawson Costs Manager and Costs Lawyer analyses the changes below:

What's changed?

The explanatory note to the new rule changes states as follows:

  • "Cost budgeting and variation – The current structure of the rules on variations to costs budget is rationalised.  The changes have reduced the existing structure which involved three sources of rules (CPR rules, a Practice Direction (PD) and a lengthy guidance note) down to two documents – A set of rules and a Practice Direction which is intended only to include practice guidance."

The judicial update states:

  • "Cost Budgeting and Variations: the new PD 3E which is substituted, makes changes in relation to: documents to be lodged for costs budgeting purposes; what reports should set out and what the court will consider when reviewing budgeted costs. A new form, Precedent T, is being introduced."

Do the amendments achieve those goals?

As part of the rule changes, elements of the Practice Direction have been moved to the rules themselves, thus hopefully giving them more weight and as indicated above, the Practice Direction is now intended to deal solely with practice guidance.  The rules have also been amended to deal with the practice and procedure in relation to applications for, and the subsequent variation of budgets.

However, the amendment of the rules and practice direction the writer believes will result in confusion and a lack of transparency in relation to any proposed variation in the budgets thus leading to potential injustices.

Some of the potential issues are highlighted below with particular focus on the proposed rules in relation to variations to the budgets.

Potential issues

Which proceedings do the rules apply to?

For an example of the potential confusion one only has to look at paragraph 3.12 which deals with the proceedings to which the budgeting rules apply.

The original rules were concise and had clarity. They provided that costs budgeting applied to all Part 7 multi-track cases except where the claim was for a monetary claim of £10 million or more, or the claim pertained to a child.  There was however provision for the court to order otherwise.

The amended rules retain the above provision, with more detail added at Rule 3.13(2) as to how the court can exercise its powers to order otherwise. This additional rule is welcomed and one asks therefore where the confusion is?  The confusion is to be found in the new Practice Direction which states as follows:

  • "An order for the provision of costs budgets with a view to a costs management order being made may be particularly appropriate in the following cases."

The Practice Direction then goes on to list various cases including the following:

  • (e) any Part 8 or other claims or applications involving a substantial dispute of fact and/or likely to require oral evidence and/or extensive disclosure
  • (f) Personal injury and clinical negligence cases where the value of the claim is £10 million or more."

The Practice Direction therefore appears to be suggesting that where the case is above £10 million, and is a personal injury or clinical negligence matter, costs budgeting will be particularly appropriate and perhaps be ordered as a matter of course.

Paragraph (e), along with the further cases listed in paragraphs (a) to (d), add a further level of confusion. The rules are clear and state that costs budgeting only applies to Part 7 multi-track cases, with exceptions.  However, again the Practice Direction suggests that it may be particularly appropriate for costs budgeting in "any Part 8 or other claims or applications involving a substantial dispute of fact and/or likely to require oral evidence and/or extensive disclosure." There are also a number of other cases that do not fall into the Part 7 arena that are listed within the new practice direction. 

Such confusion did not exist prior to the new amendments, and the writer feels that the amendments will only lead to further disputes between the parties as to when costs budgeting should and should not be applied.  The Practice Direction now appears to give the court carte blanche to order budgeting in any case or for that matter, any application. This seems to be reinforced by the addition of Rule 3.13(3)(a) which says that the court "may, on its own initiative or on application, order the parties to file and exchange costs budgets in a case where the parties are not otherwise required by this Section to do so". 

Precedent T

Turning to the additional rules dealing with the variation of a budget, and the new Precedent T designed to provide the required information for any applications to vary a budget.  Unfortunately the rules are not clear; Precedent T contradicts the rules and the changes encourage a lack of transparency despite the fact that transparency is the cornerstone of costs budgeting.

The revision of costs budgets is now dealt with at new Rule 3.15A which states:

  • “Revision and variation of costs budgets on account of significant developments (“variation costs”)
    3.15A.—(1) A party (“the revising party”) must revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions. 
  • (2) Any budgets revised in accordance with paragraph (1) must be submitted promptly by the revising party to the other parties for agreement, and subsequently to the court, in accordance with paragraphs (3) to (5). 
  • (3) The revising party must— 
    (a) serve particulars of the variation proposed on every other party, using the form prescribed by Practice Direction 3E;
    (b) confine the particulars to the additional costs occasioned by the significant development; and
    (c) certify, in the form prescribed by Practice Direction 3E, that the additional costs are not included in any previous budgeted costs or variation.
  • (4) The revising party must submit the particulars of variation promptly to the court, together with the last approved or agreed budget, and with an explanation of the points of difference if they have not been agreed. 
  • (5) The court may approve, vary or disallow the proposed variations, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed, or may list a further costs management hearing. 
  • (6) Where the court makes an order for variation, it may vary the budget for costs related to that variation which have been incurred prior to the order for variation but after the costs management order.” 

It is clear from the new rules that when seeking to revise a budget the revising party must serve particulars of the variation proposed on every other party, and must do so using the mandatory Precedent T annexed to the practice direction.  

There are a number of problems with the format of the Rules and the content of Precedent T.

When is an explanation for a variation required?

The new Precedent T states where the explanation for the variation is to be inserted:

  • "Explanation for particular phase (where variation in any phase exceeds £10k complete)"

This seems to suggest that an explanation for the variation is not required where a particular phase is less than £10,000.

Clearly the rules and the form contradict each other as the rules are clear that particulars of the variation must be served on the other parties.  Further, in the Precedent T form there are 11 phases listed and if a variation was sought in every phase but each variation was less than £10,000 this could result in variations of up to £110,000 being sought without particulars being provided.

It cannot be appropriate or what the Civil Procedure Rules Committee envisaged that a party seeking a variation of a phase of less than £10,000 does not need to provide particulars.  This would capture most applications for a variation. Parties would be asked to comment on the requests for revisions to the budgets and the court would subsequently be asked to deal with such requests for revisions with no particulars being provided. This does not put the parties on an equal footing.

The meaning of 'promptly'

Further, the rules require the revising party to submit the form to the other parties for agreement and subsequently to the court both "promptly".  Promptly is not defined and could potentially result in arguments and applications where one party believes the other has not acted promptly.  Further, it is not clear how long should be given for agreement between the parties before the document is subsequently lodged at court.  

Non revising parties will have to act swiftly if they wish to object to a request for revision, as their comments must be on the form prior to the same being lodged at court.  This is especially true given that the revised rules provide that court can vary the budget without further input from the parties. 

The rules are clearly open to abuse as the revising party could file Precedent T with the court without awaiting agreement from the other parties arguing the rules require the document to be filed promptly. Therefore it is imperative that if such a document is received it is dealt with swiftly, and ignore the same at your peril.

Costs incurred since previously approved budget

It is assumed that these rules were enacted in order to give effect to the judgment of Sharp v Blank & Ors [2017] EWHC 3390 (ch).  Unfortunately the rule change falls woefully short, as the above case required that details of the costs incurred since the previous approved budget were provided.  The new form and rules do not require such information and only require the revising party to provide details as to what costs are required as a result of the request for the revision.  This results in a lack of transparency meaning the court and the other parties cannot make an informed decision as to whether the requests for the revision and the sums sought are reasonable.

There are a number of scenarios where not being provided with details as to the costs already incurred since the approved budget provide a distorted picture and the writer believes it is imperative that such information is available for the court to consider the appropriateness of the revision.  

For example, let's say the revising party indicated that they were going to obtain five witness statements but at the time of the request for the revision only two had been obtained, yet the entirety of the amount allowed under the previous approved budget had been incurred.  If the significant development and the reason that the revision was sought required amendments to the witness statements in the approved budget, this could result in the revising party receiving two bites at the cherry by seeking substantial additional costs to cover the witness statements not yet obtained. Whereas what should be allowed is the costs of amending witness statements only. Therefore this results in a situation where unless the matter is before a robust and enquiring judge, requests for revisions to budgets could go through without the required interrogation, resulting in a significant injustice.

Further the rules do not require the revising party to provide any details about whether they have already incurred costs in relation to the proposed revision or if they have exceeded the approved budget or any phase within it. This is not what was envisaged by Sharp.

Even more surprisingly, the Form does not require details of the number of hours or hourly rates to be provided. This is astonishing.

Only time will tell if such issues surface moving forward, but the drafting of the rules and associated Precedent T leaves a lot to be desired. The writer believes that the courts will be asked to make a number of decisions in relation to the to the rules relating to the revising budgets moving forward.

A positive

Let's end however on a positive note.

The provisions for dealing with the costs of the budgeting process have endured, and now appear within the rules at Rule 3.15(5), therefore having a little more gravitas. The rules say:

  • “(5) Save in exceptional circumstances— 
  • (a) the recoverable costs of initially completing Precedent H (the form to be used for a costs budget) shall not exceed the higher of—
    (i) £1,000; or
    (ii) 1% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted costs (agreed or approved); and
  • (b) all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted (agreed or approved) costs.

It is the writer's view that any revision of the budget is captured within the 2% set out above and any argument that a revision of a budget is an exceptional circumstance that should result in an order allowing a party to exceed the 2% provision should not succeed. The Civil Procedure Rules Committee has made provision for a revision of the budget, and had they envisaged that a revision constituted an exceptional circumstance no doubt they would have set out that fact within the rules.

Conclusion

The writer fears that the new rules are open to abuse, and the lack of transparency will mean that parties are not on an equal footing. Further the court is devoid of the required information to make an informed decision in relation to revisions to budgets.

It is to be hoped that District Judges and Masters now familiar with the budgeting process will take a robust and enquiring stance before rubber stamping requests for revisions to budgets.
However, past experience has shown that there is likely to be a number of decisions by the courts before matters settle down.

Please contact Steve Dawson.

Further Reading

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