Q) Does that mean you lawyers are going to charge us less?
A) Er...not exactly. What it means is that the parties in all multi-track civil claims commenced after 1 April 2013 in the county court, or in the chancery division or the Queen’s Bench division of the high court, now have to prepare costs budgets.
Q) So how does it work?
A)Unless the court otherwise orders, all parties must file and exchange costs budgets identifying and costing the steps they intend to take in the litigation, seven days before the first case management conference.
Q) Are there exceptions to this rule?
A) It doesn’t apply to proceedings that are the subject of fixed costs or scale costs or costs the court otherwise orders. Litigants in person do not have to file costs budgets. They must however be provided with a copy of the budget of any other party.
Q) What does a costs budget contain?
A) The content of a costs budget is prescribed by the new Practice Direction 3E. A budget must be in the form of Precedent H annexed to that practice direction. It must be in landscape format with an easily legible typeface, and it must be dated and verified by a statement of truth signed by a senior legal representative of the party. The statement will read as follows: “The costs stated to have been incurred do not exceed the costs which my client is liable to pay in respect of such work. The future costs stated in this budget are a proper estimate of the reasonable and proportionate costs which my client will incur in this litigation.”
In the recent case of Bank of Ireland v Philip Pank Partnership , the statement of truth was forgotten on an otherwise perfectly good budget. The court ruled that this defect did not make the budget a nullity.
Q) Isn’t all this a bit onerous for smaller cases?
A) It doesn’t apply to small cases in the small claims or fast track regimes. In cases where a party’s budgeted costs do not exceed £25,000, there is no obligation to complete more than the first page of Precedent H.
Q) What if a costs budget isn’t filed?
A) Unless the court otherwise orders, a party who fails to file a budget will be treated as having filed a budget limited to the court fee: CPR 3.14.
Q) Ouch. But what does the court do with this?
A) The court will be required to review and approve total costs figures for each stage of the proceedings, not by way of undertaking a detailed assessment in advance, but by considering whether the budgeted costs fall within the range of reasonable and proportionate costs.
Any party may submit a revised budget to the other side for agreement, and in default of agreement the amended budget must be submitted to the court together with a note of the changes made and the reason for the changes, together with a note of the objections of the other party. The court may then approve or disapprove the revisions.
An order made by the court recording the extent to which budgets are agreed between the parties, or recording approval after revisions in respect of unagreed budgets, is known as a costs management order: CPR 3.15.
If an interim application is made which was reasonably not included in the budget, the costs of any such application are in addition to the approved budget.
When the court comes to assess costs on the standard basis after litigation, the court will have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings. The court will not depart from the approved or agreed budget unless satisfied that there is good reason: CPR 3.18.
In Henry v News Group Newspapers Ltd,  the claimant’s solicitors’ bill exceeded their approved costs budget by approximately £250,000. Moore-Bick LJ refused to allow them their extra costs, explaining that the new provisions lay greater emphasis on the importance of the approved or agreed budget as providing a prima facie limit on the amount of recoverable costs.
Q) If you make savings on one bit, can you use the money for other parts of the budget?
A) Rule 3.18(a) makes it clear that the assessment is to be by reference to the budget phases rather than the total. In other words, if a party spends less on certain phases but more on others, with no impact on the overall budget, the party will be limited to (a) what has actually been spent in those phases where the cost is less than the budget, the underspend being good reason to depart from the budget, and (b) the budget figure in those phases where the cost is more than the budget: Henry v News Group Newspapers Ltd .
Questions for Counsel’s Opinion should be e-mailed to:
Professor Mark Watson-Gandy is a barrister at The Chambers of John McDonnell QC, 13 Old Square, Lincoln’s Inn, London WC2A 3UA
Tel: +44 (0) 20 7831 4445
Fax: +44 (0) 20 7841 5825