Construing costs management orders

Costs budgeting and costs management has evolved over the last 5 years substantially. Evolution it should be noted is often a bloody process: nature red in tooth and claw, promoting the survival of the fittest, with extinction as the reward for those who fail to survive.

Something of this exsanguinary struggle can be observed in the quiet of the costs judge’s room, as orders which were freely made in the early years of the process, are now being applied on detailed assessment with often disastrous consequences for the paying or receiving party.

One case that caught my eye recently is that of Vertannes v United Lincolnshire Hospitals NHS Trust SCCO 29th October 2018 Master Nagalingam a decision which emphasised the importance of compliance with the rules on drawing bills, compliant with the costs management orders that had been made.

Paragraph 5.8(8) of the Practice Direction to part 47 CPR provides as follows:

(8) Where a costs management order has been made, the costs are to be assessed on the standard basis and the receiving party’s budget has been agreed by the paying party or approved by the court, the bill must be divided into separate parts so as to distinguish between  the costs claimed for each phase of the last approved or agreed budget, and within each such part the bill must distinguish between the costs shown as incurred in the last agreed or approved budget and the costs shown as estimated. 

The nature of the dispute that arose on detailed assessment was this:

3. However, and notwithstanding this case was subject to a costs management order dated 9 April 2015, the bill narrative at page 18 states:
“CPD 47.5.8 (8) – The Claimant is aware of the requirements under CPD 47.5.8 (8). However, it is considered that there is no approved budget and therefore that CPD 47.5.8 (8) does not apply in this matter. An initial costs budget was approved on 11.04.2015. However, due to the considerable developments in the case, it was subsequently accepted by the Court that updated costs budgets were necessary on more than one occasion. Updated costs budgets were dully [sic] prepared and served pursuant to Court Order. However, the revised budgets did not reach the stage of a Costs Management Hearing and were never approved. As the revised budgets were ordered by the Court it is considered that the initial approved budget of 11.04.2015 is deemed to be superseded and that there is no approved budget in this case or in any event, it is a circumstance which allows the court to assess the costs without being constrained by the outdated original budget”.

4. It is not necessary for me to reproduce the full text of Preliminary Point 2 of the points of dispute. In essence, the Defendant’s position is that a costs management order is in place and so a phased bill should have been drafted.

The parties had during the course of the litigation post 2015 each revised their budgets on a number of occasions, but without agreement and without taking the matter back to court for an application for an order permitting revision of the budget. As the Master observed:

47. In the normal course of events a revised budget is subject to scrutiny by the case managing court who, with the benefit of objections where filed, will have regard to any significant developments which have occurred since the date when the previous budget was approved or agreed, and thereafter approve, vary or disapprove the revisions.

48. The opportunity for such scrutiny never arose during the course of the litigation prior to settlement. However, regardless of what the Claimant may say with respect to substantial or considerable developments, or indeed significant developments, the assessing court cannot second guess what the case managing court would have done. That is an exercise which would have been undertaken on a phase by phase basis, and with no guarantee that the case managing court would have agreed that revisions to the budgets were necessary at all.

49. The starting point to the question of whether or not the costs management order dated 9 April 2015 was superseded, set aside or otherwise is the actual text of the relevant orders made post 9 April 2015.

The Master considered the terms of the orders that had been made:

54. For a costs management order to be superseded, a new costs management order must take its place. That was not the outcome of the order of 4 March 2016.

55. Further, for a costs management order to be set aside that must be in explicit terms. An order cannot be ‘deemed’ to be set aside by inference.

57. The adjourned costs case management hearing was later subject to further adjournments such that the case settled without a further costs case management hearing taking place.

58. As with the order dated 4 March 2016 there are no provisions in the order 5 September 2016 which supersede or set aside the costs management order dated 9 April 2015. Whilst I again accept that directions were given which allocated court time to revisit costs budgets, unless and until revised budgets were filed (as well as notification of any objections or confirmed agreements) and the court’s intervention in default of agreement, the costs management order dated 9 April 2015 remained in place and operative.

59. I reiterate that for a costs management order to be superseded, a new costs management order must take its place. That was not the outcome of the order of 5 September 2016. I further reiterate that for a costs management order to be set aside that must be in explicit terms. An order cannot be ‘deemed’ to be set aside by inference.

60. Accordingly, I find that the costs management order dated 9 April 2015 remained in place at all times since the making of that order and as a starting point, the Claimant’s bill of costs should have been drafted in compliance with the requirements of CPD 5.8(8) to Rule 47.

The receiving party then sought to argue that the overriding objective could be deployed in their favour, or that in any event the court could and should depart from the requirement of the practice direction:

70. Further, there is no justice at all in allowing the detailed assessment of a costs managed case to continue in the absence of a phased bill. A costs management order was made and remains in force. Events may have occurred in the litigation since the making of the costs management order but the order was never set aside or amended. Paragraph 5.8(8) of the costs practice direction to CPR rule 47 requires a receiving party to divide their bill into separate parts so as to distinguish between the costs claimed for each phase of the last approved or agreed budget, and within each such part the bill must distinguish between the costs shown as incurred in the last approved or agreed budget and the costs shown as estimated. It would not have been impracticable to draft the bill as such and so CPR rule 1.1(2)(f) is engaged.

71. CPR rule 1.1(2)(d) requires the court to ensure cases are dealt with expeditiously and fairly. Fairness in this context demands that the index case is treated no differently from any other case subject to a costs management order.

72. In any case where a costs management order has been made it is not unusual for developments to occur which were unforeseen or unplanned. The fact of any such developments of itself does not render the costs management order redundant (or superseded). Nor does the fact that a party may have submitted multiple revised budgets since the costs management order was made.

73. I do not consider it unfair to the Claimant to require them to adhere to a costs management order and paragraph 5.8(8) of the costs practice direction to CPR rule 47 simply because the expected cost of the litigation increased due to “substantial” or “considerable” developments. If it is unfair to require a party to draw a bill in compliance with a costs management order and relevant practice direction in those circumstances, it would lead to an escape route from the costs controls that the costs budgeting regime was introduced to provide. One must also consider the fact that unexpected developments in costs managed case are often and routinely dealt with by separate orders for costs which sit outside of the budgeted costs, and are either summarily assessed or subject to detailed assessment outside of the budgeted costs. Indeed, such orders are a feature of the index case. Thus it does not automatically follow that even significant developments will lead to approval of budget revisions. Further, the risk of any unfairness in these circumstances is extinguished by the Claimant’s ability to argue there is “good reason” to depart from the budgeted costs.

74. Whilst the drawing of a new bill will delay the opportunity for the agreement or assessment of costs, my concern is with the expeditious assessment of costs as opposed to how expeditiously a receiving party can put a bill before the court.

75. The bill of costs in its current format is substantial both in amount and detail. A bill of costs prepared in compliance with paragraph 5.8(8) of the costs practice direction to CPR rule 47 will also be substantial in amount and detail. Given the Claimant’s obligation to comply with the practice direction in circumstances where a costs management order has been made and remains in force, and the court’s obligation to have regard to the last approved or agreed budgeted costs, and not depart from the same without good reason, a fair and expeditious assessment of the Claimant’s costs requires those costs be presented in a compliant bill of costs.

76. I reject the suggestion that I have the discretion to effectively disregard paragraph 5.8(8) of the costs practice direction to CPR rule 47. The Claimant’s bill of costs should have been drafted in compliance with the same. Applying CPR rule 1.1 reinforces that conclusion.

77. There is, on the face of it, good reason to depart from the budgeted costs set in the costs management order dated 9 April 2015. However, it does not follow that there is good reason to depart from the costs management order entirely.

78. Whilst there were clearly developments during the course of the litigation, the costs consequences of many of those developments were subject to separate orders where the costs were either summarily assessed costs or to be assessed if not agreed.

79. The Claimant has erroneously failed to draft their bill in compliance with paragraph 5.8(8) of the costs practice direction to CPR rule 47. The utility of the detailed assessment process, and the upholding of the costs budgeting regime, to include compliance with orders and the practice directions supplementing the civil procedure rules, is best served by any future assessment of the Claimant’s costs in this matter being undertaken on the basis of a phased bill of costs.

The Master did not strike out the bill of costs: but as it would effectively have to be redrawn, with significant costs consequences, he might as well have done so.

Similar points can arise in other analogous situations: in the early years of costs management, some courts would not make a series of phase by phase rulings on a costs budget but give a total. More commonly, unwary advocates at costs and case management conferences would not agree phases, but agree a total for a budget: not distinguishing between incurred and estimated costs, and not distinguishing between the various phases for estimated costs.

But given the mandatory requirement in the Practice Direction to file an updated Precedent H after agreement or approval of the costs budget, the requirement of costs management could not be “lost” by a broad brush agreement or order:

7.7 After its budgeted costs have been approved or agreed, each party shall re-file and re-serve the budget in the form approved or agreed with re-cast figures, annexed to the order approving the budgeted costs or recording the parties’ agreement.

A practical way of giving effect to a global agreement, is simply to deduct from the agreed total the incurred costs and pro-rate the estimated costs, which will in turn permit a phased bill to be drawn. To do otherwise and argue that there is no costs management order in force, runs the risk of a strike out of a non-phased bill.

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