Creative accounting

In the last few months I have been undertaking an increasing number of detailed assessments where costs management orders have been made in the substantive proceedings and there are “budgeted costs” and phase totals to consider when assessing the costs, acting for both receiving and paying parties.

The hearings have been illuminating both for the problems that are emerging when carrying out the assessment, but also for the fact that many of the problems are created at the time when the costs management order is made but not spotted and then lie placidly hidden within the file, until bursting into sight again some years down the line. So what follows are some personal thoughts, on the problems and potential improvements that can be made to the budgeting process.

Take ownership

All too often the budget is outsourced, to a costs draftsman or costs lawyer, who is left to get on with the budget. The reasons for taking this course can range from a belief that it is more efficient, needs a specialist knowledge of costs or simple disinterest in the turgid exercise of creating Precedent H.

But unless there is extremely close co-operation between the drafter and the solicitor actually running the case, there will be a plain disconnect between the budgeted costs and what the case actually requires. This will only be exacerbated, if the budget is prepared a significant time before the CCMC. There is no substitute in my view, for the solicitor running the case, going through the Precedent H, line by line, and checking or challenging what is put in it by the drafter. The profitability of the case depends upon getting a robust budget, fit for purpose.

Take stock

I still undertake a significant amount of personal injury litigation and have devised my own project management form, whereby I list the assumptions that I have made about the case, and then plot out my fees. Drafting particulars of Claim, drafting schedule(s) of loss, conferences, part 35 questions, brief fees for CCMC and PTR, refresher fees, advices, approval hearings, a joint settlement meeting etc and provide this to my instructing solicitor for inclusion in the budget.

This “project management” function extends to all aspects of the budget, including getting quotations from expert witnesses, and particularly a solicitor sitting down and estimating the time that will be required for key pieces of work, such as disclosure, and drafting of witness statements. The Precedent H will never be perfect, but at least it should be informed.

Update

“Phew. That’s that done. Lets get on with the case.” is a recipe for disaster and selling the ultimate costs claim short. There is scope within the rules in part 3 CPR, to revise budgets when there have been significant developments in the litigation. If there needs to be a further round of expert evidence, or further experts instructed, plainly the budget should be revised.

But I would go further and suggest that every time the case comes back to court, there should be scope to revise the parties budgets. And this should be seized by the paying party as well as the receiving party: budgets can go down as well as up, and if the experts are largely agreed, the trial length and its costs might fall to be revised downwards. Moreover if there is a significant gap between the submission of Precedent H and the CCMC hearing, do an updated Precedent H, a few days before.

Attendance

I can see no need for there to be more than one advocate at a CCMC, who should be competent to conduct both the advocacy for the directions and the costs management. Costs and costs budgeting is a necessary skill set for all advocates. Moreover it removes duplication and the need to co-ordinate submissions, ensuring that matters are more likely to be addressed holistically.

Good reason arising from flaws with the budgeting process

Problems that have recently have arisen, include budgets which have significantly underestimated costs for phase totals, but for which there is no good reason for a  departure and budgets which were prepared 4 months before a CCMC, which massively understated incurred costs when the budget was approved, which were then sought to be later claimed in the Bill.

Accuracy in calculating incurred costs is important. Budgets which underestimate incurred costs, might be misleading, and falsify the premise on which budgeted costs are set, opening the door for a paying party to argue there is good reason to depart from the budgeted costs, as a false picture was presented at the CCMC.

Trust and fiction

I always read carefully the Precedent Q, I receive with the Bill when acting for  a paying party to look at the costs claimed against the budgeted costs. God knows why, because it could be a complete work of fiction, and I would have very little means of discovering that.

Although Bills are divided into many, many parts, with work attributed to phase totals, I have no means when acting for a paying party of doing more than the crudest cross check as to whether the costs claimed actually have been properly attributable to the correct phase. The scope to conceal work within the Bill or indulge in creative accounting is enormous.

Revised budgets

Rule 3.18 CPR is clear that when applying the budget, it is the last approved or agreed budget which is applied. The Rules contemplate that a budget will be revised at various points in the case. But what does one do with budgeted costs, which by the time a further CCMC takes place, have by reason of effluxion of time become incurred costs? Practically how does one draft the Precedent H, given that there is no column for incurred costs which were once budgeted? Which column do they go in then? And if it is incurred, then on the last approved budget, the former budgeted costs will escape the stricture of costs budgeting.

Apportionment of phase total

Say £20,000 is allowed as a phase total for trial. The costs claimed on the Bill amount to £30,000. But included within the trial costs, are VAT’able and non-VAT’able disbursements, fees some of which attract a recoverable success fee, and others of which do not. Which elements of fees and in what proportions, of the £30,000 is allowed as a phase total? There is no guidance, and some judges are adopting a parri passu approach. This can have a very significant effect on the total claim for costs.

Perhaps most significantly, I have not to date, found that costs management is making for shorter detailed assessment hearings, not least because the incurred costs still have to be gone through, and the costs budgeting arguments simply add to the overall time required, to assess a bill.

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