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I posted this article on budgeting a while back, containing a suggestion for a revised form of budgeting that might actually work!

It's Just a Silly Phase I'm Going Through

Or......

"I'm Not in Love ....(with costs budgeting in its current form)"

Costs Budgeting in itself is a great idea but the implementation has been, frankly, nothing short of appalling. Forget for a moment the fact that the judiciary have had virtually no training (whilst contemplating the fact that, if you get to the end of this post, you will have had more "training" in budgeting than most judges). Forget also the fact that, in its current form, costs budgeting is having precisely the opposite effect to that which was presumably intended, i.e. of reducing costs and avoiding litigation over costs. There are other, more practical problems

To my mind there are four specific areas of concern -

The stage at which the first budget has to be filed
The phases that are identified in Form H are remarkably unclear, and the guidance does not help
Form H seems to have been designed by someone with a borderline personality disorder who has just taken a beginners course in Excel so it is overly complex and contains a whole range of superfluous information that actually gets in the way of effective costs budgeting
The parties' perceptions of budgeting
Firstly, the stage at which the first budget has to be filed

If you are building a house, before you get quotes from architects and builders in order to calculate your budget, you will have determined whether you are building a bungalow or a mansion, whether your floors will be concrete or carrara marble, and whether your kitchen will be "off the shelf" from B&Q or lovingly hand-crafted by a bearded artisan using reclaimed wood from a spanish galleon. Until you have decided upon those things a budget is going to be largely guesswork.

Costs Budgeting in its current form puts the cart well and truly before the horse, given that the budget (which must take into account every eventuality up until trial) has to be prepared in advance of the first CMC. As a result the assumption has to be, in every case, that carrara marble will be the Order of the day (because, though it is still largely uncharted territory, the potential risks associated with underestimating are so great) so the costs budget sets out a huge total amount which, in reality, will probably never be reached even if the case does go to trial.

A recent case illustrates why this causes potential difficulties -

My clients, for the Claimant, had proposed in the draft directions a split trial on liability, and reliance on a Highways Engineer's report

The Defendants had proposed a full trial of both liability and quantum, but did not see the need for a Highway Engineer's report

The parties respective budgets reflected what they thought was the appropriate way forward, so there was no easy way of comparing like for like.

At the CMC the Court decided that there should be a split trial, but refused permission to rely on a Highway Engineer. As a result both parties budgets became immediately redundant. Due to efficient drafting of the budgets on both sides and a trusty laptop we were able to come to a rough and ready solution and agreed budget figures were put forward and accepted by the Court. We could just as easily have had to go away and completely re-draft the budgets to reflect the actual directions, incurring yet more costs.

Bearing in mind that, as the Court had not considered the budgets before reaching its decision on the directions, so the additional costs of a full trial and the Highways Expert did not play a part in that decision, it does call into question the usefulness of budgets at such an early stage.

Surely a more sensible approach would be for costs budgets to be prepared after directions, and reflecting precisely those directions?

Secondly, the phases

A phase, to my mind, is a chronological step along the way.....a period of time defined by a fixed starting and finishing point, and in which all things have a common denominator. You move from phase 1 to phase 2, on to phase three and so on, never going backwards.

Litigation can quite easily be divided into phases. Pre-action. Pleadings. Directions. Trial preparation. Trial.

It can also easily be divided into non-chronological "aspects", for example : client instructions, expert evidence, pleadings, disclosure, specials, interlocutory applications, negotiations, trial. (Anyone old enough will remember that that is exactly what the 1980s County Court costs scales used to reflect..... who said all change is good?).

So either phases or aspects are simple. What is difficult is mixing the two, which is precisely what Form H forces you to do.

If I obtain medical records pre-issue, it is obvious that the cost of doing so goes into the pre-action "phase". If I obtain them post issue, where do they go? Who knows? If directions provide for me to update the Schedule of Loss post CMC and for the Defendants to update their Counterschedule, does that go into "Issues / Statement of Case", which lies in a previous chronological period, or in "preparation for trial", which is the next logical phase? Unless Claimant and Defendant are singing from the same hymn sheet a like for like comparison becomes impossible, and if a like for like comparison is not possible then the exercise begins to lose its point (unless you are only looking at the final figure...in which case, why the need for such detail in the first place?)

It also poses a difficulty in terms of the indemnity principle. By and large solicitors charge chronologically and, if the client is paying privately, this will often be by way of interim statute bills so the recovery of costs is limited chronologically by reference to those interim bills.

In a standard bill for assessment, if the case has lasted twelve months and the solicitor has rendered a statute bill each month, the bill of costs presented to the paying party and the court will (or certainly should) be divided into twelve parts by reference to the interim bills, with each part limited in terms of profit costs to the amount of the interim bill, so that it can be demonstrated that there is no breach of the indemnity principle.

A costs budget, and a bill for assessment drawn by reference to phases, already has in effect at least 9 parts - one for each of the standard phases in Form H. In the above example, each phase would also need to be split into 12 parts, in an effort to demonstrate (and I'm not entirely sure how you would even begin to do this, bearing in mind that the interim bills would almost certainly not have split the work contained within them between phases) that there was no breach of the indemnity principle by reference to either individual statute bills or individual items. A bill, therefore, in effectively 109 parts! Costs draftsman heaven, but hardly likely to reduce costs.....whatever is saved in the substantive litigation will be gained twice over in the costs of detailed assessment!

Thirdly, the design of Form H

Well..... where do I start?

It is difficult to think of a more confusing way to present what ought to be quite straightforward data. Confusion results in argument. Argument results in more costs.

One of the main difficulties with the form is that, on the front "summary" page (which many judges say is the only part of the form that they look at) it presents all information in £ sterling, without reference to the important source data - the time that will be spent. Invariably Claimant and Defendant solicitors charge at different rates, so (bearing in mind that the court cannot set an hourly rate as part of a costs management order) comparing my £10k for preparation of witness statements with the Defendant's £5k for the same thing is of no use unless you drill down into the underlying information. If it turns out that their rate is half of mine, then there is actually no difference in our positions, subject to arguments over hourly rates which can only be dealt with on detailed assessment.

A far better approach in my opinion, and one that might actually result in a reduction in satellite costs litigation, is for Courts to ignore £ sterling except in respect of disbursements and to consider budgets for solicitors' costs in other terms altogether.

What decisions could the Court make at an early stage that would actually have the desired effect of controlling costs? This is my "wishlist" of sample issues, in the form of a hypothetical alternative costs budget qestionnaire precedent, that I think the Court should consider, and upon which decisions at an early stage (preferably at or shortly after the first CMC) would provide real benefit in terms of limiting costs and reducing satellite litigation -

What grade or grades of fee earner will be conducting this claim?
What are those fee earners' hourly rates?
What time has been spent so far on (individually) - client instructions, expert evidence, pleadings, disclosure, special damages, interlocutory applications, negotiations, trial?
What further time will,if the matter goes to trial, be spent on (individually) - client instructions, expert evidence, pleadings, disclosure, special damages, interlocutory applications, negotiations, trial?
What is the total anticipated time for (individually) - client instructions, expert evidence, pleadings, disclosure, special damages, interlocutory applications, negotiations, trial [in fact, bearing in mind that the court cannot either approve or "assess" costs already incurred, let's get rid of 3 and 4 and just have this one....after all, does it really matter whether it is incurred or anticipated....the court is setting an overall figure so it is irrelevant]
What fees, will be incurred overall on expert evidence if the matter goes to trial, broken down into : substantive reports, expert liaison, and trial?
What are Counsel's fees to date?
By reference to the above phases, what further involvement will Counsel have, and what fees will be incurred?
What, are the overall anticipated fees for Counsel? [actually...sod it - let's get rid of 7 and 8 as well and just look at things in the round!]
Identify any other significant disbursements that have been / will be incurred
Identify any possible scenarios that will render these estimates inaccurate
So, the Court can make a decision on the important points -

Is this a grade A case or a grade C case?
How much time is reasonable overall or, if you want to be pernickety, how much time is reasonable by reference to phases?
That is a far easier decision for the court to reach than looking at £ sterling, because it allows for a direct comparison between the parties without having to adjust figures for differing hourly rates
The solicitor's budget is therefore X hours for a grade Y fee earner - no "ifs" or "buts" - you have a certain number of hours to bring this case to a conclusion or else you are working for free / your client is paying the shortfall!
Are the experts' fees reasonable?
Is Counsel's involvement justified, and is the cost of Counsel reasonable?
What is a reasonable overall budget for disbursements?
What would justify a departure from the above conclusions?
All else could then be left to detailed assessment, though frankly with the budget having given a pointer on most of the major issues, you would think that agreement would be possible in most cases.

Fourthly, and finally, the parties' perceptions of budgeting

I suspect it is because ot the current climate of intolerance occasioned by "Mitchell" induced paranoia, but it seems to me that the attitude of defendants that a request to agree a costs budget is treated as a request to write a cheque in twelve months time for the total budgeted figure,

"Your budget is £250k.....if I don't argue it, you'll say that I accepted it, and then just send me a bill for £250k regardless of what actually happened, and I'll be over a barrel!"

Let's get this clear....budgeting does not set out what costs a Claimant will be entitled to by way of costs; it does not replace detailed assessment; all that it does, or all that it ought to do, is determine a sensible and proportionate maximum, subject to all of the usual tests of reasonableness.

It should concentrate both parties' minds, at an early stage in proceedings, on the total possible cost of pursuing or defending a claim and, if the projected figure (or the way in which that figure is reached) is utterly unreasonable or out of proportion, the Court clearly should be in a position to intervene, in the interest of controlling costs in the individual case and, by building a body of decisions, in the world of litigation generally.

I am constantly surprised therefore by the refusal of Defendants to engage in sensible discussions over costs budgets, the net effect of which is that we end up on costs management hearings where the court invariably agrees a figure close to that suggested by the Claimant in the first place, but with the additional costs of an entirely unnecessary attendance at the hearing also factored in.

I am also troubled by "tactical" budgeting. I suppose it is an inevitable consequence of QOCS that a Defendant who has no real prospect of recovering his or her costs will understate the budget, simply to show the Claimant's budget in a poorer light.

That's just not cricket, but then....I don't like cricket (I love it).