Purpose of Costs Management and the Court’s powers
CPR 3.12(2) states that the purpose of costs management is to enable the Court to manage the steps taken in a claim and the associated costs incurred, so as to further the Overriding Objective.
Whenever costs budgets have been filed and exchanged, the Court will make a ‘costs management order’ unless it is satisfied that the litigation can be conducted justly and at proportionate cost without such an order being made (CPR 3.15(2)).
For matters litigated post-April 2016, a budget discussion report (or Precedent R) must be exchanged, setting out those figures which are agreed and those which are not, including a summary of the grounds of dispute.
If the budgets can be agreed between the parties, the Court will record the extent of such agreement. If not, the Court will make any appropriate revisions and record its approval of those budgeted costs. The approval relates only to the total costs of the budget phases, although the Court may have regard to the constituent element of each phase, albeit without conducting a detailed assessment in advance.
Even where budgets have been ‘agreed’ prior to the CMC, the Court may decline to approve the figures. In Brown v BCA Trading  EWHC 1464 (Ch), Mr Registrar Jones questioned reasonableness and proportionality of the budgets, stating that this was not a difficult case (either factually or in law), despite the Petitioner claiming over £20 million and attacking the reputation of the Respondent.
The Court looked at Counsel’s fees for the 10 day Trial, as well as the Disclosure and Trial Preparation phases. The Court refused to approve Counsel’s fees of £445,000 and £287,000 for the Petitioner and Respondent respectively. In terms of Disclosure, the Petitioner claimed 250 hours of paralegal time at a cost of £37,500 (against 91 hours at a cost of £16,000 for the Respondent). The Respondent suggested a reduction to 150 hours, but the Petitioner argued that the original estimate had been reduced from 300 hours already, citing experience in a similar trial of similar length and emphasising that heavy reliance is placed on paralegals. Mr Registrar Jones thought it right to compare the two amounts and awarded a mid-range figure of 180 hours.
Similarly, in Willis v NRJ Rundell & Associates Limited  EWHC 2923 (TCC), which was subject to the pilot scheme and rules in CPR PD 51G, the Claimant’s budget was £897,369.67 and the Defendant’s was £703,130.37. The Defendant made general criticisms of the Claimant’s budget but the Claimant raised no disputes at all. Nevertheless, Coulson J considered both budgets to be disproportionate and unreasonable. The CPR has since been updated in terms of negotiations and filing a Precedent R.
Costs management does not replace detailed assessment. It aims to reduce the need for assessment of some or all of the costs. However, this advanced assessment requires early involvement of costs experts to scrutinise the budget figures. The process itself, as detailed in Merrix, requires an ADR-like philosophy of negotiation and preparation of budget discussion reports, in an effort to narrow issues and avoid the time, trouble, and risk of proceeding to detailed assessment.
Managing budgets once approved and revisions to budget
We recommend that this is considered immediately after the CCMC. It requires continuous management to ensure that the work is completed within the phases approved by the Court. Each party must be sure to revise its budget upwards or downwards, if significant developments in litigation warrant such revisions.
For further reading on the topic of Merrix, read our blog post written by Nadia Zarait.
Written by Jodi Booth - Solicitor
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