Master invites a solution from the Rule Committee in respect of the phasing of costs management work in budgets and subsequent multi-phase bills

The somewhat conflicting rules and guidance in respect of costs budgeting and the phasing of work relating to costs budgets came before Master McCloud, sitting as deputy costs judge in Woodburn v Thomas (costs budgeting) [2017] EWHC B16 (Costs).

The Civil Procedure Rules, Practice Direction 3E at paragraph 6(b) specifically requires parties to follow the Precedent H Guidance Note in all respects, which is annexed to the rules. The guidance note which specifies the type of work which should and should not be included in each phase specifies that reviewing the opponent’s budget and correspondence with the opponent to agree the budget should be included within the CMC phase. Further, the guidance provides preparation of updated costs budgets and reviewing opponent’s budgets as work to be included in the PTR phase.

Following this guidance along most would include in the CMC or PTR phase some costs which relate to the costs budgeting or PTR phase. The issue is that, however as per Practice Direction 3E at paragraph 7.2 all recoverable costs of the budgeting and costs management process (save for preparing the initial budget) are capped at 2% of the approved or agreed budget. Practice Direction 47 at paragraph 5.8(9) requires the parties to include such costs in separate parts in a Bill of Costs where a matter has been cost managed or the parties have agreed budgets. Accordingly this left the question as to whether work such as reviewing the opponent’s budget and preparing updated budgets should be included in the CMC and PTR phase as per the guidance note, or in a separate part for the other costs of the budgeting and costs management process as per Practice Direction 47.

On determining how to approach the issue Master McCloud stated The Assumptions in the Precedent H are the starting point. Those evidence the basis on which the judge has made his or her budgeting decision or on which the parties agreed the budget.’

Master McCloud continued that:

where a budget is approved or agreed then the assumptions on which it was approved or agreed are the best guide as to how the relevant budgeting costs should be treated in the Bill, so as to avoid the difficulty of argument over the extent to which those budgeting costs may be subject to the CMC phase’s budget limit (thereby requiring ‘good reason’ if in excess of budget) as opposed to or as well as the “2%” cap imposed by PD 3E 7.2(b). Ensuring that the Bill phases include (wholly and exclusively) the costs which were budgeted in the corresponding identical Precedent H phases could avoid the confusion as to ‘what goes where and how to treat it’ which was encountered here and took some time in court to resolve item by item in the ‘non phase’ part of the Bill.

The decision shows the importance of clear assumptions in the Precedent H. The decision does, however, cause difficulties in that the costs management work capped at 2% will be split across several phases. Whilst some items in the CMC phase of the Bill of Costs may be evidently relating to costs management such as the document time and long attendance, it will be impossible from simply looking at the bill in its current format to determine how many of the routine items relate to costs management and are subject to the 2% cap.

This issue was acknowledged by Master McCloud who in her Judgment noted that it would be helpful for the Rule Committee to consider a solution, which in her view was to stipulate that costs referable to costs budgeting and costs management were not to be included in the Precedent H other than for the purpose of the 1% and 2% caps.

The Judgment highlights the difficulties and complexities in preparing both Costs Budgets and multi-phase bills and the importance of the use of an experienced and reputable costing firm to deal with budgeting issues to ensure such problems do not arise on assessment.