WHAT THE JACKSON REPORT SAID 2: WILL COSTS BUDGETING REDUCE COSTS?

There has been considerable controversy on the issue of whether costs budgeting actually leads to a reduction in costs.  In this anniversary month it is worthwhile looking back at the report. In particular the question of whether costs budgeting would be cost-effective. As it is the rules are insufficiently flexible to allow the parties to delay costs budgeting until a time when the issues are clear.

THE REPORT ITSELF DEALT WITH THIS AT 7.1.

“7. ANALYSIS

(i) Is the game worth the candle?

7.1 It must be accepted that costs management is an exercise which generates

additional costs and which makes additional demands upon the limited resources of

the court. These are two powerful negative factors. On the other hand, there are two

powerful factors in support of costs management. First, case management and costs

management go hand in hand. It does not make sense for the court to manage a case

without regard to the costs which it is ordering the parties to incur. The Rubicon was

crossed on 26th April 1999, when the court assumed under the CPR wide powers and

responsibilities for case management. Very few respondents (although there are

some) suggest that we should return to the north bank of the Rubicon. Secondly, I

am in full agreement with the Law Society’s view that costs management, if done

properly, will save substantially more costs than it generates.”

The Report concluded that although there are costs involved in the costs budgeting exercise these would be offset by the other advantages to litigants.

TALES OF WOE: CASES WHERE COSTS BUDGETING VASTLY INCREASES COSTS

Everyone has a tale of woe in relation to costs budgeting.   I have direct experience of one example.

• A personal injury action.  The claimant had obtained three medical reports.  The final report said that the claimant required further treatment and should improve. The defendant funded the treatment.
• Proceedings were issued and the court listed the matter for two hours for a costs budgeting. Both parties filed their costs budgets in time.
• The budgets were hefty documents based on the assumption that none of the expert evidence would be agreed and that there would be six experts at trial.
• On arrival at court the parties found that the court, although it had listed the matter for two hours, had failed to enter it into the judge’s list.
• The judge (who heard the matter only briefly because it was not in his list) also said that the claimant’s cost budget had not arrived. The matter was adjourned.
• It transpired however that the budget had arrived, (there was a receipt signed by a member of staff, it had been mislaid in court).
• However part of the cost budget had not been signed. At this stage I was instructed to attend the adjourned hearing.
• The budget was not a nullity  ( Bank of Ireland -v- Phillip Rank Partnership [2014] EWHC 284 (TCC) ) so the only issue was the costs budget.

However in the meantime the claimant had been undergoing the treatment recommended by the doctor – which the defendant had funded.  The claimant reported a full recovery. It was not necessary to file any further medical reports. The defendant did not require its own reports. The cost budgets were virtually useless as the hearing could be listed as an assessment with a short time estimate.

WASTED COSTS

Looking at that scenario it is clear that a considerable amount of costs were wasted.

• The parties were required to prepare detailed cost budgets at a time when the medical prognosis and issues between the parties were not clear. This would be (and was) a useless task if the claimant recovered in line with the predictions in the medical evidence.
• The parties wasted costs in turning up for a hearing that had been listed but not put in the judge’s list.
• The parties wasted costs in spending time looking at when the costs budget had arrived at a time when it had been lost by the court.
• The parties wasted costs investigating issues relating to the validity of a partially signed costs budget.

So there were two unnecessary hearings and a lot of unnecessary work in a case that, if had been left to its own devices, would have simply progressed on to being an assessment of damages (and would probably have settled well before that without any major expenditure on costs).

The defendant (who will probably be paying for this) was blameless.  It had funded the treatment, and was forced by the provisions of the CPR to file a costs budget and attend two hearings.

COULD THIS BE AVOIDED?

The problem here was that the Court required the parties to lodge cost budgets too early in the action. There is insufficient flexibility. If the parties had been able to ask the Court to wait until the prognosis/issues were clear then considerable savings would have been made. As it is every litigators main priority is to ensure that the costs budget is accurate and at court on time.

THE ANALOGY IN THE REPORT: CONSTRUCTION WORK: A QUOTE FOR THE WHOLE ROOF WHEN A TILE NEEDS CHANGING

The Jackson Report uses the analogy of a building project.  In some cases costs budgeting is like spending a small fortune on obtaining detailed surveys and quotations for the costs of replacing an entire  roof in circumstances where, if the parties waited a short time, it would become clear that it was only half a dozen tiles that needed replacing.

THE CITY OF LONDON LAW SOCIETY’S RESPONSE TO THE CIVIL JUSTICE COUNCIL

The Society’s response dealt specifically with the manner in which costs budgeting had increased the costs of litigation.

“18. Sixthly, the overall effect of court budgeting is to increase the cost of litigation
while at the same time reducing the successful party’s recoverable costs.
This will usually be so even if the total figure given by the budget proves to be
accurate because an over-estimate with regard, for example, to disclosure
cannot be set against an under-estimate with regard to witness statements.
The successful party will only recover the actual cost of disclosure and the
budgeted cost of witness statements. The fact is, as we have said, that all
budgets will be wrong in some respects. It is unrealistic and uncommercial to
expect total accuracy in every element of a budget and then to penalise a
party for failing to achieve the unachievable. Most parties are concerned
about the overall cost of litigation, not about the individual elements that might
have gone to make up the total.
19. Indeed, it is difficult to see why the philosophy of the Reforms should be to
target recoverable costs in this way. It is one thing to argue that no more than
proportionate costs should ever be recovered regardless of the actual cost of
conducting litigation; it is another to increase the costs of litigation through the
budgeting process while at the same time artificially reducing recoverable
costs.
20. In general terms, the introduction of budgeting has imposed significant
additional upfront costs on the parties involved in any litigation that falls within
the scope of the relevant rules and directions, with no evidence that
budgeting will or can produce subsequent savings in most cases. This is
especially so in commercial cases since most settle on a basis that renders
the budgets immaterial. Budgeting may be suitable for some cases, but the
practical uncertainties, difficulties and consequences that have arisen in its
implementation indicate strongly that budgeting should only be required if a
judge has made an order to that effect in a particular case. Budgeting should
not apply indiscriminately to all cases regardless of whether it is likely to be
advantageous” (emphasis added).

MORE FLEXIBILITY IS REQUIRED

If costs budgeting is here to stay, and it probably is, then more flexibility is needed to allow the court and the parties, at a very early to stage, to defer the budget.   The rules do allow the court to dispense with costs budgeting (and there are reports of this being done).  However given the emphasis on getting the budget to court within time it would be a brave litigator that attempted to apply for an order deferring the costs budgeting process.

INCIDENTALLY: MAKE SURE YOU CAN PROVE YOUR COSTS BUDGET HAS BEEN SENT TO COURT

The example I have given above also shows the importance of being able to prove that your costs budget has been lost at court.   Courts have been known to mislay documents. There has been some controversy in the past over the refusal of some courts to provide receipts.  Given the consequences of the costs budget not arriving it is sensible to have some means of proof.