Costs management - all change? Image

Costs management - all change?

Posted: 04/02/2016

The Civil Procedure Rules Committee has been busy. Amongst other things, it has proposed amending the costs management provisions in CPR 3.12 and 13, Precedent H, and substantially adding to the Precedent H Guidance Notes in Practice Direction 3E.  Let’s get the caveats out of the way first: there is no set date for these proposed amendments to come into force, although it is possible that they will form part of the 83rd Update to the CPR in April 2016. 

Rules and exceptions

Let’s start at the very beginning (well, almost). Costs management applies to all Part 7 multi-track cases other than those listed in CPR 3.12. The proposed revised 3.12 includes a new exception at 3.12(c), where a claim has been made by or on behalf of a person under the age of 18. That exception will continue to apply where the child reaches majority, unless the court orders otherwise. 

Time for filing costs budgets

Probably the most important proposed change for lawyers (and their PI insurers) is the introduction of different deadlines for filing costs budgets, depending on the size of the claim. As we all know from Mitchell, a costs budget must be filed seven days before the first CMC if no date is given in the allocation notice served under CPR26.3(1). 

The November minutes of the CPRC meeting (the minutes) now propose that:

  • where the monetary value of the claim is less than £50,000, the costs budget must be filed with the Directions Questionnaire;
  • where the monetary value of the claim exceeds £50,000 (but presumably is less than £10 million), it must be filed 21 days before the first CMC. 

So change all round with further change anticipated if the fixed costs regime is extended to the £50,000 mark.

Budget discussion reports

Another important proposed change is the requirement that all parties (other than litigants in person) who file and exchange a costs budget must also file an agreed “budget discussion report” (BDR) no later than seven days before the first CMC (proposed new CPR 3.13(2)). The proposed new PD3E.6A clarifies that the BDR must set out for each phase the figures which are agreed and the figures which are not agreed, together with a brief summary of the grounds of dispute. Discussing the BDR will undoubtedly add to the costs of the budgeting process (the recovery of which is capped, let us not forget). That said, having to discuss budgets with your opponent and justify to the court your reasons for disagreement, may narrow the issues in dispute and reduce the time spent in court arguing over costs. That certainly seems to be the CPRC’s objective. 

Parties are also encouraged to use the precedent BDR “annexed to this PD”. The precedent BDR currently forms part of the proposed revised Precedent H, comprising two simple Excel spreadsheets, one for the claimant and one for the defendant. Parties and their advisers must however take note that even though the BDR forms part of Precedent H (as it currently stands), it does not have to be filed until 14 days after Precedent H has been filed. Presumably the rationale is to encourage parties to agree more of their budgets in the fortnight between the deadlines. Indeed, the CPRC papers expressly state that they “are trying to get the parties to agree each other’s budgets much more often than they do now”. 

Precedent H

The Precedent H form has been tweaked to improve its presentation. There are several new rows above the Statement of Truth, including totals columns for “approved budget”, “budget drafting” (1% of the approved or agreed budget or £1,000 (whichever is higher)) and “budget process” (2%), which presumably covers revisions to the budget and the BDR. It also includes a reminder (in bold, and underlined, so be warned) that “Parties must complete the discussion report and lodge [it] no later than seven days before the CCMH”. 

A new paragraph 6(b) of PD3E stipulates that parties must follow the Precedent H guidance notes (the guidance notes) in all respects (emphasis added: the guidance notes appear therefore to be more mandatory than their name might suggest). The existing PD states that there is no obligation on a party whose budgeted costs do not exceed £25,000 to complete more than the first page of Precedent H. The proposed amendment extends that generosity to cases where the value of the claim is less than £50,000, and states that in both such cases the budget will be filed with the Directions Questionnaire. 

Precedent H guidance notes

Practitioners will have to familiarise themselves in detail with the changes to this must-read document. 

The new opening paragraph of the guidance notes states that “where the monetary value of the case is less than £50,000 [or the costs claimed are less than £25,000] the parties must only use the first page of Precedent H”. Two key points: the use of the word “case” rather than “claim” in relation to the financial threshold (including therefore counterclaims etc), and the requirement to fill in the first page only, contrasting with PD3E.6, which allows parties to fill out the whole document if they so desire. 

Paragraph 2 clarifies that, save in exceptional circumstances, the parties are not expected to “lodge” any documents other than Precedent H and the BDR. This is most likely intended to encourage parties to keep their assumptions simple and contained within Precedent H itself. Parties are also encouraged to use the examples on the MOJ website. 

There is also a clear steer to parties not to overload the contingencies section of Precedent H, but to restrict it to anticipated costs “which are more likely than not to be incurred” (paragraph 7, with a nod to Yeo). Similarly, parties should only include assumptions which “significantly impact” on the level of costs claimed, and provide brief details only. Additional documents should only be included where necessary (paragraph 8). 

Finally, paragraph 9 clarifies that the time spent in preparing the budget and associated material must not be claimed in the draft budget under any phase. The permitted figure will be inserted (into the new rows discussed above) once the court has approved the budget. 


It is clear from the CPRC papers that there was a lot of discussion around whether assumptions should be included in the Precedent H form itself, particularly the short form version. The upshot appears to be that they will be included in both versions. However the minutes record that assumptions should only be included in the short form if their inclusion “did not increase the complexity and length of the form”. The key to that particular challenge will be only to include the critical assumptions in a very concise form (paragraph 8, guidance notes).  

The CRPC also debated whether the case management judge should be required to identify, for each phase, the assumptions they made in assessing future costs: an integral part, you might think, of an active costs budgeting and case management process. The CPRC decided that, while that information would be useful for a costs judge at detailed assessment, it would place an unfair burden on the case management judge. In Coulson J’s words, it is for the court to fix an appropriate budget, not to say whether particular assumptions are reasonable or otherwise. 

He also noted that, if the parties agree the figures, “no-one can say what assumptions are incorporated into those agreed figures”: despite the existence of Precedent H and the BDR, the main purpose of which seems to be to encourage parties to agree their budgets. The implication here is that the parties agree the figures, rather than the underlying assumptions.  This begs the question, why bother with the assumptions in the first place; and how do you reach agreement on the figures without reaching agreement on the underlying assumptions? What happens if you agree a figure for witness statements based on 10 witnesses and only five witnesses are called? Does the figure still hold good, despite the change in underlying assumptions? If so, parties may end up revisiting budgets on a much more regular basis than is currently the case; and likewise more budgets may be challenged on detailed assessment. 

In a similar vein, proposed new paragraph 7.10 of PD3E states that it is not the court’s role to fix or approve the hourly rates claimed in the budget; even though, by approving a budget, you might assume that it had done that very thing. Certainly it would appear odd for a party to be able to challenge the other side’s hourly rates at detailed assessment, having not taken the point earlier. 

The CPRC papers say that the “process is designed to be no more than a high-level costs budgeting exercise”. Our sympathy to the costs judges, left to deal with the fall out. Although, hang on… A high-level costs budgeting exercise followed by a detailed costs assessment does sound familiar… 

This article was published in Commercial Litigation Journal in January 2016.

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