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Costs Budgeting the storm before the calm? Jeremy Ford Barrister Since the dawn of the CPR it has been a requirement of parties to assess the likely value and complexity of each claim and plan the necessary work; the appropriate level of person to carry out the work; the overall time that would be necessary; and the appropriate spend on various stages in bringing the action to trial . Further, courts have required parties to file estimates of costs “already incurred and likely to be incurred” with completed allocation questionnaires and often for case management conferences, so that such estimates can be taken into account as the case was being managed. The importance of these cost estimates was highlighted in Leigh –v- Michelin Tyre [2003] EWCA Civ 1766 where the Court of Appeal emphasised that cost estimates should be updated throughout the course of the litigation and, in the absence of a satisfactory explanation, the court could conclude that costs over and above those estimated were unreasonably incurred. So why is cost budgeting, applied to the vast majority of multi- track cases issued on or after 1st April 2013 , heralded as a fundamental new innovation when costs are something that should always have been a consideration in case management? The fundamental difference stems from (i) the change in the overriding objective; and (ii) the new test of proportionality. The overriding objective now requires courts to deal with case justly “and at proportionate cost”. From the outset judges must therefore manage both the steps to be taken and the costs to be incurred in proceedings, ensuring compliance with the new test of proportionality. The test in Lownds –v- Home Office [2002] EWCA Civ. 365 has been reversed. All costs incurred after 1st April 2013 can be disproportionate even when they are reasonably or necessarily incurred and judges will only regard costs as being proportionate if they bear a reasonable relationship to (a) the sums in issue in the proceedings; (b) the value of any non- monetary relief in issue in the proceedings; (c) the complexity of the litigation; (d) any additional work generated by the conduct of the paying party; and (e) any wider factors involved in the proceedings, such as reputation or public importance (See CPR r.44.3(5)). Accordingly, justice can no longer be sought at any price although when considering budgets at case management stages it will necessarily be the sum reasonably claimed rather than the sum that is eventually recovered that will be the benchmark. The rules relating to the courts new costs management powers are found at CPR 3.12 – 3.18 and in practice direction 3E. All parties must file and exchange costs budgets by a date to be specified in accordance with the notice of proposed allocation to a case management track (CPR 26.3(1)) or, if no such date is specified, seven days before the first case management conference. There is no provision to alter these dates by consent (CPR 26.3(6A)). If there is failure to file a budget the defaulting party will be deemed to have filed a budget comprising only the applicable court fees. Solicitors will therefore miss the filing of a budget at their peril, particularly as the Court of Appeal have already made it very clear that the courts will now be less ready than before to grant relief from sanctions for procedural default (see Fred Perry (Holdings) Limited –v- Brands Trading Plaza Limited [2012] EWCA Civ 224) 8 and note the removal of the more benevolent factors the court could previously have taken into account in the new drafting of CPR 3.9(1). The form of the budget is considered in the Practice Direction 3E. Unless otherwise ordered the budget will be in landscape format and in the new form, Precedent H. To the uninitiated this is a somewhat daunting document which demands detailed breakdowns of all incurred costs and future costs under ten separate headings as well as then allowing for additional contingencies. It is not a document that can be completed lightly and anecdotal evidence from practitioners involved in the two cost-budgeting pilots suggest that completing the budget takes between 2.5 – 4 hours, albeit that the allowed costs for completing Precedent H will not ordinarily exceed the higher of £1,000 or 1% of the approved budget (CPR 3EPD.2). Brief but helpful guidance on completing the budget can be found at www.justice.gov.uk/courts/procedure- rules/civil/pdf/update/new-precedent-h-guidance.pdf. Obviously, there will also be some tactical considerations. The need to provide such a detailed budget at all provides an incentive for claimants to front load the obtaining of their lay and expert evidence so that they do not have to reveal, and then potentially rely upon, unfavourable evidence and defendants will have to carefully consider the issue of surveillance evidence. There seems little incentive for a defendant to cost the obtaining of surveillance evidence in its budget, thereby losing all element of surprise, particularly in a QOCS regime. Having exchanged budgets, it is open to the parties to agree them. Technically this excludes the ability of the court to manage costs as it is required to do. This creates an obvious tension between the rules but given the likelihood that defendant insurers will be minimising their budgets in an attempt to persuade courts to restrict the claimant’s budget, the agreeing of budgets is unlikely to be the norm. In the absence of agreement, the court will proceed to consider and set the first budget during the first Case/Costs Management Conference. Technically, the hearing is not supposed to be a detailed assessment but rather a consideration of “whether the budgeted costs fall within the range of reasonable and proportionate costs” (3EPD 2.3). Despite this assertion, given the