Costs budgeting – what is the correct methodology?

Court directions played an important role in costs management but has costs budgeting curtailed that and, if so, should it have done? Jon Lord, Costs Lawyer and Mediator at Cost Advocates, considers the position as set out in the Jackson reforms and that taken in the most recent case of Tim Yeo MP v Times Newspapers Limited [2015] EWHC 209 (QB).

'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'.

These were the words of Jackson LJ in his Review of Civil Litigation Costs: Final Report in 2009. Time hop to April 2013 and costs management became a permanent fixture in multi-track litigation and has been deemed so popular to have been extended in scope as of April 2014.

Jackson’s ideal that the case should be managed with the costs is reflected in the stated purpose at CPR 3.12(2), which reads:

“The purpose of costs management is that the court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective”.

The case management directions and the costs should not therefore be looked at in isolation. The courts should be looking at case management directions and their resultant costs and decide whether ordering a party to undertake that step will keep costs to overall reasonable and proportionate level. If it will, let the parties get on with it within the approved budget; if they are not, make different directions.

Some judges get it, but in my experience they are in a minority and most will admit that their training has been inadequate – something that Jackson identified as a key to the success of the reform. Judges are aided by practitioners who know no better or who have seized on the opportunity of costs management to simply reduce their exposure to legal costs if the case is lost.

I take the case of Tim Yeo MP v Times Newspapers Limited as an example. The Rt Hon Mr Yeo is suing Times Newspapers for libel over allegations of involvement in ‘cash for influence’. At the first case management conference in July 2014, costs management was not addressed. Warby J found there to be defamatory meanings in the published articles, although the meanings were different from those complained of by Mr Yeo and he was given permission to amend his Particulars of Claim. Defences of justification and fair comment were struck out.

Mr Yeo subsequently alleged malice in his Reply which TNL applied to strike out. Mr Yeo also requested further directions and costs management.

Warby J heard 2 hours of oral argument on costs on 26 January 2015. He reserved his decision on the basis that it had been over 20 months since budgeting was introduced and there was still no real guidance on approach, particularly in defamation cases. He went on to give guidance on whether costs management should be done at a hearing or on paper, the approach to incurred costs, the approach to approval of budgets and contingencies and revision.

In relation to the approach to approval of future costs, Desmond Browne QC for Mr Yeo referred the judge to a speech given by Master Gordon-Saker, the Senior Costs Judge, to the Commercial Litigation Association on 1 October 2014. He suggested that judges should not look at hourly rates and hours but should focus on overall reasonableness and proportionality.

Whilst acknowledging that costs management should not be a detailed assessment, Warby J concluded that he should properly look at the hourly rates and time spent as would be done on a summary assessment, distinguishing that approach from a detailed assessment.

The judge went on to reduce figures by 20-25% because he considered that Carter Ruck’s hourly rates were too high and partner time was excessive but not once did he refer to managing the costs through directions. He referred to work to be done on disclosure and witness evidence but nowhere has he hinted that he has taken the approach recommended by Jackson or adopted the stated purpose in the rules.

Warby J’s approach to the costs management exercise divorced the costs issue from the directions. He has not managed them in line with the purpose but has undertaken an exercise which is a mixture between costs capping (which is a different section of CPR Part 3) and an assessment, whether it be detailed or summary. Nothing seems to have been done that couldn’t be achieved on a detailed assessment, which appears almost inevitable if Mr Yeo wins as incurred costs were already over £100,000.

There is much to be applauded in the guidance given but I can’t help but think that the Judge’s overall approach was wrong. Without the professional training recommended by Jackson, budgeting will never work and we will be stuck with either binding or persuasive decisions which go against the purpose of the reforms.