What is CPR 3.13?

CPR 3.13 sets out the requirement for parties to file Costs Budgets during the course of litigation.

In essence, it states that in any matter intended to be allocated to, or proposed to be allocated to the Multi Track (CPR 3.12), parties must file and serve a Costs Budget either:

1. If the claim is pleaded at less than £50,000, alongside the Directions Questionnaire, or;
2. If the claim is pleaded at equal to or more than £50,000, 21 days before the first Case Management Conference (CMC).

When Does Costs Budgeting Apply?

Costs Budgets (also known as a Precedent H) were introduced as part of the Jackson Reforms in 2013 to bring further control and certainty to costs in legal disputes.

In line with CPR 3.13, Costs Budgets are required in all Multi Track litigation (unless otherwise ordered).  The intention is to ensure that costs are controlled from an early stage of litigation, and to set a budget (essentially a cap) to all stages of the litigation.  On resolution, the successful party is only entitled to recover costs in line with their agreed or approved Budget, unless a “good reason” can be demonstrated to depart from the Costs Budget.

As the purpose of CPR 3.13 and Costs Budgets is to set an allowance for proportionate costs of litigation, then if an indemnity costs order is made, the constraints of any Costs Budget disapply, and recovery can be achieved beyond the value of any set Budget.

Some exceptions apply to the requirement to file and serve a Costs Budget under CPR 3.13, which includes:

• If the party is a Litigant in Person (though any other party represented in the litigation is still required to file and serve a Budget)
• If the party is an individual under the age of 18;
• If any quantified claim is pleaded at in excess of £10 million.

What is a Costs Budget?

A Costs Budget follows the Precedent H format, and is split into two broad sections:

• Incurred Costs – These are the costs incurred up to and including the date of the CCMC. As such, when preparing the Budget, some costs contained in this part of the Budget will actually be estimated.  These costs are not protected/covered by any Costs Management Order, and will be subject to the full scope of powers under any subsequent detailed assessment that takes place.

• Estimated Costs – These are the costs that will be approved/managed by the Court, and reflect future work to be undertaken in the litigation. Such costs fall into various phases, including:

1. Issues/Statements of Case – Work relating to settling pleadings and finalising Schedules of Loss;
2. CMC – Quite often there are no future costs predicted, given that all costs up to the date of the CCMC are treated as incurred. Estimated costs will be claimed if it is expected there will be future CMCs;
3. Disclosure – Settling disclosure lists and considering any disclosure received;
4. Witness Statements – Attending upon and preparing any witness statements, as well as dealing with the costs of exchange of witness evidence and considering opposing party evidence;
5. Expert Reports – Obtaining any future expert reports, including the costs of conferences with Counsel and joint statements between experts of like discipline for each party;
6. Pre-Trial Review (PTR) – Settling the Pre-Trial Checklist, costs of attending any PTR as well as payment of the hearing fee.
7. Trial Preparation – Costs of all preparatory work for Trial, including creation of bundles, pre-Trial conferences and Counsel’s brief fee;
8. Trial – Costs of attending the Trial itself, mainly limited to Solicitor attendance time, Counsel refresher fees and any expert attendance fees;
9. ADR – Costs associated in engaging with negotiations or alternatives, including Round Table Meetings (RTM), mediation or other ADR alternative.
10. Contingents – Additional Contingent phases can be added to the Budget. These should not be utilised for unlimited permutations/variations, and should only be included for aspects of the litigation which are substantially likely to arise, but at the time of preparation of the Budget are not definitively known to be required e.g. a party may have prepared a Budget for a single day Trial, but included a Contingent for a 2 or 3 Day Trial in the event that the Court expects to list the matter for a longer Trial.

Full Budget preparation guidance is provided online here.

What are the Consequences of Failing to File a Costs Budget?

It is important to note that CPR 3.13 requires parties to file and serve Costs Budgets by a specific deadline.  A common error that can arise is that a party may not fulfil both requirements, and thereby default on the relevant rules.

Irrespective, if a party fails to file or serve a Costs in line with CPR 3.13, then the consequences of CPR 3.14 apply.  This stipulates that “unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.”

In essence, this means that the Court takes the lack of compliance with CPR 3.13 to mean that the defaulting party does not wish to recover their costs, save for Court fees.  This can obviously have a catastrophic effect on the ongoing viability of litigation, particularly given that a litigating party’s costs can often be similar in amount to, or even exceed the level of damages being sought by a Claimant.  It may also render the intention to obtain any non-quantifiable element of relief unviable to continue with, owing to the significant (and unrecoverable cost) that may arise as a result.

A common misconception that also arises, is that in a claim value equal to or in excess of £50,000, whereby CPR 3.13 requires the Budget to be filed 21 days before the first CMC, this is a reference to clear days i.e. a party should file 22 days prior to CMC date to ensure there are 21 clear days.  We always recommend best practice should be to file and serve a Costs Budget with the Directions Questionnaire in all cases to avoid the possibility of a default, as this ties the budgeting process in line with other filing requirements.  A Costs Budget can be subsequently updated if needed (and we would recommend this is done in good time before any CCMC), and once a Budget has been filed, then sanctions cannot apply for late filing/service.

It is imperative that if a Costs Budget is filed late, that an application for relief from sanctions is made promptly to ensure that no inconvenience is caused to the opposing parties or Court, and that disruption is not caused to the litigation process (preferably with the relief application being dealt with at any listed CMC).  Full guidance on the factors that impact on the likely prospects of any relief application, are considered under the Denton test (pursuant to Denton v TH White. [2014] EWCA Civ 906)

What Happens after a Costs Budget is Filed and Served?

Once approved by the Court, a Costs Management Order will be made setting out any commentary in relation to incurred costs to date, as well as detailing the approval of the total Budget for each party, and the phases of each Budget.

In response, each party must file and serve an amended front sheet for their approved Budget, to be referred to on conclusion of the proceedings.

Events can subsequently take place in litigation that render the original approved Budget insufficient to cover the work provided.  If such events could not have been anticipated at the time of preparing the original Budgets, parties must proactively apply to vary their Budgets utilising the Precedent T process.  Leaving the matter to detailed assessment, to try and demonstrate a “good reason” to deviate is a risky option, and if it is demonstrated that there was a failure to be proactive in varying your Budget, you may struggle in recovering any costs incurred above and beyond the extent of any approved Budget.

How can ARC Costs Assist with Compliance with CPR 3.13?

At ARC Costs, we are an independent expert team of Costs Lawyers and experienced Costs Draftsman.  As such, we are able to represent Claimants or Defendants in litigation, and our input is not limited to the costs budgeting process.

In respect of CPR 3.13, we can assist with preparing your Costs Budget and quantifying future costs.  Once filed and served, Costs Budgets still need to be agreed and approved by the Court, and we can provide assistance with settling of Budget Discussion Reports (Precedent R) as well as Budget negotiations, or providing representation at any CCMC.

If successful during litigation, you will be entitled to recover your costs, upon which we can assist in preparation of your Bill of Costs (which will need to take the Excel electronic format and be phased for any budgeted matter)

For assistance with your costs related queries, contact us at info@arccosts.co.uk, or speak to one of the team by calling 01204 397302.

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