What is a Costs Management Order?

And Does Costs Budgeting Remain Effective: Smith v W Ford & Sons (Contractors) Ltd [2021] EWHC 1749 (QB)

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What is Costs Management?

Throughout litigation, certain actions need to be completed in order to proceed efficiently and comply with Court procedure. Costs management is a method by which the legal costs within a case are monitored and assessed. In order to effectively do this, certain procedures have been put in place as to costs budgeting. The relevant rules were introduced for Multi Track cases that commenced on or after the 1 April 2013 in the County Courts and High Courts (or in any other case in which the Court Orders such Budgets). Under costs management, the parties in a matter will be required to prepare Costs Budgets at the CMC/allocation stage in order to detail the costs incurred to date, and to forecast all future costs of the litigation.

What are Costs Budgets?

Parties within a Multi Track case will be required to prepare a Costs Budget, unless they have been otherwise ordered not to. Also known as a Precedent H, this document sets out in the early stages of litigation, what the recoverable costs for the each party will be if they are successful. In turn, this allows parties to assess where they should target their efforts and spend their time during the litigation process, as well as being fully aware of the costs implications/risks of failure. When a costs expert is preparing this document, they should consider who will be working on the case, their hourly rates, and future expenses, such as experts, Counsel and Court fees. The Budget will also reflect the proposed directions and the length of Trial that the party is seeking. A large proportion of the required information to determine anticipated costs for a Budget can usually be found in the Directions Questionnaire or the proposed directions.

Recent amendments to Practice Direction 3E define that “Incurred costs are all costs incurred up to and including the date of the first costs management order, unless otherwise ordered” and “budgeted costs are all costs to be incurred after the date of the first costs management order.” In addition, revised guidance directed that Trial brief fees should be placed in the ‘Trial Preparation’ phase rather than the “Trial” phase. It is important that the author of the Budget is aware of these adaptations as errors within Costs Budgets can result in significant cost consequences/recovery issues on conclusion of the claim.

It is very important to take care when producing a Costs Budget as a statement of truth must be signed to state that the contents of the documents are accurate. In the case that the contents of a Costs Budget are significantly under/over estimated, severe consequences and sanctions can be placed on a party. Therefore, it is imperative to employ a reputable and regulated Costs Draftsman or Costs Lawyer to complete any costs law work.

A Costs Budget may be deviated from; however, when good reasons arise. The Court guidelines are ambiguous on this topic although a change in circumstance may be sufficient for the Court to allow it. If the party makes a concerted effort to amend the costs budget after the change in circumstance (via a Precedent T), the Court will likely look more kindly upon any deviation.  Such examples of ‘good reason’ may be a longer Trial than originally anticipated, or further expert evidence being required than had originally been foreseen.

It is of the utmost importance to file a Costs Budget in a timely fashion as it ensures that incurred costs can be recovered in the future. If the document is not filed, the party’s recoverable costs will be limited to Court fees only. This will place harsh limitations on the client’s case as it will cause their Solicitors fees to be unrecoverable.

After the exchange of Costs Budgets, parties must provide a budget discussion report, also known as a Precedent R, to agree the amounts in dispute.

Once the parties within a case have prepared and exchanged their Costs Budgets and budget discussion reports, the parties can enter into settlement discussions and/or the matter may proceed to a CCMC to approve the agreement/Budgets.


What is a Costs Management Order?

A costs management order will be made by the Court following agreement of Costs Budgets, or at any CCMC if agreement has not been reached.  In the event of non-agreement, the Court will adjudicate the appropriate future costs of the case on a phase by phase basis, in order to allow them to control the parties overall expenditure. This Order allows the “Court to consider whether the budgeted costs fall within the range of reasonable and proportionate costs.”

The Court can make a costs management order at any point during the litigation. This document will record the extent to which the Budgets have been agreed between the parties. In the case that the Budget has not been agreed, the extent of the Court’s approval of the Budget will be recorded. If the Court believes that it is necessary, amendments may be made to the Budgets, upwards or downwards.

Furthermore, on conclusion when any cost orders have been made and the Court is assessing costs on a standard basis, they will have regard to a party’s most recently approved or agreed Budget. This will not be departed from except for in a situation where the Court believes it is appropriate to do so, and on the confirmation of a ‘good reason’.

In many Multi Track cases where Costs Budgets have been filed and exchanged, costs management orders will be required. The Court will only refrain from providing a costs management order if they can be “satisfied that the litigation can be conducted justly and at proportionate cost in accordance with the overriding objective without such an order being made”.

Recently however, Judges have questioned the usefulness of costs management processes.  In the matter of Smith v W Ford & Sons (Contractors) Ltd [2021] EWHC 1749 (QB), an issue was raised as to whether budgeting should apply in asbestos cases.  Traditionally budgeting has not applied to such cases owing to the urgent nature with which litigation has to be conducted however, on the issue of budgeting as a whole Master Davison commented: “QB masters, Chancery masters and costs judges do not necessarily share this defendant’s expressed confidence that costs budgeting controls costs better, or more effectively, than detailed assessment. This is a large topic and a complex and somewhat sensitive issue. The present hearing is not, perhaps, the forum to debate it at any length.”


Costs Management Conferences

A Costs and Case Management Conference (CCMC) is a hearing which takes place at the stage of allocation and after the filing of Costs Budgets. It allows a Judge to determine the directions to proceed to Trial, and allows the Court to grasp the issues in dispute and identify any disputes that may be settled/narrowed before the Trial. Alongside this, settlement and alternative dispute resolution aspects may be discussed.

These hearings also deal with the costs within the case and can also be used to assess Costs Budgets if no agreement has been reached. If a party fails to file a budget discussion report at least 7 days before a CCMC, then the opposing party’s budget will be presumed as agreed. A Costs and Case Management Conference should only be reached if the parties cannot agree on the Budgets, and generally the Court will vacate the hearing by consent if directions and Budgets have been agreed.


What Other Documents May Need to be Prepared During Costs Litigation?


As mentioned above, a budget discussion report needs to be filed following the service of the costs budgets. However, there are further documents that may be required. 

Subsequent to the settlement of a matter, detailed assessment of costs may be ordered. In this case, a bill of costs will need to be prepared. This is a document which itemizes the work completed in a case and totals the costs that have been incurred. From this document, the paying party can scrutinize the work and costs incurred.

In multi track cases, an electronic bill of costs will be utilized. This allows for easy assessment of the budget phases, work types, tasks and activities. If a costs budget has been filed and a Costs Management Order has been made by the Court, the electronic bill of costs will have to reflect this. This will be completed by highlighting the phasing of work and dividing the work completed between incurred and anticipated costs.

There may be a slight discrepancy between the incurred costs shown in the bill of costs and the costs budget. This is because time has passed and other costs that were not expected have been incurred. In order to avoid this, updated costs budgets can be filed and served prior to any costs and case management conference (CCMC). Subsequent to the production of a multi track bill of costs, a Precedent Q will also be required. This will document how the incurred and anticipated costs compare to those stated in any costs management order that has been made.

Following the production of a bill of costs, and points of dispute if necessary, an agreement should hopefully be reached. If this has not happened, a provisional assessment or detailed assessment hearing can be applied for depending on the value of the matter.


Costs Management Order: How can ARC Costs Assist?

The experienced team at ARC Costs are well equipped to provide assistance in all varieties of costs dispute matters. As independent costs experts, we regularly advise both receiving and paying parties in order to maximise their recovery/minimise their expenditure, dependant upon the party we represent.

Our experts regularly handle complex Multi Track matters which require the provision of many of our services. Our team of Costs Draftsman and Costs Lawyers regularly prepare Costs Budgets and Bills of Costs, as well as providing representation at any CCMC or during detailed assessment proceedings. Our services also extend to assist in providing retainer advice services, preparing Points of Dispute and Points of Reply, as well as conducting general costs negotiations.

Furthermore, our Costs Lawyers, who are regulated by the Costs Lawyers Standards Board and Association of Costs Lawyers, can conduct litigation for costs proceedings and can therefore accept instructions direct from any party.

To find out more about the services that we offer please use the free chat facility to speak with one of our experts. Alternatively, we are available via email at info@arccosts.co.uk, or can be contacted by phone on 01204 397302. 

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