Wait until directions are issued to set the budget, says Kennedys

Costs budgets should only be set after the court has issued directions on how the case is to proceed, we have recommended in a bid to improve the budgeting process.

It also called for greater control of costs incurred before the budget is set, with claimants required to provide an estimate with the letter of claim that the court can measure them against.

In its response to a consultation issued by Civil Justice Council’s costs working group, Kennedys backed the retention of costs budgeting as “a helpful tool in allowing parties to litigation to understand and plan for potential costs liabilities and recovery”, although it said greater guidance on the application of the proportionality principle would help.

There is scope for reform, however, particularly in the current process of exchanging and agreeing court directions in tandem with costs budgeting.

“In our view, the current system can lead to parties budgeting on fundamentally different assumptions, such as the number and identity of expert disciplines. This can not only waste court time but also result in adjournments and/or budgeting on an ad hoc basis, which in our view is undesirable and expensive,” Kennedys said.

“Rather, we suggest that the budgeting exercise should be separated from setting the directions. The court would have draft budgets available at the directions hearing to consider any issues relating to proportionality, but the approval of the budgets could then be addressed at a separate hearing or if appropriate, on paper.”

The expertise of specialist costs judges could be called on to set budgets in more complex cases, Kennedys suggested.

It continued: “Our proposal is that prior to the costs budgets being submitted, the parties should be obliged to exchange draft directions two months before the date of the case and costs management conference (CCMC), with the first month thereafter to be used to seek agreement of those directions. We believe this would allow for the issues to be narrowed and for the parties’ budgets to be based on the same or similar assumptions.”

Kennedys’ response said budgeting should be done up to the pre-trial review and alternative dispute resolution phases, as only a very small number of cases proceed to trial but the requirement to budget the later phases so early often causes conflict.

Costs incurred before the budget “remain a barrier to ensuring proportionate costs and streamlining the detailed assessment process”, so they should be addressed as part of the budgeting process, Kennedys went on.

“We suggest that claimants are required to produce estimates of costs or confirm the predicted bracket for costs within the letter of claim, and again when proceedings are issued. Such estimates will have been prepared for clients and, therefore, would not add an additional layer of costs burden to litigation.”

“Judges would then have sufficient information to comment substantively at the CCMC on the costs already incurred. We also suggest that sanctions are imposed where a costs estimate is exceeded.”

Further recommendations included revising and strengthening the rules in relation to poor behaviour in the budgeting process, particularly over a party’s failure to engage constructively in the process of negotiating a budget and where a budget is substantially reduced by the court.

Kennedys added that the guideline hourly rates (GHR) should be used within costs management, with a view to reducing court time and aiding the assessment of proportionate costs.

Further, the GHR should be the starting point for both summary and detailed assessment, with parties required to provide evidence as to why a claim should attract rates in excess of the GHR. Kennedys also said the GHR should be calculated on the basis that they will largely only apply to higher-value cases, thus avoiding the need for ‘bespoke’ uplifting to account for value/complexity.

Lewis Thompson, a partner in the costs department of Kennedys, says: “The consultation asks if budgeting and the GHR should retain a role in civil litigation. We firmly believe that both do but their effectiveness in controlling costs and making them more predictable for the parties can be significantly improved.”