REUTERS | Jose Miguel Gomez

Consequences of failing to tick a box in costs management

I am always worried that failing to tick the correct box on a form could have dangerous consequences, but it is reassuring to see that the TCC does not view such an error as fatal, at least when it comes to revising an approved costs budget.

Since the introduction of the costs management pilot scheme in the TCC, construction practitioners have been waiting to see how the court would deal with a party’s application to revise its costs budget, where it had not complied strictly with the practice direction. We have already seen the Court of Appeal’s decision in Sylvia Henry v News Group Newspapers Ltd, which looked at approved budgets in the context of the defamation pilot. An opportunity for the TCC arose recently in Murray v Neil Dowlman Architecture Ltd.

Murray v Neil Dowlman Architecture

Under the pilot, parties were required to complete form HB, which contained tick boxes for a party to indicate whether certain items, including success fees and ATE premiums, were excluded from the budget.

In Murray, the claimants had obtained a CFA and ATE, but failed to include details of this on their costs budget form. In error, they had not used form HB and so had not ticked a box to demonstrate the exclusion of these items. They sought to rectify this, and applied to have the approved costs budget revised, having made the defendant aware of the existence of the CFA and ATE at an earlier date.

Pilot v new rules

Coulson J decided that this was effectively an application to revise the claimant’s cost budget. He reviewed the relevant practice directions and case law under the pilot, albeit there has been little in the way of judicial guidance so far. He noted that this was a special case. The defendant had known about the existence of the CFA and ATE premium and so was not prejudiced by the fact that these should have been excluded from the costs budget.

However, lack of prejudice alone was insufficient. The deciding factor here was that, had the claimants commenced proceedings after 1 April 2013, the new costs budget form (precedent H) would have automatically excluded success fees and ATE premiums. Therefore, the claimants were allowed to revise their costs budget, so as not to produce a material inconsistency between the pilot and the new rules.

Like the Sylvia Henry decision before it, Murray was a special case with very specific facts. As Precedent H is so new, we still await direct guidance on how the TCC will deal with applications to amend approved costs budgets under the new rules. However, Coulson J gave an indication of how judges might review such applications going forward by saying that:

“…in an ordinary case, it will be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a costs budget, which is then approved by the court, should be subsequently revised or rectified… The courts will expect parties to undertake the costs budgeting exercise properly first time around, and will be slow to revise approved budgets merely because, after the event, it is said that particular items had been omitted or under-valued.”

Parties cannot therefore take too much comfort from this decision, as due to the nature of the facts, it seems unlikely to provide any real avenue for amending a court approved costs budget in all but rare circumstances. It will be interesting to see, in the coming months, what the TCC does consider as sufficient to justify a departure from or revision to the approved costs budget.

Precedent H’s statement of truth

Murray also raises an interesting point in relation to the statement of truth that solicitors have to sign on precedent H:

“The costs stated to have been incurred do not exceed the costs which my client is liable to pay in respect of such work. The future costs stated in this budget are a proper estimate of the reasonable and proportionate costs which my client will incur in this litigation.” (Paragraph 2.2A of PD 22.)

This wording may not accurately reflect the position where certain funding arrangements are in place. For example, the terms of a discounted CFA lite may be such that the costs the client incurs (outside of any success fee payable) may differ from what is recoverable from a losing opponent, which would be based on a non-discounted hourly rate. The position is similar where, for example, the case is on a damages-based agreement so that the client will, in fact, incur a percentage of damages and not “costs” (or nothing at all if the case is not successful).

What, if any, are the implications for a party or its representative if the statement of truth is signed in its unamended form?

The last word?

By way of a last word on the topic, the final report on the pilot has been published. Given that cost management has already become a permanent fixture in the TCC (and other courts), some may question the relevance of this feedback. However, considering the uncertainty and debate that has surrounded whether cost management should be automatically applied to cases over £2 million, the feedback in the report about lawyers’ experiences under the pilot provides interesting reading.

For me, the key thing was the general acknowledgment from lawyers of the benefits of costs management. Namely, how it makes parties focus on the key issues at an early stage of the case and on the future costs of conducting the litigation, thus potentially encouraging parties to settle.

As has been said before, “costs management is here to stay”, but there will be a lot more to consider about its practical impact over the coming months as the new rules are applied, particularly taking into account the concern expressed by the judges in the final report about the extra case management burden cost budgeting brings for judges and their time.

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