Posted on 27th January 2016
Patrick Allen calls for a review of the future of costs budgeting
It is now more than two years since budgets were introduced as a requirement for multi-track work. Lord Justice Jackson, reviewing progress in the spring (his lecture on 13 May 2015), said that costs management brings substantial benefits to “court users”. Many will disagree.
Jackson LJ formed his view after canvassing opinions at meetings with practitioners and judges. There was no systematic, anonymised survey.
He acknowledged the concerns of practitioners and dismissed them on the basis that “the contentment of lawyers is not an appropriate test” (but nor is the contentment of judges), and that “they don’t like budgeting because it means more work and new skills”.
However it is possible that many object because they see no benefits, only extra costs and burdens.
Controversy has dogged the new system from the start. The new rules on budgets and sanctions nearly destroyed the reputation of our civil justice system for fairness with the disastrous Mitchell decision when £506,000 of costs was disallowed from a budget because it was filed the day before the hearing, not seven days before (Mitchell MP v News Group Newspapers  EWCA Civ 1537,  2 All ER 430). Cooperation between litigants disappeared until some sanity was restored with the decision in Denton (Denton v TH White Ltd  EWCA Civ 906,  1 All ER 880).
Budgets have introduced unwelcome and unacceptable delays in the Queen’s Bench Division because hearings to approve the budgets are required in almost every case but no new resources and judges have been made available. The result: a nine-month waiting list for clinical negligence cases in London, Birmingham and Manchester.
Jackson LJ proposed to fix the backlog by exempting these cases from budgeting and this is now going ahead. However, 9 months later there will presumably be another group of cases suffering excessive delay.
There can be no doubt about the extra costs. Where budgets are required, litigants have to cost all proposed work until trial, attend a case management conference to get the budget agreed, keep the budget under review and make applications for amendment if necessary. I estimate this to cost around £12,500 for each side.
In personal injury and clinical negligence cases, defendants cannot recover their costs because of qualified one-way costs shifting. Therefore all work on their budgets is wasted except in the handful of cases which go to trial and where the claimant fails to beat the Pt 36. Even here, pre-offer budgeting is wasted.
My estimate of wasted defendant costs is 3,000 cases pa x £12,500 = £37million pa or £75million to date. How can this be justified for a cash-strapped NHS? Jackson LJ dismisses the point saying defendants budgets don’t take long to review so they shouldn’t be “let off”. Court rules need to be rational and if defendant budgets never come into play they should be ditched.
Jackson LJ compares litigation with other commercial projects such as construction. There is a crucial difference—all details of design are agreed in advance and such projects always finish and no-one wants one third of a bridge. In litigation less than four in 100 go to trial but budgets have to cover costs to trial so it is guaranteed that post-settlement budgeting is wasted
Costing is specialist work and we have a skilled profession of cost lawyers to do it. In construction, estimates are provided by specialist quantity surveyors, not by the architects and engineers. Some judges wish to exclude cost draftsmen from the budget hearings which is surprising as they are the only ones in the room who actually know about costs.
Judges mostly are ex-barristers who know even less about costs than ex-solicitors. It makes little sense to force them to do training in costs to manage budget hearings for which they have no aptitude or interest. Cost judges would be the best people to manage budgets but there are only about eight of them for the whole country and they are busy doing other work.
What are the benefits? Early signs are not encouraging. Almost every finished case still requires a bill to be prepared by a cost draftsman so no saving here. We now laboriously compare what was actually done with the budget. Defendants still want to challenge everything including basics like hourly rates.
It is said that budgets help to decide on issues and scope of work. Could this not be done on the basis of brief estimates? Budgets appear to be a very expensive and complicated way of capping claimant costs.
Budgets are forecasts in the uncertain world of litigation and one thing we can be sure about is that they will be wrong. Much work is wasted costing events which do not happen. Suddenly the advantages of detailed assessments start to look impressive. Save the costs of budgets and look at the costs that were incurred, then decide if they were reasonable, especially in the light of the conduct of the loser.
Let us urgently commission a proper survey and make an evidence-based decision on whether budgets are worth persisting with for the benefit of litigants.
This article first appeared in New Law Journal.