Budgeting for dummies

Costs control is here to stay but never fear, help is at hand for counsel beginning to get the jitters

The Jackson regime has introduced the most profound and far-reaching series of reforms to civil litigation since the Woolf reforms in 1999 – indeed, according to one commentator, since Magna Carta.

While changes to the recoverability of additional liabilities, the introduction of fixed recoverable fees in the fast-track, damages-based agreements and the qualified one-way costs shifting regime are important, the headline change is the introduction of costs management/budgeting for most multi-track civil litigation.

The changes are embodied in the new Civil Procedure Rules 3.12-3.18 and accompanying practice direction. These require both parties to project manage litigation from beginning to end and budget the costs at the outset, these recorded in the prescribed format referred to as Precedent H. At the moment, commercial cases worth over £2m and all cases in the Admiralty Division and Commercial Court are exempt from mandatory costs budgeting, although the Civil Procedure Rule Committee has consulted on removing this and it could well be removed for most, if not all, these high-value cases.

To date, comment has focused on what the solicitors’ profession needs to do to comply with the new regime and, of course, the prime responsibility for ensuring compliance lies with the solicitor. 

However, budgets need to estimate experts’ and counsels’ fees for each phase of the litigation. It is essential that counsel provide the instructing solicitor with a budget that covers all likely eventualities in a timely manner. 7 Bedford Row has drawn up a number of templates for counsels’ costs for different types of cases and call brackets.

The templates are based on Precedent H, but contain much more detail in justification of fees, including an estimate of the kind of work counsel will undertake and the time it will take. While there is no requirement for the fees to be broken down in this way it has to be expected that many courts will require this level of information before approving a budget. Penalties for failing to file on time or correctly estimate costs could be financially devastating for solicitors and counsel.

 In these early days co-operation between solicitor and counsel is essential, as is a willingness to be flexible over fees. As an example it has been suggested that courts may try to limit recoverable costs. If this happens and, say, the forecast costs for a phase are £30,000, comprising £10,000 each for solicitor, counsel and expert, and the court limits the total costs for that phase to £20,000, solicitor and counsel will have to agree the split. 

Solicitors will also wish to provide clients with a degree of cost certainty over the potential percentage loss to their damages that, for low-value cases, is likely to result in an expectation that counsel will not seek to recover a success fee.

The judiciary has made it clear that costs management is here to stay and it is up to all branches of the profession, including costs lawyers, to make it work.