A change to costs budgeting comes into force on 1 October 2019 as part of the 109th update to the Civil Procedure Rules. The date of incurred and budgeted costs is changing.
There has been a flurry of concern in the costs industry as to how this amendment will work in practice. The amendment is to Practice Direction 3E, paragraph 7.4, which currently states:
"As part of the costs management process the court may not approve costs incurred before the date of any costs management hearing. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all budgeted costs"
This is changing to:
"As part of the costs management process the court may not approve costs incurred up to and including the date of the costs management hearing. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all budgeted costs"
In its current form budgeted costs run from the date of the budget not the Costs and Case Management Conference (CCMC). So the incurred costs that were subject to detailed assessment were until the budget was drawn and then the budgeted costs were from that date. This made it simple to draft a budget as the incurred time finished at the date you drafted the document.
The concern now is that the budget will need to estimate what costs will be incurred between the budgets being drawn and when the CCMC takes place. Many in the industry see this as a problem that is going to create more ambiguity.
I disagree. It is usual practice now for the CCMC phase to be moved from the budgeted costs to incurred costs at the hearing, as at the hearing the costs are now incurred. The change is an extension of this to include the work in other phases as well as to enshrine this practice into a rule.
In the cases below £50,000 where a budget is produced and the CCMC not listed for several months this is difficult to do. In these cases it is likely that it will require an updated budget ahead of the hearing to give an accurate reflection of costs incurred to the CCMC and costs estimated thereafter.
The process of updating the budget will be a relatively simple exercise and in most cases this is often done in any event to show the court how compliant we are with the budgeting procedure.
On the higher value cases the costs budgets are generally produced a lot closer to the hearing as they are not required until 21 days before the first CCMC. Any budgets produced well before the hearing are going to need to be amended if prepared too early.
So, in my opinion there is a slight difference to drafting a budget, to put the CCMC phase time all as incurred. There will be some estimating of the incurred time, before the CCMC takes place, but then are we not already doing that when drafting a budget?
My own view is that this is a simple and welcome change. It is clear when the incurred costs cut off is and what is budgeted. The court does not manage the incurred costs and they will carry on being subject to detailed assessment at conclusion.
There may be some guidance required on what will happen when the incurred costs in the bill are vastly different to the budget. I am sure this will amount to a good reason to depart from a budget where the circumstances have changed or where the budget was not accurately drawn before the first CCMC. This would be a welcome outcome to ensure parties are accurately and realistically estimating the costs to be incurred before the CCMC.
The simplest way around all of this in high value cases is to not draft your budget too early and in the lower value cases update your budget before the CCMC.
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