UK: On A Budget: The New Costs Management Order

Last Updated: 8 November 2011
Article by Richard Langley

This article was first published in the Solicitors Journal on 18 October 2011 and is reproduced by kind permission.

The new costs management order is here to stay, and those firms that master the art of costs budgeting early on will have an advantage, says Richard Langley.

Courts have always grappled with how to manage cases and had a variety of tools at their disposal for this purpose. In 1595, the Master of the Rolls decided in one chancery case that the pleading, at 120 pages long, was eight times longer than it needed to be. The remedy was to order that the pleader be brought into Westminster Hall at 10.00am the next Saturday, whereupon a hole be cut in the middle of the pleading so that it could be placed over the pleader's head, who would then be led around "bare headed and bare faced" before being sent to the Fleet Prison until he had paid a £10 fine (Mylward v Weldon [1595] EWHC Ch 1).

The latest tool is a costs management order (CMO), to be found in the new practice direction 51G, which came into effect on 1 October 2011. For the time being, it applies only to the Mercantile and Technology and Construction Courts, but all litigators need to get their heads around it now.

PD51G requires parties to draw up detailed budgets for the costs they have incurred and estimate to the end of the case. These are set out in an Excel spreadsheet in prescribed form HB before the first case management conference. The judge will consider the budgets and may make a CMO, approving the budget or a revised (presumably cut down) version of it. If a budget should subsequently turn out no longer to be accurate, parties must produce a revised budget, showing the departures and the reasons for that.

Approved costs budgets do not obviate the need for a detailed assessment at the end of the case. The CMO cannot approve costs that have already been incurred (although it may record comments on them), but, with regard to costs incurred in accordance with an approved budget, the court on detailed assessment will not depart from the budgeted figure unless there is good reason to do so.

Solicitors who do not routinely practise in the TCC or the Mercantile Courts may be tempted to take the view that costs budgeting is not for them. That would be a mistake. Costs budgeting is here to stay and will in time become as much a part of the litigation culture as summary assessment and CFAs have over the past ten years.

No one disputes that case management powers in the CPR have failed to reduce costs in the multi-track. This has led Lord Justice Jackson to advocate costs management. Despite the opposition of the circuit judges (who submitted that "judicial productivity would be likely to fall as fast as morale if we are required to do this work"), he concluded that "a powerful case has been made out for introducing costs management in... multi-track cases". He recommended that the introduction be gradual (not least to enable demoralised circuit judges to get trained up) and therefore the pilot should be seen as a step towards implementation across the multi-track generally.

Getting ahead

Form HB (nine pages long) is intimidating, even if it is conceptually simple. Jackson LJ reckons it will take around two hours to complete in most cases. Smarter (and better resourced) firms will invest in software that will automatically populate the form and track actual against estimated time asthe case goes along. Clients will appreciate seeing the sort of detailed estimates that costs budgeting will require. And so those firms that become skilled in costs budgeting will use it not just to comply with their professional obligations but also as a marketing tool.

Will it reduce costs? History suggests not. Every introduction of new procedures creates further work that lawyers are entitled to be paid to carry out. The additional costs are not so much from completing the form as from having to map out the case in so much detail at the outset. Jackson LJ was aware of this but pointed out that quantity surveyors have to be paid to monitor the costs of a construction project, yet no onesuggests that they should be dispensed with to save the costs of employing them. So, modern litigators must add project management to their skill sets. Builders are adept at quoting a fixed price for a job based on certain assumptions. Similarly, they areadept at claiming for the extras (at time cost on a fixed margin) as soon as the project deviates from those assumptions. Solicitors will have to become so adept if they are to thrive in years to come.

Jackson LJ is trusting that judges will also become proficient in active costs management (although one might be forgiven for doubting whether most will have the time, let alone the skills and inclination, to do so). In litigation both parties are usually incentivised to spend more time on a case to improve the prospects of winning it (and thereby recover the costs too). Costs budgeting is not obviously going to reverse that incentive, save in the most actively managed of cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Richard Langley
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