Lawyers need to think tactically on costs

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A few months in to the new costs budgeting regime, many litigators have already had to knuckle down and complete Precedent H – the form through which they must provide the opposing party with an estimate of their costs in most multi-track claims.

At IBC Legal’s Impact of Jackson conference earlier this month, some interesting points emerged in relation to completing the form, and how it might affect a lawyer’s tactical strategy.

The message from the experts was that the secret to successful budgeting is allowing yourself flexibility to amend the budget at a later stage, by making careful use of the facility to include ‘assumptions’ on the budget form. Nick Bacon QC, a top costs barrister, pointed out that if you want to be able to alter the budget at any point, then what you put in the assumptions column is ‘equally as important’ as the figures that you are including on the form.

Law firms are now beginning to set up templates for their Precedent H forms, and what to include in the assumptions section is one of the key issues. Rather than going it alone, some firms have been swapping ideas about the best approach to take. Leading litigator David Greene, a partner at Edwin Coe, said his firm had been comparing notes with Simmons & Simmons as it began to draw up a template Precedent H. He recommended ‘cribbing’ from other firms as a good way forward.

But although there might be some standard assumptions that firms will want to include every time, when it comes to some of the case-specific expenditure, firms may need to think long and hard about what they should – and should not – put in.

Greene raised the question of what to do where a client might be susceptible to a security for costs application, for example. Should a claimant lawyer list that as an assumption? Strictly, you should – but would it be a good tactical move?

Assumptions also pose problems on the defendant side of the fence. One delegate from a defendant personal injury firm raised the question of whether a defendant who may want to gather surveillance evidence against a claimant should list this chunky expense on the budget form. In doing so, of course, they would effectively be tipping off the claimant that they are going to be filmed. Hardeep Nahal, commercial litigator at McGuireWoods, pointed out that the budget form is only concerned with those costs that the litigant wants to recoup from the other side if they win. But he said that there may be occasions when the claimant decides that, to protect tactical secrecy, there are some expenses they are prepared to incur on the basis that these will fall outside the basket of recoverable costs.

Nahal raised the point that costs budgeting can really be quite difficult in some areas of law because of the perils involved in revealing your hand to the other side. He said that while budgeting might work well in some more straightforward personal injury cases, or in the types of case dealt with by the Technology and Construction Court, it posed big problems in commercial fraud. Budgeting applies automatically to most multi-track cases issued after 1 April, but is not currently automatic for cases in the Admiralty and Commercial courts, and commercial cases in the Chancery, Mercantile and TCC courts worth more than £2m.

Nahal said: ‘Budgets are going to be hotly contested in commercial fraud… In discovery, for example, will you disclose the costs of tracking down a non-party witness in your budget? If you do, he’ll get nobbled. There is a question over whether budgeting is suited to this type of case.’

What attitude the courts take over enforcing budgeting will become clearer in the coming months. But Bacon said he had already been involved in one case where the judge had decided not to order it. ‘We say the case is worth nothing, and the claimant says it’s worth £100m. The master says he is not budgeting until we have got further down the line, and "you can tell me what the issues are",’ explained Bacon.

The difficulty for judges is that they are expected to use the parties’ budgets to ensure that costs are kept proportionate from the outset. But, as Bacon’s example above illustrates, they will not necessarily feel able to do that until they have a better handle on the case. Under the new regime, proportionality has been placed at the very heart of any consideration of the costs of a case. But speaking at the IBC Legal conference, Mr Justice Ramsey made it clear that he sees proportionality being addressed through the budget, rather than the axe being suddenly wielded on costs at the end of the case; something that will be reassuring for the profession.

He said: ‘In a £500,000 case, say each party spent £1m, and this was assessed to £900,000. On that basis, it is impossible for a costs judge to say [at the end], actually, that’s disproportionate, you should only recover £300,000. What costs management does is to start at the other end and say what is an appropriate budget for the litigation.’

Of course, it remains to be seen whether other members of the judicially will follow this approach.

Ramsey added that, in the TCC, litigating parties have tended to agree reasonable budgets between themselves, and the court prefers them to do this, rather than having parties seek court approval for their figures. But Bacon pointed out that, while parties may be good at reaching agreement over budgets in some areas of litigation, in the personal injury world he could not imagine defendants agreeing budgets with claimants. ‘That is not going to happen; it is wishful thinking’, he said.

It is still early days, but there are already signs that, although there may be one set of reforms, the way these will develop may end up being very different depending on the area of litigation you are in.