The problem with budgeting

When it comes to budgeting, the theory is solid, but there are two major problems in practice. Firstly, the unacceptable delays in getting budgeting hearings listed. Secondly, the judges.

As the Gazette reported recently, parties are having to wait up to 10 months for case management conferences to be listed, by which time the budget will often be out of date.

And when the budget does come before the judge, the lack of proper training, or experience in what is a reasonable amount for lawyers to charge for a particular case, is only too apparent.

The new senior costs judge, Master Gordon-Saker, tackled this issue head on at a recent conference of the Commercial Litigation Association. In a refreshingly honest analysis of the situation, he explained that the training judges have received has focused on ‘the mechanics of budgeting’, such as how to chart a course through Precedent H.

But it has done nothing to help judges know how much lawyers should be able to charge for different types of case.

This wouldn’t be quite such a problem if more district judges were drawn from the solicitors’ profession, where at least a judge would be able to think back to what their own firm might have charged for a case – if their practice undertook that particular kind of work. But of course most DJs come from the bar, and they simply don’t have any such experience to draw upon.

Will the new guideline hourly rates help judges, when they eventually materialise? Actually not that much – because DJs will still need to make a judgment call on what is a reasonable number of hours for lawyers to spend on a case.

So faced with an empty knowledge bank on what a reasonable figure would look like, the danger is that judges will overly rely on a comparison between the two budgets. And budgeting becomes susceptible to tactical games.

Especially in the personal injury field, lawyers on both sides are complaining of ‘tactical’ budgeting. Defendants argue that claimant lawyers are putting in excessive budgets for routine cases, for example in the disease sphere. The judge will slash the budget by a certain percentage, but in defendant’s eyes, even the reduced figure is still far more than the claimant firm normally charges - with the judge lacking the knowledge to insist on a more realistic figure.

On the claimant side of the fence, lawyers argue that defendants are putting in excessively low budgets. Thanks to qualified one-way costs shifting, defendants have little chance of recovering their costs, even if they win – unless the claimant fails to beat an offer to settle. So why not pitch the budget low, and make the claimant’s figure look high? Plus, defendants will be understandably reluctant to spend too much time creating a budget in a QOCS regime where they know they are unlikely to get their costs back anyway.  

What is the solution here? Having budgets assessed by costs judges, who see these cases day in, day out and have an excellent grasp of what constitutes a reasonable figure – would be a good solution. But you would need more costs judges, and that would involve expense. In these austere times, there is zero chance of a government of any colour choosing to spend its cash on ensuring that lawyers get paid the right amount.

Likewise, if judges had an independent costs lawyer available at court to assist them in making these judgments, that would be a huge help. But it’s not going to happen.

At the very least, the budgets filed with the court should be used to build up a database, tracking the type of case, and the legal fees budgeted and eventually awarded – though it would be a long time before this were big enough to offer any practical value.

And if we’re looking that far into the future, the problem may have been solved by other means. The fixed fees which have been introduced in lower-value personal injury work are intended to be extended throughout the fast track – and Lord Justice Jackson has recently been pushing for this to happen soon (albeit that the government has got other priorities).

But fixed fees will not necessarily stop at the fast track. Indeed, in a judgment only last month, a High Court judge called for fixed pricing of legal fees in litigation. He endorsed previous comments on the topic from Lord Neuberger, who back on May 2012 had highlighted the inefficiency of hourly billing, and suggested that fixed pricing will be the future.

If lawyers are litigating for a fixed fee, then budgeting will no longer be needed at all. Perhaps the profession may find itself looking back fondly at the days of Precedent H.

Rachel Rothwell is editor of Litigation Funding magazine