N 2019 Issue 27 | DecJ A2017
COSTS BUDGETING
A guide to getting it right!
INSIDE THIS ISSUE
03 New Appointment 04 Manchester Spolight 04 The NEW BILL: Go Electric 06 Challenging the executor’s charges
LEADING THE WAY
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KAIN KNIGHT INBRIEF
Costs Budgeting:
a guide to getting it right!
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Five and a half years on, how is it all going?
In multi track cases worth up to ÂŁ10m, excluding litigants in person, unless the court orders otherwise.
How? By filing and serving Precedent H and a budget discussion report. If the court subsequently makes a costs management order, the judge will control the parties' budgets in respect of
e are now in the tenth year since Sir Rupert Jackson completed his Final Report into the Costs of Civil Litigation. A cornerstone of the Report was his recommendation that the court should control how much parties should spend on litigation and expect to recover from their opponent if they won. His answer was the court would do this through Costs Budgeting, a judicially controlled process under which the parties would be required to estimate their costs going forward by providing figures for 10 phases of work: pre-action costs, issue, CMC, disclosure, witness statements, expert reports, pre-trial review, trial preparation, trial, ADR and settlement discussions and contingencies. And so it came to pass through Civil Procedure Rule changes implemented on 1st April 2013 under Part II of CPR 3.
When?
all future costs. What has been spent already falls outside budgeting but will be subject to the scrutiny of detailed assessment if the costs cannot be agreed. Budgets must be filed and exchanged in compliance with the time limits set out in Rule 3.13. Fail to do so, and the costs going forward under CPR 3.14, will automatically be limited to applicable court fees. That means that if you win, the only budgeted costs the opponent will pay are any court fees: anything for experts, counsel and the costs of preparing for and attending trial will be irrecoverable. And if you lose, you still have to pay your opponent’s budgeted costs! Your only life line is to obtain relief from sanctions under CPR 3.18 and the prospects of that are decidedly dodgy!
Kain Knight's five offices can make sure fully compliant budgets are served and filed on time and can argue the toss before the judge in justification of them.
Here at Kain Knight we are well placed to answer that question, our experienced teams of costs lawyers having drafted numerous budgets, regularly appeared before judges to argue the clients' corner at costs management hearings and with the firm also able to call upon the experiences of their Consultant, who sits as a Deputy Costs Judge where he deals at the assessment stage with costs that have been subject to costs budgeting. The following is a thumbnail sketch setting out the cases to which Part II CPR 3 applies, how costs budgeting should be carried out, and, perish the thought, what happens if something goes wrong! There are many traps for the unwary!
By whom? The procedural judge at a hearing: when other court directions are being given, the hearing might last one to two hours but in big cases, we have known budgeting to take a couple of days! The importance of the hearing cannot be overstated. The latest case, Yirenki v MOD (2018) 6 Costs LR 1177, has made clear that the court will not address hourly expense rates or time
to be spent on the case: instead it will use them as constituent parts of a process to reach a reasonable and proportionate figure for each phase, which will be FINAL (emphasis added) unless the court can be persuaded to vary it if 'significant developments' take place in the case subsequently, or the judge at detailed assessment is satisfied that 'good reason' exists to depart from the last agreed or approved budget. What is more, what you get for budgeted costs you can spend as you like: if you want to send a man on a boy's errand to do the work, namely a partner at Grade A rather than a team of Trainees at Grade D, that does not matter, provided you do not bust the permitted budget.
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What this means in reality is that parties have one shot at getting the budget right. Make a mess of it, and the prospects of recovering a good proportion of the costs if the claim is successful, will be irreparably damaged. The case to have expert advice about costs budgeting is, accordingly, all the more overwhelming.
The horror stories!! One day late with your budget? Application for relief refused. The fact that the office closed between Christmas and New Year so the application could not have been issued earlier, is no excuse. Applicable court fees only allowed for budgeted cost- see Lakhani v Mahmud (2017) 4 Costs LO 453. City firms suffer too. Budget due 27th September 2018. Budget served 11th October 2018: humble apologies, the partner was engaged on urgent business in Brazil. Sorry chum, that is not a good reason for a serious breach: it would have meant an extra court hearing were relief to have been granted
New Appointment Kain Knight is pleased to announce the recent appointment of Francis Kendall at the firm. Francis is a Costs Lawyer who brings over 25 years experience from in-house roles and partnership at a major City costs practice. Francis is relishing the challenge that change brings and to developing his role within the firm in the future. Francis has expert knowledge in a wide range of legal costs issues acting for a variety of clients. His previous positions have given an extensive experience of all aspects of costs issues from the outset of proceedings, through the budgeting process to recovery of legal costs between the parties. He has been instructed by large companies to audit legal costs in litigation and in 2018 gave expert evidence and was deposed in a significant piece of US litigation as a
and we can't have that! Applicable court fees for
legal costs expert.
you too! See BMCE Bank International Ltd v Phoenix
Francis services commercial law firms, niche legal practices, corporate entities and in-house legal departments. He is a skilled advocate often representing clients at court hearings in all forums for budgeting and detailed assessment. His experience includes appearances in the Privy Council, House of Lords (now Supreme Court) as well as the more traditional County Courts, Senior Courts Costs Office, High Court and Court of Appeal.
Commodities PVY Ltd (2018) EWHC 3380 (Comm). Firms trying to be helpful suffer too! Turn up at court with an agreed budgeting order, on the basis that as a further CMC will be needed, no purpose would be served in putting forward meaningless figures for trial preparation and trial so £0.00 was inserted in the Precedent H, think again. No second CMC would be required said the court. That meant a non-compliant budget had been filed, so the only phases for which costs could be recovered would be those agreed with your opponent. What you get for trial preparation and trial would thus be limited to £0.00 and £0.00 respectively! See Page v RGC Restaurants Ltd (2018) 5 Costs LR 545. If those stories are enough to make your hair stand on end, fear not, there is help at hand. Kain Knight's five offices can make sure fully compliant budgets are served and filed on time and can argue the toss before the judge in justification of them. That means, happily, that there is one matter which we cannot advise upon and that is in relation to an application for relief from sanctions. If, as our teams are trained to do, the rules of court are complied with, it should never be necessary to do so and that is the way we intend to keep it!
Francis has been an elected member of the Council of the Association of Costs Lawyers for many years and is currently Vice Chairman. He regularly presents and chairs panel sessions at conferences dealing with legal costs. He is also a regular contributor to several legal publications. As an accredited CLSB (Costs Lawyers Standards Board) trainer, Francis is experienced and able to conduct tailored seminars and talks to clients and staff. Having been an Associate and Fellow of the Association of Law Costs Draftsmen for many years Francis became a Costs Lawyer of the Association of Costs Lawyers in May 2008. Francis is married with two daughters aged 13 and 10. He is a keen golfer and has dropped his handicap back to a “pre-child” respectable level during his recent garden leave from his former firm. He has a recent interest in park runs with improving performances under his belt. Snowboarding and boating based vacations are also popular in the Kendall household to include several round the island races.
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KAIN KNIGHT INBRIEF
Manchester Spotlight!
Kain Knight’s expansion into the North and the Midlands! Nick McDonnell, a Director and Costs Lawyer with Kain Knight, began expanding the business’ costs services into the North and the Midlands in May 2017. After quickly establishing the foundations for the business’ expansion, Nick took on his first costs draftsman and office space in the desirable, legal district of Spinningfields, Manchester in September 2017. A full year on, the staff count is now at seven (and continues to grow) and with a recent move to a bigger office (still in Spinningfields) the new office now has room for at least twelve members of staff. This expansion has been made possible by Nick bringing with him his established client base in commercial litigation and serious/catastrophic injury litigation as well as implementing his clear and thorough approach to case management. Instructions have increased month on month, with two of the office’s larger clients deciding to completely outsource all their costs work to Kain Knight; a trend we expect to see continue moving forward allowing law firms to reduce their internal overheads and focus on their own areas of strength. The Manchester office and its staff provide its clients with a broad range of costs services ranging from all aspects of costs management/ budgeting and detailed assessment proceedings (including advocacy) but is also increasingly providing detailed input into, and attending at, costs mediations. Nick is a qualified mediator and has extensive experience representing clients at mediations and as a mediator. The office continues to grow with a combination of new work from existing clients and with new clients coming on board monthly. Kain Knight can now fly the flag for its brand in the North and the Midlands by its provision of excellent legal costs services and continued growth.
The NEW BILL: “Go Electric”
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n December 2017, our “In Brief” publication led with a two page article on the anticipated electronic bill of costs due to replace the “Victorian Account Book” (Sir Rupert Jackson’s description of the Bill of Costs). A year on we are eight months into this mandatory regime but are still, arguably, relatively new to the process. Only costs incurred after 6 April 2018 are required to be in electronic form and that remains the tail end of the Bills of Costs we are currently preparing. We are all too fully aware of the length of assessment proceedings and word on the street is that there remain very few, if any, electronic bills of costs which have been assessed to date. Initially the time taken to prepare an electronic bill can be significant with the need to code at various levels, sometimes from a standing start. It is likely that familiarity will speed up this process but here at Kain Knight we are committed to charging our clients, and claiming in the Bill of Costs, only a proportionate and reasonable sum for preparation of any Bill of Costs. Our “new boy” Francis Kendall is preparing all his Bills in the new form for two reasons: “Firstly, and from a personal perspective, it seems a little pointless to learn house style when the same will be obsolete in the short to mid term and secondly this approach is likely to have me ahead of the curve”
“Ironically I was using a fully electronic bill of costs 15 years ago but had that approach drummed out of me when I moved to my last firm 15 years ago. At least there is certainty this time.”
“Ironically I was using a fully electronic bill of costs 15 years ago but had that approach drummed out of me when I moved to my last firm 15 years ago. At least there is certainty this time.” It was originally envisaged that a prescribed form would be the way forward with the Morgan, and latterly Hutton, Committees working various updates to the “Precedent S”. The Association of Costs
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Lawyers (“ACL”) and others developed versions specifically to deal with issues they saw as critical within the Precedent S. When the rule change was made, there was no such prescription and instead a set of functionality requirements are mandatory. As such there will be a plethora of versions and we have developed an inhouse template that takes in the key requirements but is adapted to reflect our extensive experience. This also allows us to manage and update as necessary to our clients’ requirements and/or any issues that may need to be addressed on any given file. We anticipate that adopting “a one size fits all” approach is not the way forward. With practical experience we fully anticipate, and expect, there to be the need to adapt.
version of the electronic bill allows for both the preparation of budgets and Bills of Costs within one document. The benefits of this are obvious with incurred costs at the time of budgeting matching those contained within any subsequent Bill of Costs required. In addition, regular updates and monitoring by your costs expert (all recoverable on assessment within the 2% allowable) will allow prospective and timely applications for amendments to budgets as deemed necessary.
...the Kain Knight bespoke version of the electronic bill allows for both the preparation of budgets and Bills of Costs within one document.
Whilst Francis Kendall was chairing the panel session at the recent ACL London Conference, the Senior Costs Judge hinted that plans are afoot for an electronic statement of costs for summary assessment and that further introduction of IT into the costs process is extremely likely. At this stage, it is not clear if the current version of the N260, just in electronic form, is the intention or if the same is to be supported by a fully detailed spreadsheet similar to the underlying data in the electronic bill. We would suggest that the latter would be overkill (unless it encourages practitioners to enter fully coded data correctly and contemporaneously). That level of information is simply not needed for the purposes of summary assessment and is, to all intents and purposes, only required for a detailed assessment.
The benefits of this are obvious with incurred costs at the time of budgeting matching those contained within any subsequent Bill of Costs required.
Initially, it is more likely that the post preparation analytics are what the parties and the court are likely to benefit from. These analytics have historically been the work of the opposing party in preparing Points of Dispute. It is arguable that the time required for preparing Points of Dispute is where the real savings are, either initially or in time, with a fully electronic Bill of Costs. If Points of Dispute are properly and appropriately focussed, there will be further time and costs savings on assessment and in analysing offers. Changing an hourly rate, level of success fee, number of attendances on a party or time taken on a specific task can (or at least should) be able to happen with a simple amendment and update. In those circumstances one hopes that sitting outside the courtroom with calculators, pencils and red pens after/during a hearing will become a thing of the past. On the flip side, something we will only see once parties start taking e-Bills to assessment is whether, within the various versions out there, a change to or deletion of a cell / column / row has unintended or unanticipated consequences which then cause unnecessary confusion at the detailed assessment. It is also anticipated that detailed assessment hearings will become, in part, something akin to a game of “battleships” with the parties and the Costs Judge each sitting in front of their own screen calling out cell references. Notwithstanding the uncertainties, practitioners are encouraged to embrace the concept and the Kain Knight bespoke
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KAIN KNIGHT INBRIEF
Challenging the executor’s charges: Mussell spikes the disgruntled beneficiaries’ guns
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by Colin Campbell Retired Costs Judge, Consultant at Kain Knight ixed news. Your maiden aunt, Aunt Agatha, has died aged 92, but she has left the bulk of her wealth to you and the solicitors instructed by her executor to administer the estate have now completed their work.
You were Aunt Agatha’s favourite relative and apart from a few personal gifts such as jewellery, you have inherited everything, including her old home which has been sold for £250,000, a collection of fine wine held in the Wine Society’s vaults and the sum of £250,000 standing to her credit in her single building society account. All welcome news, as you plan to buy a nice house in leafy Abbey Wood in readiness for the opening of Crossrail and the Elizabeth Line later this year. You are, indeed, a fortunate relative.
All good so far? Not necessarily. Prior to distributing the estate, the solicitors have delivered a bill for £30,000 plus VAT for their work in obtaining a grant of probate and in realising Aunt Agatha’s assets. That has included the charges of the executor, a solicitor, Mr Uriah Fleece, together with a further £2,500 plus VAT for the conveyancing involved in the sale of her home. Those sums have been deducted from your share of the residue of the estate. “Crumbs, this seems a bit steep,” you think: “Don’t want to appear stingy after Aunt Agatha has been so generous, but has the firm dropped an extra nought onto the bill by accident?”
Worth checking? Absolutely! The deduction is about 5% of the estate in circumstances where shrewd Aunt Agatha had sold her portfolio of shares before her death and put the proceeds into the single building society account in order to simplify the administration. Likewise her home: that was in her sole name, free from encumbrances and registered with title absolute at Her Majesty’s Land Registry. As to the fine wine, that needs keeping and will remain safely stored in the Wine Society’s cellars until it matures. In these circumstances, how can the solicitors justify such high charges and what can be done by way of asking them to substantiate their fees, you ask? Not much, appears to be the answer! In reply to your measured enquiry, you are told by Mr Fleece that
the fees are in line with what a high street bank would charge for administering an estate worth above £500,000. It was Mr Fleece, too, who drafted Aunt Agatha’s will, and she had appointed him to be her executor, having agreed beforehand to the inclusion of a charging clause to cover his fees. On Aunt Agatha’s death, as commonly happens, Mr Fleece had instructed a colleague in the probate department of his own solicitors firm, and the estate had been administered effectively and promptly in accordance with Aunt Agatha’s instructions. Not only that, Mr Fleece in his capacity as client/executor approved the charges and authorised their deduction out of the estate prior to distribution of the residue to you. Receipts for any items relating to the house sale or any other expenses, such as her funeral charges or the Wine Society’s latest bill for cellarage, are available on demand. Happy to oblige, he tells you! Not really the reply you were expecting, nor did you want. A nought off the bill would have secured that house in Abbey Wood. Now you are not so sure. Is it really permissible for an executor such as Mr Fleece to instruct his own firm to do the work, for him to bill his time as executor within the invoice, for the fees of the conveyancing and probate departments to amount to 5% of the estate and for all these to be deducted without the principal beneficiary having any say in the amount of the charges? The answer appears to be “yes” and there is not much that a concerned beneficiary can do about it. Insofar as executors are under a duty to provide receipts, all they need do according to recent guidance given on the taking of an account by HHJ Paul Matthews in Mussell v Patience, at paragraph 15, is to provide a document such as a voucher or receipt: “… referring to the executor as such, to administration of the estate or to some good or service having a connection with the estate (e.g., repairs to estate property). It will of course be open to the beneficiaries to rebut the inference in either case, but unless and until some other evidence is adduced by the beneficiaries to that end, the executor in my judgment, need do nothing more.” In Mussell, two disgruntled beneficiaries had declined to approve the estate accounts of their late mother’s will, as a result of which their unconcerned sister, together with the executor solicitor, who was a partner in the firm which drafted the will at the time it had been executed, issued proceedings for their approval, since they did not wish to distribute the estate while there was an impasse between the beneficiary siblings. In the view of HHJ Matthews at paragraph 4: “… This was really a claim by the executors for the taking of an account in the sense of seeking the court’s approval (in default of that of the defendants) of the estate accounts.”
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The correct test which the court was to apply was for the executors to provide by way of “voucher”, no more than basic information contained in the solicitor’s invoice that the charges claimed related to the administration of the estate. It was not necessary for the voucher to disclose the number of hours worked or the hourly rate used to arrive at the total charged, nor to give a detailed breakdown of exactly what work had been done. In these circumstances, the judge invited the warring parties to apply that test to the objections made to the estate accounts, with the matter to be restored before him for a decision on paper.
his capacity as executor/client has approved the charges, the court cannot allow any lower amount than the sum he has agreed to pay, on any subsequent assessment brought by a third party under section 71. As Lewison J had expressed it in Akin Gump in the court below:
Not much point going to the expense of applying to the court for the taking of an account in that case, so as to require Mr Fleece to justify the estate accounts! According to Mussell, all he would need to do would be to produce an invoice from, say, the Wine Society, or a bill from the estate agents referring to late Aunt Agatha’s estate, in order to justify the account. So an action on the estate accounts is a non-starter, it would seem.
In agreeing with Lewison J, Lloyd LJ, who gave the lead judgment in the Court of Appeal, continued at paragraph 84:
Any other port of call which might come to your assistance? Yes, according to Mussell. At paragraph 16, the court gave further guidance: “… the executor is not required at the outset to prove by his or her voucher(s) that the charge made is reasonably incurred or reasonable in amount. These are matters which may arise in the assessment of solicitor’s costs… That is what the system of assessment of solicitor’s costs is for. As is well known, it is not only the direct client (here the executor), who may seek assessment of costs. In addition, third parties who may in substance pay such costs may do so too…” Your remedy, and port of call in which to dock in that case, thus appears to lie under section 71(1) of the Solicitors Act 1974, which provides that: “Where a person other than the party chargeable with the bill for the purposes of section 70 has paid or is or was liable to pay a bill either to the solicitor or to the party chargeable with the bill, that person… may apply to the High Court for an order for assessment of the bill as if he were the party chargeable with it…” Here, you are the “party chargeable”, it being your inheritance which effectively is being used to pay the charges of the solicitors and the executor, Mr Fleece. It follows that you have the right, in common with Mr Fleece under section 70 (as being the person primarily liable to pay the bill) if he wanted to do so, to a apply to the court to have the charges checked by a costs judge in order to decide whether they are fair and reasonable. If they are not, they will be reduced to a figure that is, an eventuality that might be thought likely, given the simplicity of Aunt Agatha’s estate in comparison with the size of the bill. At least, that is the theory and insofar as that theory is concerned, HHJ Matthews is correct in what he has said. The practice, however, as the Court of Appeal has pointed out, is far different. In Tim Martin Interiors Ltd v Akin Gump LLP, a borrower had objected to the costs the lender bank had passed on to him following a default under the mortgage. The bank had instructed City of London Solicitors at high hourly rates and the borrower had applied under section 71 for an assessment of the costs on the basis that the work had not justified City Solicitors for a case proceeding in Wandsworth County Court, and that items such as the solicitor travelling to meetings at the bank, rather than vice versa, should not have been laid at his door. Not so, said the Court of Appeal. Where the client has approved fees (as the bank had done in that case), the bill is no longer susceptible to challenge under section 70 and it follows that under section 71, it cannot be either. Putting it another way in Aunt Agatha’s case, since Mr Fleece in
“On an assessment under section 71, the court is entitled to interfere with the hourly rate agreed between the solicitor and the client, but only to the extent that it could have interfered with it at the behest of the client.”
“This is a serious limitation on the scope of an assessment under section 71 for determining the question what is properly due from the third party to the client…”
Accordingly, at paragraph 101: “The effect of my conclusions as regards both quantification and payment is that a third party assessment under section 71 is of limited use to a third party. [95] … A claim for an account may be the right approach for several situations which can throw up this sort of problem, for example in the case of a trust or the administration of an estate [101]… In the light of this judgment it may be anticipated that third party assessments will become rare, whereas claims for an account, and like proceedings in other types of case, where the real issue is as to the reasonableness of legal costs , best resolved by those experienced in the assessment of costs, may become much more frequent.” So the remedy is the taking of an account, but is that not where we came in? That is exactly what happened in Mussell, where the beneficiaries were disgruntled and all the executors had had to do was to produce some vouchers relating to the administration of the estate in order to justify the estate accounts. In adopting that process, as HHJ Matthews pointed out, charges are not to be scrutinised for their reasonableness as they would be on a detailed assessment, but due to Akin Gump, that avenue is a dead end, where, as will invariably be the case, the executor has already approved the charges.
What can the disgruntled beneficiary do in the circumstances? Answers on a postcard to the author of this blog please, since, as things stand at the moment, we appear to have gone full circle. As a beneficiary concerned that the estate has been overcharged, if you bring proceedings for an account, you will be sent away for a section 71 assessment, but if you do that, the costs judge will tell you that under Akin Gump, such an assessment is pointless if the bill has already been approved and that, instead, you should make a claim for an account in the court from whence you have just come! Back to Aunt Agatha’s estate. Unless there has been some skulduggery (and there is nothing to suggest that Mr Fleece, or indeed his firm has acted improperly, as opposed to having charged rather a lot for administering a simple estate), there appears nothing that a beneficiary such as you can do, except to be cheerful at having benefited from Aunt Agatha’s generosity in the first place, but not by quite as much, perhaps, as you had originally hoped. W W W. K A I N - K N I G H T. C O . U K
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W W W. K A I N - K N I G H T. C O . U K Disclaimer
Consistent with our policy when giving comment and advice on non-specific issues, Kain Knight cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems it is recommended that professional advice be sought from your normal contact.