The Senior Costs Judge has issued guidance on key issues around billing in budgeted cases, including ruling that the costs of budgeting include additional liabilities but not VAT.
Master Gordon-Saker was ruling in BP v Cardiff & Vale University Local Health Board  EWHC B13 (Costs), a case involving a woman who died in 2010 from an infection linked to a severe brain injury which was sustained during a quadruple heart bypass operation the year before.
The law firm Hugh James acted for her and, following her death, for her son, MP, suing as the administrator of her estate. Proceedings were issued in June 2013, seeking total damages of more than £440,000. The claim was settled at a roundtable meeting shortly before trial in January 2015 for £205,000.
Aside from the case-specific decisions on the proportionality of the costs, Master Gordon-Saker made a series of statements on the budgeting process, especially given that the case straddled introduction of the costs management regime.
The format of the bill – proportionality
Master Gordon-Saker said: “The approach to proportionality in respect of work done on or after 1 April 2013 is different to that in respect of work done before that date. In any case in which both approaches need to be taken, it will be necessary to identify the work which falls before and after that date and to identify the sums claimed for the work done before and after that date.
“In my judgment, where the case commenced on or after 1 April 2013, the bill covers costs for work done both before and after that date and the costs are to be assessed on the standard basis. It must be both convenient and necessary for the bill to be divided into parts so as to distinguish between costs claimed for work done before 1 April 2013 and costs claimed for work done on or after 1 April 2013.”
The format of the bill – budget phases
Given the provisions of CPR 3.18, the court will need to know which costs are claimed in relation to each phase on a detailed assessment and will need to know which costs claimed within each phase were incurred before the budget was agreed or approved, as those costs will have to be assessed, and which costs were incurred after.
“It is in respect of the latter only that the court will not depart from the figure for the phase in the approved or agreed budget (unless there is good reason to do so),” Master Gordon-Saker wrote.
As reported in the last eBulletin (and with effect from 1 October 2015), a receiving party will be required to serve with the notice of commencement a breakdown of the costs claimed for each phase of the proceedings in any case in which a costs management order has been made.
“But that breakdown will show only the total sums for costs incurred before and after the budget which are claimed in each phase. It will not identify the phase into which the individual items of work in the bill fall. In order for the paying party and the court to know which items of work are claimed in relation to each phase, the bill would need to be drawn in parts which reflect the phases.
“Although multi-part bills tend to obscure the overall picture, it seems to me that (unless a sensible alternative can be devised) in a case in which a budget has been approved or agreed and the costs are to be assessed on the standard basis, it will be both necessary and convenient to draw the bill in parts which correspond with the phases of the budget.
“Within each part, it will also be necessary to distinguish between the costs incurred before and after the budget was agreed or approved. This could be done without further sub-division by use of italics, bold, superscript or some other formatting device.
“The new format of bill, which is shortly to be the subject of a pilot in the Senior Courts Costs Office, should avoid these difficulties. Where a bill has already been drawn without being divided into phases, one possible course to avoid re-drawing the bill would be to serve schedules setting out the individual items of costs claimed in relation to each phase. I understand that a number of courts have directed this.”
The format of the bill – the costs of budgeting
Given paragraph 7.2 of Practice Direction 3E, the judge said that on detailed assessment it will be necessary to identify (a) the costs of initially completing Precedent H and (b) all other costs of the budgeting and costs management process.
“Where a costs management order has been made and the receiving party’s budget has been agreed by the paying party or approved by the court, it will be both necessary and convenient that the bill be divided so as to identify the costs of initially completing Precedent H and the other costs of the budgeting and costs management process, unless those costs can be clearly identified in some other way.”
The costs of the budgeting and costs management process
Master Gordon-Saker said that in his view, the caps imposed by paragraph 7.2 include additional liabilities but do not include VAT.
He explained: “Although the present, non-exhaustive, definition of costs (CPR 44.1(1)) does not expressly include additional liabilities, it seems to me that any success fee claimed on work done in relation to the budgeting and costs management process must be part of the ‘recoverable costs’ for the purposes of paragraph 7.2. For, if it is not part of the recoverable costs, what is it?
“It seems to me that value added tax also falls within the expression ‘recoverable costs’. As between the receiving party and its solicitor, value added tax is tax for which the solicitor must account. As between the paying party and the receiving party, it is not tax but a sum recoverable by the receiving party under the indemnity provided by the costs order (i.e. costs).
“On that basis, the capped ‘recoverable costs’ would include both success fees and value added tax. However, it would seem highly unlikely that the intention of the Civil Procedure Rule Committee was not to follow the only other example where a cap is imposed: CPR 47.15(5). The cap on the costs of provisional assessment is £1,500, including additional liabilities, but excluding value added tax and any court fee.”