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www.newlawjournal.co.uk | 6 January 2012 | New Law Journal26 Procedure & Practice

counting the pennies

IN BrIefzz Costs budgeting should be developed to provide more costs certainty for the

client. Involving a costs draftsman may be highly beneficial but only where they are sufficiently skilled in the art of budgeting, and where the lawyer with conduct retains close involvement.

Paul Wainwright & Dr Mark Friston provide a practical guide to costs budgeting

the costs budgeting pilot scheme run by HHJ Simon Brown QC in the Birmingham Mercantile

Court and Technology and Construction Court (TCC) since 2009 was extended to all TCC and Mercantile Courts from October 2011 (see Practice Direction 51G). Drawing on his experience, HHJ Simon Brown QC has set out a number of factors that he regards as being relevant to costs management. These are (paraphrased):zz The need to make the court accessible

and affordable for small-to-medium enterprises (SMEs).zz The need to recognise that the trial

judge will, in one sense, be the “end user”, and that as such, he is in a good position to determine what is relevant and what he needs. zz The need to recognise that the court’s

resources are capable of being actively managed.zz The need to recognise the potential for

active case management to save costs and court time (such as by reducing the need for detailed assessments, etc).zz The need to realise that costs

budgeting has the potential to put parties on an equal footing.

Drafting costs budgetsDuring the initial pilot, HHJ Brown QC used a spreadsheet. This is now Precedent HB (see PD 51G). The first page of the spreadsheet has five columns. The first column is a “work done/to be done” column categorising costs into what HHJ Brown QC has referred to as “stages”. These include the costs of issuing the claim, costs of case management conferences, costs of disclosure, etc. In addition to these relatively certain stages,

the spreadsheet also contains rows for “contingent costs”.

The next column allows the parties to record any assumptions that have been made. The last three columns record the disbursements, the profit costs and the total. At the foot of the first page there are boxes for recording any costs that have not been included within the budget, such as costs of any detailed assessment proceedings, success fees, ATE premiums (although there is no requirement to include this information at this stage), etc.

Precedent HB expressly states that each stage should include attendance on own client, correspondence with the other party, and general project management. PD 51G adds that the court cannot approve costs incurred before the date of the first costs management order (those costs will most likely, of course, be taken into account when considering the reasonableness and proportionality of all subsequent costs).

The second page of the precedent is where the data behind the headline figures on page one is entered. There are separate cells for each grade of fee earner and for each stage. Disbursements and counsel’s fees also have their own cells.

PD 51G 3.2 says that: “Each party should include separately in its costs budget reasonable allowances for:(i) intended activities: eg, disclosure (if

appropriate, showing comparative electronic and paper methodology), preparation of witness statements, obtaining experts’ reports, mediation or any other steps which are deemed appropriate to the particular case;

(ii) identifiable contingencies, eg, specific disclosure application or resisting applications made or threatened by an opponent; and

(iii) disbursements, in particular court fees, counsel’s fees and any mediator or expert fees.”

Precedent HB may prove to be different from the document that is eventually adopted for general use, but it has one obvious attribute that is unlikely to get overlooked: it is simple. It is the type of document that does not require any special skills to draft (although, of course, to draft it well may require special skills: see below) and, perhaps more importantly given the fact that it will usually be considered and possibly prepared by lawyers who have little expertise in costs, it is easy to navigate and understand.

When to involve a costs draftsman & the procedureWhile Precedent HB may be an easy form to complete, it does not follow that the budget itself will be easy to prepare accurately. In fact many budgets will be decidedly difficult to predict. The options available to the lawyer with conduct are: zz to prepare the budget himself or to

delegate the task to someone else in his immediate team (a trainee?); zz to use specialist software to assist in

preparing the budget; orzz to delegate the task entirely or in part

to a costs draftsman (or costs lawyer).

At first glance, the question of whether to involve a costs draftsman to prepare a budget during substantive proceedings, may appear very similar to the question of whether to use a costs draftsman to prepare a Bill of Costs at the conclusion of the substantive action. This superficial similarity is however deceptive for the following reasons:

New Law Journal | 6 January 2012 | www.newlawjournal.co.uk 27Procedure & Practice

zzSkills: The task of preparing a Bill of Costs is a simple matter of recording historical facts and this is a skill that nearly all costs draftsmen are already trained in. The task of preparing a budget however requires a higher level of skill, expertise and understanding of the case. Using that understanding, the costs draftsman will have to gauge both what is definitely likely to be required in the months to come and what might be required in terms of contingencies. This requires an entirely different set of skills. Not only is it necessary to find out whether the costs draftsman has the skills to prepare budgets in general, but in a particularly difficult case it may also be necessary to find out whether he has the skills to draft the particular type of budget that is required. A costs draftsman who has practical experience in predicting future costs spend is vital in completing this task.

zzJudgment & specialism: If a Bill of Costs has been badly drafted this will usually come to light at a fairly early stage (because it will either contain errors on its face, or it will contain factual errors that will be picked up when it is checked). The same is not true of a badly drafted budget as it does not contain facts, but estimates. Problems with those estimates (which might be a result of the underlying method of reaching the estimate) may well lay hidden until a much later stage, by which time it may be too late to do anything about it. This means that the lawyer with conduct will need to satisfy themselves that the costs draftsman is expert at the type of budgeting that is required and is

confident in the correct methodology to adopt.

zzAbility to liaise: Because of the need to consider contingencies and future management options, there needs to be substantial liaison between the lawyer with conduct and the costs draftsman. As such the choice of costs draftsman

(and whether to instruct one at all) must include consideration of their ability to communicate effectively

(and to know when to ask questions). It will also influence the terms on which he is instructed.

Accordingly, the decision as to who should prepare the estimate is a far more nuanced affair than the decision as to whether to instruct a costs draftsman to prepare a Bill of Costs. It will rarely be the case that a costs draftsman can be left to get on with the task unsupervised; more often the costs draftsman will be able to assist and bring real value, but guidance as to what is likely to happen in the future and what may happen if things do not go as planned will be required. In practical terms this means that the conducting lawyer will need to:(i) discuss the matter with the costs

draftsman,(ii) take advice from that costs

draftsman as to who is best suited to assist, and

(iii) prepare instructions that take into account the particular costs draftsman’s skills and experience and provide clear and detailed instructions about all future possible eventualities to be catered for.

For their part, the costs draftsman will be well advised to ensure that any assumptions made when preparing the budget are clearly highlighted so that the lawyer with conduct can consider whether these are appropriate.

The lawyer with conduct will also have to bear in mind that the costs profession is likely to go the way of other professions in that there will be ever-increasing specialisation.

The second significant difference between budgeting and drafting is that a budget ought to be in a form that can be compared with the other side’s budget. Again, this is an area where mistakes can lie hidden until it is too late, especially where different assumptions have been used for the purposes of preparing the budget. In practical terms this means that the costs draftsman must

know when it is necessary to liaise with his opposite number to ensure conformity of approach. This is a skill that can be acquired only through experience, as the potential difficulties are often anything but obvious (an example being whether the budget is to be based on the worst case scenario in terms of management, or whether it is also based on worst case scenario in terms of the amount of costs).

The third and final significant difference between budgeting and drafting is that the former requires a clear understanding of the strategic aims. The only function of a Bill of Costs is to allow the receiving party to recover as much as possible. This is not the case with a budget. It may be, for example, that failure is inevitable and that the aim is to have only a very small budget approved on both sides. It may be that the objective is to reassure the other side that costs are not excessive in an attempt to encourage settlement negotiations. Similarly, it may be that the function is to impress upon the other side the extent to which costs are amassing. The strategic aims are matters for the lawyer with conduct, but the costs draftsman also has a role in that he must advise the lawyer of what can and cannot properly be done. Again, this requires very different skills to those required for traditional costs practice and costs draftsmen with this particular skill set are likely to be very much in demand.

ConclusionsCosts budgeting is not only a tool for the court and the parties but one which should be developed to provide more costs certainty for the client. The simplicity of the form to be completed, however, belies the work which needs to go into it. Involving a costs draftsman may be highly beneficial but only where they are sufficiently skilled in the art of budgeting, not just drafting, and where the lawyer with conduct retains a close involvement and responsibility for the information used to conclude the ultimate figures. Communication is key. Preparation of an accurate budget is an exercise that requires teamwork and, on the part of the costs draftsman, a degree of specialisation. NLJ

Paul Wainwright is an associate specialising in costs at national law firm Berrymans Lace Mawer LLP. Website: www.blm-law.com.Dr Mark friston, barrister & head of costs team, Kings Chambers, Manchester. Website: www.kingschambers.com