What is Practice Direction 3E?
The CPR requires successful parties in a case to submit a Cost Budget of their legal costs. The purpose of this type is to control the recoverable costs of either party on conclusion of proceedings. The costs within a Cost Budget are split into incurred and anticipated costs and, once approved, anticipated costs are afforded special protection by the Court on assessment. Incurred costs however, are not protected and can be fully scrutinised on detailed assessment. Practice Direction 3E of the CPR deals with costs management.
What Were the Recent Changes to Practice Direction 3E?
The 109th update to the CPR gave guidance on changes to Practice Direction 3E and came into force on 1st October 2019. The changes made were specifically to Paragraph 7.4, which now states: –
“As part of the costs management process the Court may not approve costs incurred up to and including the date of the costs management hearing. The Court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all budgeted costs.”
Why Were the Changes Made to Practice Direction 3E?
Before the update of Practice Direction 3E, there was ambiguity as to the date from which incurred costs would transition to budgeted costs, with differing opinions being offered as to whether this transition should take place at the date of the budget or the Case and Costs Management Conference (CCMC).
The date on which incurred costs transitioned to anticipated costs can have a huge impact on costs recovery. If the incurred date is too early, there was a possibility of overspending in all of the phases as there may have been a significant level of costs shift into anticipated costs. If the transition date was too late, then the most may not have been made of the Cost Budget.
The change in the wording of to Paragraph 7.4 resolves this debate, and clarifies that the correct transition date is the date of the CMCC, when the Court approves the budgets.
There is now a line drawn between incurred costs up to and including the date of the first costs management hearing (incurred costs) and future costs to be incurred after that date (budgeted costs).
How Does the Revised Practice Direction 3E Impact on Your Cost Budget and any Subsequent Bill of Costs?
The main consequences of the changes to Practice Direction 3E, are mainly as follows: –
- When preparing a Bill, the Costs Draftsman should make sure all incurred costs go up to and include the date of the CCMC, and do not refer to the date of the Cost Budget as the date of transition.
- Your Costs Draftsman may need to estimate costs within the incurred section when preparing your Cost Budget to factor in any delay between preparation of the Budget and in approving the Budget at any CCMC.
- To ensure incurred costs are up to date, it would be prudent for Solicitors to have their Costs Budgets updated, if it is outdated by more than a month, and once a CCMC date is set.
If you would like to find out more about best practice in preparing your cost budget, please feel free to view the section on our website for further guidance. The Legal Practice Support team are always happy to help with any budgeting issues, and the author can be contacted via email at stacey@legalpracticesupport.co.uk
Our Costs Director, Robert Collington, can be contacted via email on enquiries@legalpracticesupport.co.uk or by telephone on 01204 930234. You can also get in touch with us via the Contact Page on our website.