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The SCCO changes the way Formal Bills are to be prepared where a Costs Management Order is in place

On 17th August 2015 judgment was handed down by Master Gordon-Saker in the case of BP v Cardiff and Vale University Local Health Board. This case is of particular significance as it changes how Formal Bills are to be prepared where a Costs Budget is in place as well as define the cap in relation to the preparation of the Budget to include success fees but exclude VAT.

This was a clinical negligence matter where liability was denied but in any event settled shortly prior to Trial for £205,000 plus costs on the standard basis.

A Formal Bill was prepared in the sum of £586,456.73 inclusive of a 100% success fee. The Bill was not divided into parts to reflect the phases of the budget, work done before and after 1st April 2013 or the costs of budgeting. The result of the detailed assessment was that the Claimant’s costs were assessed in the sum of £339,671.89.

In relation to proportionality the Master was critical of the fact the Bill was not separated pre and post 1st April 2013 as it made it very difficult to apply the two differing tests of proportionality. In other words any Formal Bill that has work pre and post 1st April 2013 should be split.

In relation to the Costs Budget aspect the Bill had not been split to reflect the work done under each phase which the Master was critical of as it made it impossible for him to follow CPR 3.18.

With effect from 1st October 2015 in any case in which a costs management order (CMO) has been made 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. 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.

The Master commented that in order for the paying party and the court to know which items of work are claimed in relation to each phase the Bill needs to be drawn in parts which reflect the phases. Within each part it will also be necessary to distinguish between the costs incurred before and after the budget was agreed or approved. As such in all cases where a CMO has been made and a Formal Bill is required said Bill will need to be “phased”. This will in part be resolved by the upcoming new format Bill of Costs but in the interim it means that the traditional Formal Bill of Costs will look quite different and it will prove more difficult to prepare and deal with on detailed assessment.

The final point (and the most interesting) is in relation to the costs relating to the preparation of the Costs Budget. The Master stated 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. Further, in the Master’s view, the caps imposed by paragraph 7.2 of PD 3E include additional liabilities but do not include value added tax. As such it is the Master’s view that the £1,000 or 1% cap for preparation of the Budget is inclusive of success fee but exclusive of VAT. It could be argued that this is an odd interpretation particularly bearing in mind that Budgets are exclusive of success fees however the interpretation is in line with how the SCCO impose the cap for costs of assessment in provisional assessments. No doubt this will be considered a controversial decision by Receiving Parties as it deprives them of success fees when looking at the costs of preparing their Costs Budgets.

To read the full judgment -