The new bill of costs and J-codes

Practical Law UK Articles 7-613-6485 (Approx. 7 pages)

The new bill of costs and J-codes

by Alexander Hutton QC, Hailsham Chambers

Why do we need a "new form bill of costs"?

Jackson LJ set out a summary of the criticisms of the current model bill of costs for detailed assessment in his Final Report of his Review of Civil Litigation Costs in January 2010:

The bill is expensive and cumbersome to draw. For a costs draftsman to go through the file finding attendance notes one by one to dictate a bill of costs, or even to scan a computer time record and try to make it into a bill of costs wastes a great deal of time and money.
It does not make use of the available technology.
It is not easy to digest.
The documents item is generally the most contentious item, upon which large sums turn. Bills usually give insufficient information to enable the reader or the costs judge to determine how much time was properly spent in considering and dealing with documents.
There is often a mismatch between time recording and bills. Most people record the time which they spend (for example, eight hours "on documents" or even "on witness statements"), but not what they were doing in that time. Further, block recording "10 hours working on witness statements, statements of case and disclosure" is not helpful. Solicitors should capture the relevant information on their time recording systems, as work proceeds.

Jackson LJ's requirements for a new bill of costs

The Final Report indicated that there are three requirements which have to be satisfied:

The bill must provide more transparent explanation than is currently provided, about what work was done in the various time periods and why.
The bill must provide a user-friendly synopsis of the work done, how long it took and why. This is in contrast to bills in the present format, which are turgid to read and present no clear overall picture.
The bill must be inexpensive to prepare. This is in contrast to the present bills, which typically cost many thousands of pounds to assemble.

The ultimate aim must be to harmonise the procedures and systems which will be used for costs budgeting, costs management, summary assessment and detailed assessment. Jackson LJ concluded:

"In my view, modern technology provides the solution. Time recording systems must capture relevant information as work proceeds. The bill format must be compatible with existing time recording systems, so that at any given point in a piece of litigation a bill of costs can be generated automatically. Such a bill of costs must contain the necessary explanatory material, which is currently lacking from the bills prepared for detailed assessment. Crucially, the costs software must be capable of presenting the bill at different levels of generality. This will enable the solicitor to provide either

(a) a user-friendly synopsis or

(b) a detailed bill with all the information and explanation needed for a detailed assessment or

(c) an intermediate document somewhere between (a) and (b).

I therefore recommend that work should be put in hand to develop existing software systems, so that they can (a) capture relevant information as work proceeds and (b) automatically generate bills of costs at whatever level of generality may be required."

The structure of the new bill

Jackson LJ recommended that a bill should be presented in the order "phase, task, activity". According to these proposals, the bill is divided into "phases". Each phase is then broken down to identify different tasks. A summary sheet lists the profit costs and disbursements in respect of each task in each phase. In the body of the bill itself, each task in each phase is set out in chronological order, with an indication of the time spent and the amount claimed.

The advantages of such a bill

From the Final Report:

"A bill in this form could easily be transmitted in electronic form, provided that all those involved had compatible IT software. If bills were to be prepared along the lines suggested, and dealt with electronically, there would potentially be large savings in time and costs:

• I readily accept that developing new software will be expensive. However, if successful, it will generate major savings. The huge costs of drafting bills of costs will be avoided.

• The resulting bills will be easy to read and digest. The work done on documents (often the largest item in any bill) will become intelligible.

• Furthermore the software will be able to generate (a) simple schedules of costs for the purpose of summary assessment or (b) detailed bills for the purposes of negotiation or detailed assessment at the end of a case.

• The court must have IT systems capable of receiving bills in electronic format.

• In the long term consideration should also be given to developing a single software system which can generate both cost budgets and bills of costs."

It was conceded that "The recommendations which I make in respect of a new format for bills of costs and concomitant software, if accepted, will take some time to develop". That is certainly the case since the Jackson Report was published in 2010!

The J-Codes and how they came about

The Association of Costs Lawyers (ACL) established a working group to consider the recommendations in Jackson LJ's final report regarding a new bill of costs. They produced a report, Modernising Bills of Costs in October 2011. The then Senior Costs Judge, Peter Hurst, asked a group of costs professionals to take this forward and this committee (the Committee) was formed under the supervision of Ramsey J, the judge in charge of the Jackson Report implementation. The first chair of the Committee was Jeremy Morgan QC and since 2013 it has been the author of this article, Alexander Hutton QC. The Committee consists of a senior member of the ACL, a representative from the Law Society, a Costs Judge (Master Leonard), a number of costs lawyers, costs software representatives and an e-billing expert project manager.

It was concluded that the means of achieving the Jackson aims was by adapting Uniform Task-based Management System (UTBMS), an international standard for e-billing (overseen by LEDES, an international e-billing body providing a common e-billing standard). UTBMS is largely based on US terms and categories of work. The adaption is the EW-UTBMS J [judicial]-Code set.

On 30 July 2014 the J-Codes report was endorsed by a letter signed by Lord Dyson MR, Jackson LJ and then Senior Costs Judge Hurst (see Judiciary: Letter from Lord Dyson, Lord Justice Jackson and Senior Costs Judge Hurst on J-Codes (30 July 2014)). The LEDES Oversight Committee then endorsed the J-Codes on 5 September 2014 (see Legal update, J-codes for time-recording now approved).

The dual ratification, one from the international e-billing standard (concerned with client billing) and one from the senior judiciary in England and Wales focussing on costs management between the parties, is the strongest signal that J-Codes will emerge as the most common standard for categorising litigation costs.

What are the J-Codes and how do they work?

There is no particular magic to the J-Codes. They are simply a list of standard codes to categorise work.

The "house" is a unified system of electronically recording work done and translating that electronic record as required into costs budgets, summary assessment schedules, solicitor/client bills, summaries for costs negotiation and bills for detailed assessment.

The "bricks of the house" are the J-Codes, a set of electronic codes for the recording of time within the phase, task and activity structure proposed by Jackson, created by costs/IT specialists.

Jackson LJ's recommendation that costs be grouped into phases/task/activities for assessment purposes has already been implemented, to a degree, in Precedent H, the prescribed form for costs management, which divides into the key phases of mainstream civil proceedings (for example, pre-action costs, ADR/settlement, issue/pleadings, disclosure, witness/expert evidence and so on). The J-Codes do the same thing (save that they have some additional phases, such as funding and detailed assessment), and the phases aren't time limited so if, for example, some way into an action you find yourself investigating a further claim and joining another party, the system will be able to cope with that. So the J-Codes allow the fee earner to record work under an assigned code so that it is categorised contemporaneously as time recording within the Precedent H hierarchy of phases/tasks/activities.

In the J-Codes, within the Precedent H Phases, work is then further sub-divided into defined tasks and within those tasks, specific activities. So the full division is as follows:

Phase (that is, Precedent H Phases). For example, witness statements (Phase Code JG00), you do not need to manually enter the phase code, as selecting the Task Code will identify the Phase automatically.
Task. "What" is being done? For example, preparing own side's witness statements or reviewing other side's (see Task Code JG10 or JG20 respectively).
Activity. "How" it is being done? For example, communicating with the witness (Activity Code A113), or "review/analyse" (Activity Code A104).

All you need to do is to select a Task Code (for example, JG 10) and Activity Code (for example, A113) together at time of recording. There should be a drop down menu for these so you do not need to memorise them. However, importantly, you can, and should, give further detail of work under that heading (that is, prepare an electronic "attendance note") just as in any sophisticated time-recording system now.

There are also expense codes which classify disbursements and enable them to be tagged, grouped and summarised so you can sift through for sub-totals for counsel's fees, experts' fees and so on.

The time-recording information can then be imported into the bill so that it does not need to be re-entered manually. It will inevitably require some editing, however, before service. Subject to that, the system will be able to assist producing a bill of costs and also these other documents:

A statement of costs for summary assessment.
A Precedent H budget for incurred costs (you will still have to estimate your future costs).
A high level summary of costs for general discussion.
A comparison between the last approved/agreed budget and the costs actually incurred in those phases, for use to alert the firm when approaching the budgeted figure as the case proceeds and/or in the bill of costs afterwards for detailed assessment for the purpose of CPR 3.18, which provides that the court "will not depart from such approved or agreed budget unless satisfied there is a good reason to do so".
A series of summaries, drilling down to as much detail as required at the click of a button or two, for example, how much time is claimed for drafting your own witness statements or reviewing the other side's and so on?

The new model bill of costs

The Committee has now almost completed work on the new biill of costs for detailed assessment adopting the J-Codes. The new bill is essentially a spreadsheet. Those who are familiar with Excel should find it easy as it has been developed in Excel but will be finalised in XML, universal and free format not owned by any software company. The basic XML spreadsheet will be downloadable for free, probably from the Ministry of Justice website. However, it is likely that the costs software companies will adapt and "improve" the basic spreadsheet, but at a cost.

The minimum number of columns for the spreadsheet for most bills is 14, although in some cases it will be substantially more than this. The bill is thus primarily designed for electronic use as the entire spreadsheet will not print happily. However, it will be possible to print out a reduced version without all the columns in it, as it is recognised that for the immediate future at least, parties and courts are likely to be working off hard copies. However, the intention is that the court rules/a practice direction will require the full electronic version to be served as well (a bit like Points of Dispute now) so that the other party can have a look "under the bonnet".

While the spreadsheet does not have to be fed with contemporaneous time-recording data (whether by J-Codes or otherwise) and instead can be filled in from scratch, it will work far better and more efficiently if it is. In due time, it is likely that the rules/Practice Direction will not allow the recovery between the parties of the cost of preparing a bill of costs in the old-fashioned way (perhaps subject to exceptional circumstances).

The bill will contain a narrative and a summary of the legal team and rates as previously, together with a summary of the bill structure, a detailed body of the bill arranged by Precedent H phase, summaries of base costs, additional liabilities separately, and, crucially, a summary comparing the costs under each Precedent H phase compared with the last approved/agreed budget. As it is essentially an Excel-like spreadsheet, the most logical presentation of the bill might be that the summaries appear towards the front of the bill with the full detail of the bill at the end, almost like appendices. as documents schedules do now.

The aim of the new bill is to get rid of parts of a bill, since it will automatically calculate the work at the relevant hourly rate and/or VAT rate. The rates are fed from a rate table, so most is done by automatically filling columns.

The advantages of producing a bill in this modern way are, it is suggested, manifest. One disadvantage, however, of not simply starting with a blank piece of paper as now is that the bill spreadsheet and its columns have to take account of numerous variables within its structure. Some of the challenges in producing this have included things like how to deal with the indemnity principle and interim statute bills, partial costs orders and multiple parties with only some who are paying. We have done our best to imagine every scenario, but it is likely we have not covered every one and the testing stage is expected to throw up some more.

What next?

It is the Judiciary's plan (and it is emphasised that this is ultimately in the hands of the Judiciary and the Civil Procedure Rules Committee) that both the J-Codes and the new model bill of costs will be implemented by way of a Practice Direction coming into force in October 2015. This will be voluntary (anyone can opt in) and feedback will be sought at that stage.

This is designed to lead onto a mandatory pilot to use the new model bill for all cases in the Senior Courts Costs Office where detailed assessment proceedings have started on or after 1 April 2016. Failing to use the new bill without good explanation may result in costs sanctions, including not recovering the extra costs of preparing the bill in the old-fashioned way.

What should practitioners do now?

Many practitioners ask whether it is going to be worth the effort to align the firm's time recording system with the J-Codes. We would suggest that this time has now definitely come. This is particularly so given Jackson LJ's ringing endorsement in May 2015 of this project, and the ambitious time-table set out above.

Those who are not time-recording accurately under Precedent H phases risk losing budgetary control in costs managed cases without any early warnings and will have a far greater task to reinvent the wheel in preparing bills of costs under budgetary phases. This will inevitably be required in due course, and in time it is likely that the costs of doing it in the old way will not be recoverable and will fall on an unhappy client or the firm itself. The longer this step is put off, the worse the position will be.

Anything to fear?

For perhaps understandable reasons, the Committee's work has not always been universally popular with costs lawyers. However, as was attributed to Henry Ford (probably apocryphally) about the development of the first mass market motor car, "If I had asked people what they wanted, they would have said "faster horses"". The present absence of harnessing new technology to produce bills is, it is suggested, no longer logically defensible.

Furthermore, it is a simplification to say that new bills will be produced at the click of a button. There will be a substantial role for the costs lawyer in producing a bill or summary assessment form or Precedent H incurred costs including in presenting the information, excluding irrecoverable time, protecting privilege and so on. Costs lawyers have shown a commendable ability to adapt with the times.

As for clients and law firms, there should be substantial savings in time and cost. It is suggested that it is high time for the production of bills of costs to be modernised in line with other aspects of litigation practice.

End of Document

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Resource ID 7-613-6485

Published on 20-May-2015

Resource Type Articles

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Wales