Costs bulletin for February 2017
Updates on the world of costs and the law, from the editors of Costs Law Reports. This month: the latest developments in costs budgeting.
law & practice 08/02/2017
Costs Bulletin for February 2017
Costs budgeting: any consistency yet?
Like it or loathe it, one thing is certain: costs budgeting is here to stay. As with the banks, it is too big to fail, having been a cornerstone of the Jackson Reforms, and also following its endorsement by the Senior Judiciary who do not have to carry it out.
A body of case law is now building up. At Costs Law Reports, we believe we have published all relevant cases to date at High Court judge level and above and a couple of budgeting judgments have just been added to the website, hot on the heels of a further decision which appeared in the last print edition. This bulletin tells our readers a bit more about them.
First, one needs to consider if, when, and to whom costs budgeting applies.
The basics are to be found in CPR Part 3 II, rules 3.12 to 3.18, supported by Practice Direction 3E. In respect of multitrack claims worth up to £10 million (exceptions at PD3E para 5), where the parties are aged 18 or over (litigants in person excepted), the court will conduct costs budgeting by requiring parties to serve a budget in Precedent H. In addition, it may at any time make a “costs management order” under CPR 3.15(2). The reason:
“The court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective.” (CPR 3.12(2))
Does that mean that if your claim is worth over £10 million, you automatically escape the costs budgeting tentacles? Not according to Foskett J in our first case, Simpkin v Berkeley Group Holdings plc  1 Costs LO 13. In a claim likely to exceed £10 million which did not involve two giant corporations, but was being fought between a private individual and a giant, the making of an order for costs budgeting would “help to keep the playing field between the parties and keep everyone focused on what they are spending on this litigation”. That was so, even though the wording of CPR 3.12 to 3.18 suggests that budgeting is excluded where the claim exceeds £10 million.
If that is right, how can parties who don’t want to be budgeted, escape from being budgeted? It appears that the only way they can do so is to agree each other’s budgets: if that is done, all the court can do is to “record” the agreement under PD3E, para 7.3 to Section II of CPR Part 3.
Next, what happens if you go over budget at trial? Can you ask the trial judge for more as if you were Oliver Twist? No way, said Coulson J in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd  4 Costs LR 612:
“in my judgment, an application to amend an approved costs budget after judgment is a contradiction in terms. First, it would mean that the exercise would no longer be a budgeting exercise and would instead be based on the actual costs that have been incurred. Secondly, it would encourage parties to ‘wait and see’ only applying to increase the budget costs if it was in their interests. Thirdly, it would make a nonsense of the costs management regime. If at the end of the trial a party could apply to double the amount of its costs budget, the certainty provided by the new rules would be lost entirely if the parties thought that, after the trial, the successful party could seek retrospective approval for costs incurred far beyond the level approved in the costs management order.”
Now consider our second case, Barkhuysen v Hamilton  6 Costs LR 1217 (Warby J). Not a judgment for the faint-hearted. All about what did, or did not go on, down on the farm!
After trial, counsel sought an order to reflect various ways in which the defendant’s conduct of the action had increased the claimant’s costs beyond the budgeted amount by generating work which reasonably had not been budgeted for or anticipated.
No Elvanite for Mr Justice Warby:
“I have accepted her [counsel’s] argument so far as the following points are concerned. … (1) a 2-hour PTR … (2) causing the 5 day trial estimate to overrun, such that closing submissions had to be put in writing … (3) the preparation and lodging of a fifth witness statement … (4), the trial was held in Exeter not Truro … (5) [an] adjourned hearing. These points may not result from unreasonable conduct on the part of the defendant, but they were reasonably not budgeted for … I am very confident that the claimant will recover on assessment, a substantial proportion of the estimated additional costs of £27,000.”
Such an approach is also consistent with that taken by Birss J in Thomas Pink Ltd v Victoria’s Secret UK Ltd  3 Costs LR 463, in which the judge increased the budget by £50,000 after he had circulated his judgment, but before it had been handed down.
So, getting on for four years from the introduction of costs budgeting, there is no consistency about whether you can alter your budget after the trial; on the contrary, if you ask for more at the end of the trial, it appears that whether you get it will depend upon the identity of the judge who has just heard your case.
Now “good reason” for going over budget. Our last case, Sony Communications International AB v SSH Communications Security Corporation  6 Costs LR 1141 Mr Roger Wyand QC, is unusual because the parties asked the judge to carry out a summary assessment (rather than sending the matter for detailed assessment) at the end of the trial based upon the costs budgets which had been exchanged and approved by the court.
Sony had overspent on three phases, and according to the deputy judge had “failed in its duty to seek to vary its costs budget when it became aware of the overspend”.
“When should an application to revise/amend a costs management order be made?” Mr Justice Coulson had asked at para 37 in Elvanite. Answering his own question, he had then said this:
“in my judgment, it ought to be made immediately it comes apparent that the original budget costs have been exceeded by more than a minimal sum … it seems to me that the defendant was taking a significant risk in continuing to incur costs which were so far outside the approved budget, without doing anything about the existing costs management order. I note that there is no evidence from the defendant explaining why an application was not made in February or at the start of the trial.”
“Done-for” then so far as Sony’s request for a retrospective increase was concerned? Far from it. It had not been suggested that SSH had been taken by surprise by the overspend since its own budget for the same phase was higher. Although no application had been made to vary the allowance for experts, Mr Wyand QC was persuaded to increase the budget from £215,425 to £323,270, once again an approach far from being on all fours with Elvanite.
Those are our three cases, but continuing on the theme of consistency, or lack of it in costs budgeting, it looks like Sarpd Oil v Addax Energy SA  2 Costs LO 227 will be sorted out by rule change. Incurred costs (viz. money spent before the first Case Management Conference) are not subject to court approval before the date of any budget – see PD 3E 7.4. Nonetheless, in Sarpd Sales LJ stated that:
“The parties coming to the first CMC to debate their respective costs budgets … know that that is the appropriate occasion on which to contest the costs items in those budgets, both in relation to the incurred costs element … and in relation to the estimated costs elements.”
A case of “Put up or Shut up”, so if you do not challenge the incurred costs at the CMC, you are deemed to have approved them? If that is what the Court of Appeal meant, it has certainly put the cat amongst the pigeons to the extent that the Rule Committee intends to resolve the inconsistency by amending PD 3E at paragraph 7.3 by adding the words, “A party who agrees the costs incurred before the date of any budget shall not be precluded from raising such points as are proper in any subsequent assessment of the costs.” As of April, when the rule change will be implemented, it looks like it will be RIP Sarpd Oil.
And finally, now that budgeted cases are working their way through to detailed assessment, does that mean an end to the line by line attack that paying parties can make on receiving parties’ bills?
As things stand at the moment, there is no guidance about whether the court should simply tick through bills which have been budgeted, on the basis that the figures have already been subject to court scrutiny and approval, or whether an old-fashioned item by item approach is still permissible.
Watch this space. An appeal from Master Whalan in Harrison v University Hospitals Coventry & Warwickshire NHS Trust has been fast tracked to the Court of Appeal on this point, and is expected to be heard by a three judge court, sitting with a costs judge assessor on 10 May 2017. That makes eight prospective appeals to the Court of Appeal for 2017 arising directly from the Jackson Recommendations made in his report eight years ago. So much for the end of satellite litigation in costs!
Save the date: Tuesday, 26 September 2017
The next Costs Law & Practice Conference will be on Tuesday, 26 September 2017. More details to follow in the next couple of months.
The headnotes and full texts of the cases below are available to online subscribers at www.costslawreports.co.uk. Follow Costs Law Reports on Twitter to be notified of new cases as soon as they are published.
New cases this month
Bloomberg LP v Sandberg (a Firm) and Others  1 Costs LO 1: Costs budgeting in an action in which the claimant’s proposed budget exceeded the claim: factors to take into account where the claimant’s budget significantly exceeded those sought by the defendants.
Simpkin v The Berkeley Group Holdings plc  1 Costs LO 13: Costs budgeting in proceedings in which the claim was likely to exceed £10m: jurisdiction of the court to make a costs management order under CPR 3.12(1)(a) to (e); order made where the claimant was an individual rather than a corporate entity.
Agents’ Mutual Ltd v Gascoigne Halman Ltd  1 Costs LO 17: Costs budgeting in the Competition Appeal Tribunal: whether an order for costs management applied in the CAT: refusal to vary a costs management order; factors to take into account.
Ocensa Pipeline Group Litigation; Arroyo and Others v Equion Energia Ltd  1 Costs LO 31: Costs orders in high value commercial litigation; discretion under CPR 44.2(1); percentage basis reduction to reflect failure on an issue and the award of indemnity costs where there had been failings which had had a detrimental effect on the course of the litigation.
General Motors UK Ltd v The Manchester Ship Canal Company Ltd (No. 2)  1 Costs LO 71: Reasons for making an issue-based costs order under CPR 44.2(6)(f) in an action that had been subject to costs budgeting, part of the claim had been discontinued and the claimant’s case had been substantially amended.
Manna v Central Manchester University Hospitals NHS Foundation Trust  1 Costs LO 89: Whether to order costs to be paid on the indemnity basis or the standard basis: Part 36 offer and the extent to which a party’s conduct in the negotiations should attract any sanction in costs.
Lloyds Bank plc v McBains Cooper  1 Costs LO 95: Reasons for making a percentage-based rather than an issue-based costs order in proceedings in which the recovery had been less than 25% of the claim.
R v Johnson  1 Costs LO 125: Decision on the factors that determine whether a “Newton” hearing has been held for the purposes of remuneration under the Criminal Legal Aid (Remuneration) Regulations 2013.
Costs and Fees Encyclopaedia updating
The Supreme Court Fees Order 2009 (SI 2009/2131), as amended by SI 2011/1737, has been added to the Costs and Fees Encyclopaedia. The original order came into effect on 1 October 2009. New pages are now available for printing out and adding to your Costs and Fees Encyclopaedia: Pages 405 to 410