This was another case run under the costs management pilot for the Mercantile Courts and Technology and Construction Courts. The claim was dismissed, with the defendant succeeding on one small element of its counterclaim to the value of £3,500 plus interest. The claimant accepted that it was liable to pay the defendant’s costs, but raised objection to the amount sought of £497,593.66, which was almost double the last court approved budget, which had been set in May 2012 in the sum of £264,708. This had been increased slightly in January 2013 to £268.488 to cover the cost of daily transcripts at the forthcoming trial. On 7 February 2013, a month before trial, the defendant sent the claimant and the court a revised costs budget, which doubled the previous estimate to £531,946.18. However, no formal application to revise the budget was made and the trial judge, Coulson J, was
“wholly unaware that the defendant's estimated costs were now twice the amount approved in the costs management order” until the claimant’s written opening which gave notice that"the defendant has not yet made any application for further enlargement of the Costs Management Order made on 31 May 2012, but any such application if made will be strongly resisted by the claimant."
At the conclusion of trial the defendant’s counsel argued firstly that it should be entitled to indemnity costs as “this was a speculative and grossly exaggerated claim which … was advanced with little regard for proportionality and reasonableness [and that] the claimant acted unreasonably in refusing [an] offer of £150,000 (inclusive of costs) made on 19 February.” Coulson J rejected these submissions, finding that the matters raised were plainly arguable, and ordered that costs were to be assessed on the standard basis. In doing so however, having heard argument on the subject, he commented as to the extent to which the costs management order might be relevant to an assessment of costs on an indemnity basis as follows…
“Prima facie, whether under PD 51G paragraph 8, or CPR 3.18, the costs management order (with its approval of the costs budget) is expressed to be relevant only to an assessment of costs on a standard basis. However, as a matter of logical analysis, it seems to me that the costs management order should also be the starting point of an assessment of costs on an indemnity basis, even if the 'good reasons' to depart from it are likely to be more numerous and extensive if the indemnity basis is applied.
“…the costs budgets represent the parties' estimate of all the costs that they think that they will incur. It is not an estimate based on any particular form of costs assessment; it is just an estimate of likely costs. If it is an accurate estimate of all the costs that will be incurred, then it seems to me that it should be the relevant starting point for an assessment of costs on an indemnity basis as well as for an assessment on the standard basis.
“…this would provide the benefits of both consistency and certainty. There is a concern that, if an order for indemnity costs allows a receiving party to ignore the costs management order, then that will encourage successful parties to argue for indemnity costs every time. That would be unfortunate, and would leave an unacceptable doubt hanging over even approved costs budgets, all the way through to judgment and beyond. A paying party will have fought the trial assuming that, even if it loses, its opponent will be unlikely to recover more than the amount recorded in the costs management order, unless there is good reason for any departure. That is the certainty that the new regime provides. Even if the paying party has to pay costs on an indemnity basis, that does not seem to me automatically to justify an abandonment of that certainty, and the encouragement of a costs free-for-all.
“Of course, in any given case, it might be said that an award of indemnity costs – which does not require any assessment of proportionality – might be a "good reason" to depart from the costs budget approved by the court pursuant to paragraph 8 of PD 51G. I can well see that, in particular factual circumstances, an award of indemnity costs might be a good reason to permit such a departure. But that would be fact-specific, and it would not detract from the principle of at least starting the costs assessment by reference to the approved budget.”
Application to Revise the Budget
As regards any application by the defendant to revise the budget Coulson J said…
“…if the defendant wanted the court to approve the significant changes to its costs budget, then it had formally to seek such approval. It was not enough simply to file the material at court. As I have said, coming late to this case, I was entirely reliant on the parties to provide me with the information that I needed properly to manage the trial. I was wholly unaware of the fact that the defendant's estimate of costs had almost doubled in the weeks before trial. Had I known, I would have put the defendant to its election at the outset of the trial.”
“…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.”
“Accordingly … the defendant ought to have made a formal application for approval of its budget costs as soon as it became apparent that the budget costs had been significantly exceeded. That required a formal application to the court, at the hearing of which the court would consider whether or not there was good reason to depart from the budget. For the reasons which I have explained, the defendant did not so any of those things and cannot now seek, retrospectively, to revise the budget under paragraph 6 of the PD so as to all but double the original costs budget approved in the costs management order.”
He added that the claimant would have been prejudiced by the exercise given that it had after-the-event insurance cover of £250,000 and so proceeded on the basis that its extra liability upon losing would be limited to £18,488. The defendant countered that following notification of their increased costs in February, the claimant could have extended its ATE cover before trial. This was rejected on grounds that...
“…since the defendant said that it was entitled to concentrate on the trial and not make an application to the court amend the budget, it hardly lies in its mouth to criticise the claimant for not rushing about trying to obtain significantly increased cover at the last minute.”
The judge finally went on to consider whether there was a good reason to depart from the budget. He concluded that there was not. Whilst accepting that the standard assessment would generally be a matter for the costs judge, he expressed the following view…
“…this was not a case which some how lurched off track after its commencement, or where the issues ended up being very different to those which had originally been canvassed in the pleadings. Everything went pretty much as it might have been expected to go. In those circumstances, it seems to me that the general scope for alleging in this case that there is good reason now to depart from the costs management order is relatively limited.”
The defendant sought to explain the significant overspend as being a combination of the costs that were actually incurred and not getting the budget right in the first place. Following his reasoning in Murray Coulson J found that...
“…the mere making of a mistake in an approved costs budget would [not], of itself, amount to a good reason for a later departure [particularly] in circumstances where, as here, any potential mistakes have not been identified, let alone explained.”
Lastly, the defendant argued that there was a good reason to amend the costs budget because such amendment would not cause prejudice to the claimant and, if it were not allowed, would cause plain disadvantage to the defendant. Referring back to Murray, the judge re-iterated that under the new rules questions of prejudice are likely to be much less relevant than they were before...
“Moreover, I do not accept that, on the facts, the claimant has not suffered prejudice. I accept Mr Susman's submission that, on a proper analysis, the claimant fought the case on the basis that its potential exposure to the defendant's costs was, because of the ATE cover, relatively modest, and it therefore relied on the costs management order to that effect. That also explains why, in his written opening, Mr Susman put down the marker that any attempt to amend the costs management order would be resisted.”
It would appear from the successive decisions coming down in recent months that contrary to the views of some commentators following the Henry ruling costs budgeting under the new rules is being taken extremely seriously by the higher courts with a hard line adopted from the outset.
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