Cometh the trial. Cometh the judgment. Cometh the costs.
What next?
Before the implementation of the Civil Procedure Rules (CPR) in 1998, the default rule was that the winners were awarded their costs to be paid by the losers, even though the victory might have been by just a short head. Win your claim by a guinea, and the costs were yours.
The CPR changed all that. Whilst the winner is still viewed as the party who receives the cheque, that does not necessarily mean that the costs are in the bag. For the past 20 years, the courts’ approach has been much more nuanced. Did the winner succeed on every point? Was the recovery in proportion to the pleaded claim? Was it reasonable to pursue those matters upon which there was no success or only a limited amount? If the winner does not tick those boxes, the costs order is likely to be adjusted downwards in order to reduce the loser’s liability.
Since 1 April 2013, another piece needs to be fitted into this costs jigsaw puzzle: costs budgeting under section III of CPR 3. In the multi-track, cases under Part 7 worth more than £50,000 are subject to budgeting, the idea being that the successful party’s costs will be ticked through on detailed assessment under CPR 47, unless there is “good reason” to do otherwise: see CPR 3.18 and Harrison v University Hospitals Coventry & Warwickshire NHS Trust.
Suppose, however, that the trial has ended, but, horror of horrors, the winner finds that the last agreed or approved budget has been busted. What prospect is there that the overspend will be allowed by the costs judge at detailed assessment? Having told the client that there is near certainty about the level of recovery of the budgeted costs from the loser, because the purpose of budgeting is that each side knows what they are in for costs-wise, win or lose, it will be a very uncomfortable meeting with the clients if they are now to be told “Good news: we won. Bad news. We went over budget and we are unlikely to be able to recover the overspend. You will need to bear the shortfall”. Sound ingredients there to take the fizz out of those champagne bottles which were opened on receiving the judgment.
The CPR recognise, of course, that in fast moving, complex actions, things change. This is why there are lifelines in the rules where the court has made a costs management order under CPR 3.14. Under CPR 3.15A, where there have been “significant developments” in the litigation, budgets must [emphasis added] promptly [more emphasis] be varied upwards or downwards. A second lifeline is available under CPR 3.18. Whether paying or receiving, it is open to either party at the detailed assessment to seek to persuade that costs judge that there is “good reason” to depart from the last agreed costs budget.
What happens, however, at the end of the trial? Is it open to the trial judge to entertain an application to revise the budget after judgment has been given?
That was the situation which faced James Mellor QC (sitting as a Deputy High Court Judge) in Cranstoun and another v Notta. The claimants won at trial, but had gone over budget, and like Oliver Twist, advanced the proposition “we want some more”.
There is no binding authority about whether the trial judge has jurisdiction to allow “some more”. In Elvanite Full Circle Ltd v AMEC, Coulson J ruled (at paragraph 39) that any increase was a matter for the costs judge:
“… 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.”
Mr Stephen Furst QC, in Car Giant Ltd v Mayor and Burgesses of the London Borough of Hammersmith, was of the same view. He stated (at paragraph 34):
“I can understand that there might be cases where the trial judge has a particular view of costs or on an aspect of costs, having conducted the trial or where he has had to decide an issue which is directly relevant to the assessment of costs. Absent such circumstances it would seem to me that a court should not seek to trammel the costs judge’s jurisdiction, particularly where the costs judge has much greater experience of such matters than I have.“
However, in Thomas Pink Ltd v Victoria’s Secret UK Ltd, Birss J, as the trial judge, went in the opposite direction when asked for an increase by the winner. He said (at paragraph 49):
“I take into account my general experience of dealing with cases of this kind. I also bear in mind that at the time the claimant’s budget was £628,129.15 (which had been agreed by the defendant), the defendant’s budget (which had been agreed by the claimant) was a larger sum of £660,000. I find that the claimant’s increased 19 July 2014 budget is reasonable. I will approve that increase in the budget.“
In Hochtief (UK) Construction Ltd and Another v Atkins Ltd, O’Farrell J followed a similar course, holding (at paragraphs 30 to 32) that:
“… it would be appropriate for this court to observe that the trial was adjourned part heard for reasons beyond the control of the JV and the costs of the adjournment, including counsel’s fees, were reasonably incurred in principle. That would be an appropriate reason to depart from the costs budget.
The costs associated with the production of the second experts’ joint statement could not have been reasonably anticipated in the costs budget and are also an appropriate reason to depart from the costs budget.
All other costs issues are matters for the costs judge.“
Mr Mellor QC was of the Birss J and O’Farrell J persuasion. Asked by the claimants to authorise an increase in their costs budget after trial on account of “significant developments” in the litigation under CPR 3.15A, he commented that most costs budgets revisions should be done on paper and in advance of the outcome being known. The court should be wary of attempts to revise the budget if the rates are out of line with those adopted in the previous budget or they are presented in the knowledge or expectation that the applicant is, or will be, the winner. That said, Mr Mellor was persuaded that an extra trial day, which had involved counsel and an expert, together with a half day dealing with the variation application, were “significant developments” in the litigation. For that reason, against a request for an extra £13,886, he allowed an increase of £13,807, but disallowed an additional £10,130 for the pre-trial review and mediation.
So far so clear, but the curious aspect of the judgment which did not appear to have been considered was the effect on an indemnity basis costs order which Mr Mellor QC had made in the claimants’ favour. Their costs were to be indemnity based from 1 May 2020, which covered the trial. That begs the question, since an indemnity basis costs order is, of itself, a “good reason” to depart from the last agreed or approved costs budget, what purpose was served in asking him to vary the budget under CPR 3.15A, since the indemnity order had already done the claimants’ job for them?
So much is clear from the authorities. In Denton v White, Lord Dyson MR held (at paragraph 39) that an indemnity order:
“…would free the winning party from the operation of CPR rule 3.18 in relation to its costs budget”.
In Lejonvarn v Burgess, Coulson LJ took the plucky step (at paragraph 93) of reversing himself in two judgments he had given as a puisne judge:
“In principle, the assessment of costs on an indemnity basis is not constrained by the approved cost budget, and to the extent that my obiter comments in Elvanite or Bank of Ireland v Watts suggested the contrary, they should be disregarded.“
It can be seen, therefore, that in Cranstoun, there was no reason to ask the judge to look again at the budget, still less to ask him to vary it, since it had ceased to be relevant from the moment that the claimants obtained their indemnity basis costs order, when, to use Coulson LJ’s words, they were no longer to be constrained by it.
Is there an escape route whereby the claimants might be able to recover the increases which Mr Mellor refused to allow? The answer is “yes”. First, it is a strong argument that the Court of Appeal authorities in Lejonvarn and Denton should prevail over the first instance decision in Cranstoun, so that it is not res judicata. Second, in Hutson v Tata Steel, Turner J refused to increase the claimants’ budgets for “significant developments”, but held (at paragraph 25) that:
“If the claimants wish to justify expenditure which exceeds that which has already been budgeted for then the way forward is for them to demonstrate “good reason” at the assessment stage.“
Armed with that judgment, the claimants’ overspend is far from lost. Both Hutson and the indemnity basis costs order will trump CPR 3.15A, so that at detailed assessment, all that the claimants will need to do is to satisfy the costs judge that the disallowed costs were reasonably incurred. Do that, and that uncomfortable meeting with the client to explain why there was a budget deficit, will be avoided.
