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Sarpd Oil International v Addax Energy SA and another: managing the costs of a changing landscape

By the end of 2015, the majority of litigation practitioners had become accustomed to the intricacies of costs management. Whilst the occasional surprise continued to occur before some district judges, after almost three years the majority of kinks in the system had been resolved. However, the status quo was upset in January 2016 by the Court of Appeal in the now well-known case of Sarpd Oil International Limited v Addax Energy SA and another.

In that case, the court took the view that the provision in CPR 3.18 (that is that the court should not depart from an approved or agreed budget unless satisfied that there is good reason to do so) should extend to the incurred costs sought in the budget, in addition to the estimated costs approved by the court, in all cases where the opponent failed to raise a challenge to them at the case management conference (CMC).

This decision complicated the costs management process. Those attacking costs budgets were forced to run challenges to the incurred costs and the hourly rates claimed, for fear that they would be denied the opportunity from doing so at a subsequent detailed assessment.

At the same time, defenders of costs budgets spent additional time preparing to respond to points which would not previously have been raised until the detailed assessment stage. The result risked increasing the load on an already busy court system and introducing a degree of uncertainty as to how the lower courts would interpret the Court of Appeal’s decision.

The general feeling of unease about the Sarpd decision reached the ears of the Civil Procedure Rules Committee, who formed a Sarpd sub-committee to consider the issue. That committee has recently reported its findings, taking the view that the case had undermined efforts to simplify costs management and reduce hearing time. The committee further noted that the decision had underlined a conflict in the rules, namely that the court’s costs management powers related only to the estimated costs in a budget, but that the court’s approval of each phase necessarily included a mix of both incurred and estimated costs.

Accordingly, the sub-committee has proposed changes to CPR 3 to clarify the separation of incurred costs and estimated costs during the costs management procedure. The proposal therefore is that future costs management orders will relate only to the estimated element of the budget (although the court will retain the power to comment on incurred costs which it considers to be disproportionate). The committee further recommended that agreement of the incurred costs at the costs management stage would not preclude a paying party from taking issue with those costs upon detailed assessment.

As a result of the Sarpd decision and the recommendations of the sub-committee, on 3 February 2017, the Civil Procedure (Amendment) Rules 2017, which were laid before Parliament and will implement the 88th update to the CPR, included amendments to the costs budgeting provisions in CPR 3.15 and CPR 3.18. Specifically, the court’s power to approve or manage the budget has been confirmed to relate only to the “budgeted costs”, which have been defined as being the costs yet to be incurred. No longer will the court approve a total for each phase, which should prevent the fettering of the court’s powers in relation to the incurred costs upon any subsequent detailed assessment. However, new wording has been inserted at CPR 3.15(4), stating that the court may, on the face of any case management order, record comments about the incurred costs, whether or not a costs management order is made. Any comments made will then be taken into account in any subsequent assessment proceedings. The amendments are due to come into force on 6 April 2017.

It is to be hoped that, with amendments to the rules, a degree of cooperation and simplicity will return to costs management, and lengthy objections to the incurred costs will return to their proper place at the detailed assessment stage. A further result of the proposed rule change may be the end to the arguments advanced in Redfern v Corby Borough Counsel and CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd and others, that is that the level of incurred costs claimed in a budget should influence the amount allowed for estimated costs.

In future, the position will be simplified. This will hopefully increase agreement at CMCs and free up valuable court time. However, costs management remains a changing area of the law, and with the Court of Appeal due to soon consider the effect of CPR 3.18 once the case reaches detailed assessment in Harrison v University Hospitals Coventry and Warwickshire NHS Trust, the landscape may continue to change.

Association of Costs Lawyers David Wright

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