Since costs budgeting was first introduced on 1 April 2013, the courts’ implementation, and indeed attitude towards the change, has been subject to considerable analysis and commentary. So, 18 months on, where do we stand and what is the future of costs budgeting and its effect on the litigation landscape as a whole?

Proportionality

In Savoye and Savoye Ltd v Spicers Ltd1 the issue of proportionality was considered by Justice Akenhead, when he concluded that an award for costs on an indemnity basis was not justified in circumstances where the claimant sought costs totalling £201,790.66 for a claim of under £900,000. In considering issues of proportionality Akenhead J considered the following factors:

  • the matter had been considered at adjudication prior to court proceedings, with the same arguments and legal authorities being cited leading to duplication;
  • excessive partner time had been spent on matters which ordinarily ought to be completed by associates under the supervision of partners;
  • the costs claimed in relation to the claim value were disproportionate;
  • the commercial existence of the parties was not dependent on the outcome of the proceedings; and
  • the case was not a “test case” which other cases would depend on as precedent.

Akenhead J’s approach serves as a reminder that issues of proportionality will be addressed by the courts on a case-by-case basis and as such, a wide variety of factors may be taken into account. It is imperative that parties give due consideration to the proportionate allocation of tasks and approach the claim as a whole from the outset, including at the pre-action stage.

The recent RPC case of TimYeo MP v Times Newspapers Ltd2 has provided further guidance as to proportionality including consideration of case management conferences taking place by telephone or in writing where possible to reduce costs as well as emphasising that:

  • incurred costs are likely to impact on the extent to which future costs are deemed to be proportionate by the courts;
  • parties should assist the court by providing explanations as to the basis on which pre-action costs have been incurred so as to assist the courts in determining the reasonableness and proportionality of the parties’ proposed future costs;
  • when considering overall reasonableness and proportionality, courts may consider rates and estimated hours; and
  • if work which falls outside of one the main Precedent H categories is anticipated and more likely than not to be required, parties should budget for it in an clearly identifiable manner..

Of equal note is the approach taken in Excelerate Technology Ltd v Cumberbatch and Others3 in which the court rejected a claimant’s application to vary its agreed costs budget but recorded, for the purposes of detailed assessment, that costs outside of the agreed costs budget were prima facie reasonable and proportionate.

Incurred costs

The court may make a costs capping order if there is a substantial risk that costs will be disproportionately incurred otherwise as detailed in CPR 3.19(5)(b). However, this is only if costs cannot be controlled by case management directions or orders as per CPR3.19(c)(i) or detailed assessment of costs under (c)(ii).

In Daniel Hegglin v (1) Person(s) Unknown (2) Google Inc4 the proportionality of the second defendant’s overall budget totalling £1,681,310.41 was brought into question as a result of comparison to the claimant’s costs budget of £604,405. The claimant applied for a costs capping order to the effect that the defendant would not be permitted to recover costs over £1.25m, even if it was successful at trial and despite the claimant having incurred £910,339.43 prior to service of its costs budget. Despite the court commenting that it considered the second defendant’s costs to be too high, the court declined to make a costs capping order on the basis that the detailed assessment process served to offer “real protection” for the claimant as it “deter[s] the party incurring that expenditure from doing so, knowing that it may not be recoverable”.

However, the subsequent judgment in Redfern v Corby Borough Council5 illustrates that although CPR3.15(1) provides courts with discretion only to manage costs to be incurred, if incurred costs are unreasonable and disproportionately high, the court can penalise future costs to make the overall budget reasonable.

Accordingly Redfern serves as a warning to those attempting to front load litigation to avoid a cost management order which may restrict the future costs they are permitted to incur. Although it remains that the courts cannot manage incurred costs, they can use that as a basis to restrict the future costs parties are permitted to incur.

It is obvious that the courts’ approach to costs budgeting, in terms of both incurred and future costs, requires practitioners to consider budgeting even at the pre-action stage as the total costs, incurred and to be incurred, will  be considered as one and not in isolation.

Claims over £10m

Since April 2014, the cost management powers of the courts have been extended to all multi-track cases where the value of the claim does not exceed £10m. However, claims worth more than £10m may still be subject to cost management. Justice Coulson in CIP Properties (AIPT) Limited v Galliford  Try Infrastructure Limited6  took the view that the court’s discretion under CPR3.12(1) was “unfettered” despite the claim being worth £18m and as such, the court ordered that costs budgets be filed and exchanged.

Accordingly, it seems that no claim is immune from the court’s discretion regarding costs, whatever the sum in dispute.

Costs budgets and interim payments

The pre-Jackson case of Mars UK Limited v Teknowledge Limited (Costs)7 was applied in Thomas Pink Limited v Victoria’s Secret UK Limited8 with regard to a payment on account of costs after judgment had been made but prior to detailed assessment. In this instance Justice Birse selected a figure for interim payment which was “an irreducible minimum” of what was expected to be awarded as a result of the detailed assessment process. In doing so, Birse J commented that the agreed budget should not be departed from and so ordered  that 90% of the claimant’s budget of roughly £680k should be paid as an interim payment.

Whilst detailed assessment is likely to reduce the sum claimed, it is evident that the courts’ approach to agreed costs budgets is a simple one; they are “agreed” and therefore only capable of minor reduction. It is therefore imperative that costs budgets are not agreed if the expectation is that significant reductions may be achieved at detailed assessment.

The Future

It remains that the courts’ approach to costs budgets, and the exercising of their discretion, continues to evolve on a case by case basis. It is therefore imperative that  parties remain cautious in their approach to costs budgeting and ensure that an early analysis of the scope and proportionality of the likely costs of a matter proceeding to trial is undertaken when advising clients as to the most appropriate means of resolving disputes and the recoverability of costs, even if successful.

Practitioners will have to make a difficult decision before a case management hearing as to whether to agree the opponent’s costs budget and so prevent the courts from exercising costs management at that stage but with the knowledge this will reduce the scope for argument on detailed assessment.