Troy Foods v Manton1, concerns an application for permission to appeal an approval of a costs budget. The Court of Appeal gave permission and stated that more guidance is needed on the new costs budgeting regime as “it is important to ensure that correct principles …are established at an early stage.”.

Background

The facts of the case are straightforward: Troy Foods started proceedings in the Leeds Mercantile Court against Manton for damages for breach of contract relating to the sale of liquid egg products during the 12 months from August 2011 to July 2012. Troy’s case was that the price of the goods was fixed for the year, but in February 2012 Manton unilaterally increased its prices for liquid egg products. Being in urgent need of the goods in order to continue manufacturing various products, Troy claimed that it had no alternative but to pay the higher price demanded by Manton. Manton said that each order was to be treated as a separate contract for which a separate price was to be agreed.

As part of the court’s pilot cost budgeting scheme, each side prepared a costs budget. Troy’s budget came to £159,070, while Manton’s came to £53,040. Each side exchanged comments and revised their to £129,176 and £59,380 respectively. The difference between the two budgets largely reflected the differing view of the solicitors as to the likely course of the proceedings and the need for contingencies.

The judge, HHJ Kaye QC, approved all of Manton’s budget but only part of Troy’s budget; he did not approve the budget for disclosure and preparation for trial but did approve elements relating to witness statements and counsel’s fees.

Appeal

Manton applied to the Court of Appeal for permission to appeal on the basis that the first instance judge adopted the wrong approach and was too generous in approving the budget for witness statements and counsel’s fees. Manton was concerned that on detailed assessment, costs judges are likely to treat the approval of a budget as establishing that the costs incurred within the approved budget are reasonable. Troy’s position was that when the court is asked to approve costs budgets it should have regard to the principles that will be applied when costs are assessed on what can be expected to be the standard basis. That involves, among other things, resolving any doubts in favour of the paying party.

The first instance judge proceeded on the basis that he would approve any figure for a particular element of the claim, provided it was not so unreasonable as to render it obviously excessive or “grossly disproportionate”. Moore-Bick LJ, in the Court of Appeal, took the view that it was arguable that in this case the first instance judge did not apply the correct principles and, as a result, approved an over-generous budget in respect of some elements of costs.

He referred to his decision in Henry v News Group Newspapers2 which expressed the view that an approved budget was not to be taken as a licence to conduct litigation in an unnecessarily expensive way. It was not accepted that costs judges should or will treat the court’s approval of a budget as demonstrating, without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply because they fall within the scope of the approved budget. He said that one of the principal aims of costs budgeting is to control the parties’ expenditure, which will not be effective if judges do not apply the correct principles.

The Court of Appeal gave permission to appeal because “the court may wish to comment further on the proper approach to be taken by costs judges on detailed assessment in a case in which the court has approved the receiving party’s budget.”

Comment

More guidance on the costs budgeting regime will be welcome in what is turning out to be a minefield. Costs budgets are submitted at the beginning of a case when it is difficult to know the likely course of events. Making provision for contingencies makes sense. As the court said in Henry v News Group Newspapers costs judges should “not allow costs in an amount which exceeds what has been budgeted in each section.” The contingencies seemed to be an issue in this case but if a particular contingency does not occur the budgeted costs for that event should not form part of the overall budget, so it is difficult to see what issue can be taken with budgeting for contingencies.

On the one hand, costs budgeting is designed to ensure that costs are proportionate and controlled. But on the other they will only form the framework of a detailed assessment and the court will still only allow costs which have been reasonably incurred. A budget should not be a licence to conduct litigation in an overly expensive way and if judges are taking an active role in managing and controlling expenditure the budget should achieve that. The certainty of coming within budget should count for something and if it is not avoiding the need for protracted detailed assessment, it just seems to add another administrative hurdle for a party to overcome, at additional expense. Unfortunately, as this case has settled we will have to wait for the court to comment on the proper approach to be taken by costs judges on detailed assessment in cases where costs budgets have been approved.