Background
Appeal
Comment


Troy Foods v Manton(1) concerned an application for permission to appeal an approval of a costs budget. The Court of Appeal gave permission and stated that further guidance was 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. 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; Manton's came to £53,040. Each side exchanged comments and they revised their budgets to £129,176 and £59,380, respectively. The difference between the two budgets largely reflected the differing views of the solicitors as to the likely course of the proceedings and the need for contingencies.

The judge 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 had 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 that it was not so unreasonable as to render it obviously excessive or "grossly disproportionate". The Court of Appeal judge 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 Newspapers,(2) 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

Further 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 one hand, costs budgeting is designed to ensure that costs are proportionate and controlled; on the other, it merely forms the framework of a detailed assessment and the court will still allow only costs that 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 the need for protracted detailed assessment is not avoided, this seems to add another administrative hurdle for a party to overcome, at additional expense. Unfortunately, as this case has settled, the court's comment on the proper approach to be taken by costs judges on detailed assessment in cases where costs budgets have been approved is still awaited.

For further information on this topic please contact Rebecca Birkby at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (rebecca.birkby@rpc.co.uk).

Endnotes

(1) [2013] EWCA Civ 615.

(2) [2013] EWCA Civ 19.

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