Coming to terms with the costs management process

Mr Justice Warby has suddenly come to the fore as a key figure in the development of costs budgeting after two recent rulings in libel cases which led to disputes about costs.

First up was his ruling in Simpson v MGN Ltd and another [2015] EWHC 126 (QB),which followed a preliminary hearing in a claim brought by Premier League footballer Danny Simpson against the Daily Mirror.

An overall budget had been approved by the court, but Queen’s Bench Master Yoxall had declined to direct a preliminary issue and so did not address the contingency the claimant had made for such a hearing in his budget (although it was in the defendant’s agreed budget).

The claimant then applied for the hearing and served an amended budget on the defendant, who failed to respond until two working days before the hearing. The budget was not filed with the court and after losing at the hearing, the defendant argued that the claimant’s budget did not make provision for the hearing and there was no good reason to depart from it (as per the Civil Procedure Rules (CPR) 3.18(b)), meaning no costs should be allowed.

Warby J said the rules around updating budgets and serving costs schedules do not prescribe that the sanction for breach should be to assess the party’s recoverable costs at nil. Instead, the appropriate sanction would be to conduct an assessment “which makes every assumption against the party which has failed to submit an amended budget, and properly compensates for the additional costs involved”.

He said the wording of CPR 3.18(b) was probably not aimed at circumstances such as this. But even if he was wrong, there was good reason here. A nil assessment would be “an unjustly disproportionate sanction, not sufficiently justified by the overriding objective, the need to enforce compliance with rules, practice directions or orders, or any of the other specific aims listed in CPR 1.1(2)”. Making every assumption against the claimant in assessing the hearing’s costs was a “just and proportionate” sanction that “in more general terms provides a sufficient incentive to parties to comply”.

Costs budget contingencies

The judge’s next ruling set out guidance on the use of contingencies in costs budgets, saying that they should only cover eventualities that are “foreseen as more likely than not to be required”.

Warby J’s ruling came in a case and costs management conference in Yeo v Times Newspapers Ltd [2015] EWHC 209 (QB), in which the Conservative MP Tim Yeo is suing The Sunday Times.

Both sides’ budgets included contingencies, with the claimant’s including a £50,000 provision for ‘strategy review and consultation’ and ‘possible further work’.

Warby J said contingencies must involve work that does not fall within the main categories on the Precedent H form, it must be possible to identify to the opposite party and the court what that work would be, and the court had to consider how likely is was that the work would be required.

He continued: “In my judgment, work should be included as a contingency only if it is foreseen as more likely than not to be required. This seems to me a clear criterion that provides a practical solution, consistent with [practice direction (PD)] 3E 7.4 and 7.9… If the improbable occurs, in the form of an unexpected interim application, the costs will be added to the budget pursuant to PD3E 7.9, unless the matter involves a ‘significant development’ within para 7.4in which case, if time permits, a revised budget should be prepared and agreed or approved.”

In relation to Mr Yeo’s budget, the judge decided that the main sections allowed enough for ‘strategy review and consultation’. ‘Possible further work’ met none of the three criteria he had listed. He also did not allow three of the four contingencies put in by the defendant – relating to potential applications – because he did not “consider any of those three eventualities as more likely than not”.

However, he did allow an £8,500 contingency for the costs associated with budgeting, “on the basis that it does not exceed the cap of 3 [per cent] of approved costs… and the costs of budgeting in this case will have been more significant than they ordinarily would be”.

Nearly two years on from the introduction of costs management, the issues coming before the courts are moving on from initial budgeting problems and into the arguably trickier area of what happens between budget and assessment. I fully expect there to be several more rulings as judges and practitioners alike continue to come to terms with the nuances of the process. SJ

Sue Nash is chairman of the Association of Costs Lawyers

@CostsLawyers