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Costs Management Orders: first instance decisions or appellate court issues?

Redfern v Corby Borough Council
High Court – 3 December 2014

Havenga v Gateshead NHS Foundation Trust & South Tyneside Hospitals NHS Trust
High Court – 26 November 2014

There have been two recent appeal decisions in relation to costs management orders. In Redfern v Corby Borough Council (2014) and Havenga v Gateshead NHS Foundation Trust & Anor (2014) the claimants had asked the High Court to overturn the decisions of the lower court which had significantly curtailed their costs budgets. In both cases the appeals were dismissed. Andrew Cousins examines the key themes from the judgments and considers the practical implications

Background

Redfern

The claimant brought a claim for psychiatric harm allegedly caused by stress, bullying and harassment. It was anticipated that the trial of liability and quantum would last seven days, that the parties would rely upon expert evidence from one psychiatrist and one employment consultant each and that there would be evidence from between 14 to 24 lay witnesses in total. The claimant’s estimated value of the claim was in the region of £700,000.

The claimant filed a costs budget of more than £744,000, of which costs of almost £130,000 had already been incurred in bringing the case to a stage where, as the court termed it, “the action has only barely started”.

At first instance the deputy master held that he needed to consider the claimant’s incurred costs when determining what costs would be reasonable and proportionate to be budgeted for as a whole and considered that a budget of £266,796.20 was reasonable and proportionate. The incurred costs were “excessive almost beyond belief” and if the revised budget figure left the claimant with “not very much clearance” then that possibility should have been considered before the costs were incurred.

The claimant appealed submitting that the deputy master’s function was to focus only on costs yet to be incurred.

Havenga

The claimant had been born with cerebral palsy and alleged that the brain damage was caused by the defendant. The parties proposed to call experts in six different fields as well as joint experts in two additional fields. The claim was valued at around £5 million and the claimant filed a costs budget of £769,854.46 which was reduced to £463,915.13 at the costs management hearing.

The claimant appealed, arguing that the district judge had failed to appreciate the significant work involved in the case. 

Findings

Both appeals were dismissed.  In Redfern His Honour Judge Seymour QC paid particular attention to paragraph 7.4 of Practice Direction 3E:

As part of the costs management process the court may not approve costs incurred before the date of any budget. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all subsequent costs.

He held that:

  • The deputy master was recording his comments on the incurred costs and taking those into account when making his costs management order. The costs which had already been incurred must be considered when deciding how much more it is appropriate to spend, taking into account reasonableness and proportionality. It must be borne in mind that costs already incurred cannot be approved, but can be commented upon.

  • The deputy master had acted entirely appropriately in recording his comments on the costs which had been incurred and was required to take those costs into account when considering what was an appropriate budget both for individual aspects of the Precedent H budget form and the overall budget.

  • The only way in which a judge can take into account excessive costs already incurred in determining the reasonableness and proportionality of future costs, is to limit those future costs to such sums as would have been approved but for the excessive incurred costs.

In Havenga His Honour Judge Freedman decided that,

  • Whilst he would have reached a different decision from the district judge had he been sitting on the matter anew, the lower court’s order was not outside of the generous ambit allowed to the court when determining costs issues and case management decisions in general. The defendant’s budget was £157,322.50 and the claimant’s revised budget was still three times this amount. This was noteworthy when considering the claimant’s budget.

  • Particular attention needed to be paid to the guiding case of Tanfern Limited v Cameron MacDonald (2000) CA. A first instance judge has a very wide discretion when determining costs budgets and an appellate court should only interfere if the lower court has exceeded the generous ambit which it is permitted. In Havenga the appellate court considered that, whilst the matter could have been approached differently, the decision did not fall outside of the lower court’s generous ambit and should therefore not be interfered with. 

Comment

These cases are rare appeal findings on issues of costs management orders, and will be cause for concern in some quarters. The case of Redfern highlights that parties cannot incur significant costs in the pre-action stage and expect it to have no impact on how their budget will be approached by the court; and in Havenga, the fact that a claim is a multi-million pound action does not automatically mean that a costs budget will be approved where the costs claimed are excessive.

It is important to remember that costs management is about looking at costs as a whole. Whilst the focus will inevitably be on costs to be incurred, and not those which have been incurred, the parties and the court cannot lose sight of the costs incurred to the effect that a disproportionate costs management order is made.

Whilst it is not the court’s responsibility to conduct a detailed assessment based on the budgets, the court has to consider whether the budgeted costs fall within the range of reasonable and proportionate costs.

In Redfern the court could not see how the claimant had incurred such large sums just to issue the proceedings and this fell heavily against the claimant. The court can make comments on the incurred costs of any party, this will have an impact upon whether the court will approve the costs the parties propose to spend. Parties therefore have to keep in mind the need to incur proportionate costs when taking steps in the litigation.

In Havenga, the court was not satisfied that the claimant’s proposed future expenditure on costs was reasonable and proportionate given the number of lawyers they proposed to engage upon the case and the amount of time which was proposed to be spent bringing the matter to a conclusion.

The two cases highlight that the appellate courts will be reluctant to interfere with the decisions of lower courts about the level of costs budgets. Looking at the facts of each case it can be seen that even with significant reductions to the claimant’s budgets, the appeals were unsuccessful and the appellate courts concluded that the decisions were within the generous ambit allowed to the lower court. This is a clear indication that the bar for a successful appeal against a costs management order has therefore been placed very high and the appellate courts will not lightly entertain such an appeal.

From a practical perspective, we have seen cases where there has been “front loading”; perhaps in the hope of avoiding reductions to the costs budget hearing given that the court cannot reduce incurred costs. In such circumstances, and if the costs claimed are excessive, then it is worth considering inviting the court to comment upon the incurred costs as this could lead to a reduction in future costs.

In addition, if the court comes to deal with detailed assessment proceedings on a standard basis, then, if a costs management order has been made, the court will:

(a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and

(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.

As such there will already be before the judge at the assessment hearing the comments of the court about any disproportionate costs incurred by the party pre-action.

It is becoming more frequent for courts to require parties to file breakdowns of pre-action costs to see how the incurred costs have been spent. It is worth spending time scrutinising these to check for “front loading" and inviting the judge to make comments on those costs. 

Contact

For further information please contact Andrew Cousins Solicitor Advocate, Insurance on 0161 603 5093.

By Andrew Cousins

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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