Costs budgeting was first introduced on 1 April 2013. Ever since then practitioners have craved further guidance in its implementation and procedure as its principles have been applied somewhat inconsistently between courts and judges alike. In the case of Sir Cliff Richard OBE -v- The BBC & Chief Constable of South Yorkshire Police  EWHC 1666(Ch), Sir Cliff brought an action against the defendants in relation to their handling and reporting of certain allegations made against him. The case reached the costs budgeting stage.
Chief Master Marsh made a number of interesting and potentially useful observations on various issues that frequently arise during costs budgeting:
Proportionality of Incurred Costs and Proportionality Generally
At the outset of the hearing the court invited the parties to make submissions as to whether the court should make any comment about the Claimant’s incurred costs and also to address the court generally, on the question of proportionality.
The court’s power to make a comment about a party’s incurred costs is contained in CPR 3.15 and the power is repeated in a similar form in Practice Direction 3E. There is no doubt that it is a discretionary power and the discretion is a very broad one. Neither the rule nor the practice direction gives any guidance about the circumstances in which a comment may be, or should be, made.
A comment about incurred costs is to be taken into account in any subsequent assessment proceedings (rule 3.15(4)). Although a comment must be taken into account, that falls some way short of it being binding on the Costs Judge. The court rightly pointed out that on a detailed assessment, the Costs Judge will have far more information than the judge at the Costs Management Conference. Moreover the court also suggested that the Costs Judge is entitled, having taken a comment into account, to disagree with it or to put it to one side, if on the detailed assessment a fuller picture emerges.
In relation to the court’s role in costs budgeting a number of useful observations were made:
When dealing with costs management, the court is required to approve only the totals for future costs for each budget phase although it will have regard to the constituent elements in the budget.
The court is expressly required not to undertake a detailed assessment in advance but rather to “… consider whether the budgeted costs fall within the range of reasonable and proportionate costs.” (PD3E 7.3 refers)
The court has a substantial task to undertake where there are disputed elements in both budgets.
The exercise is necessarily a summary one that often has to be undertaken briskly. This is consistent with setting budget figures for prospective costs that are within an acceptable range.
Both the notion of a ‘budget’ and a ‘range’, indicate that the approval can only be undertaken at an impressionistic level, unless the litigation is of a standard type where the scope for non-standard budget phase levels is more limited.
When applying these factors the court concluded as follows:
“….that a degree of caution is appropriate when the court considers whether to make a comment about incurred costs. It is asked to do so in the context of the overall costs management exercise and the restraints that are clearly stated in PD3E para.7.3. The exercise of producing budgets and their review is, necessarily, an exercise based on limited information, even in relation to incurred costs; the amount of information that is to be included in the budget is very limited”.
The court pressed Counsel for the BBC to formulate a precise form of words for the proposed order. Counsel submitted the following:
“The incurred costs based on information available appear to be excessive and disproportionate”.
The court gave this proposition short shrift:
“To my mind there is little or no value in the court recording a general comment about incurred costs along the lines that the incurred costs are “substantial” or they are “too high”. If the court wishes to record a comment that the incurred costs are “excessive” or they are “unreasonable and disproportionate” it will wish to be sure that the comment is made on a sound footing, rather than impression, because commenting is quite unlike the exercise of approving a figure per phase for future costs. The court will also wish to consider the utility of making a comment unless it is specific and well-founded.”
The Master concluded that there was little benefit to the BBC of a comment but conversely a comment does bear the risk that on a detailed assessment disproportionate weight might be given to it, even though the comment is based on limited information.
The court declined to make any comment on the Claimant’s budget.
In this phase the Master commented that the Claimant’s costs appeared high. However, he reminded himself of the proportionality factors in addition to the complexity of the litigation, its significant importance to the parties and on a wider public basis. He also considered that the case had been fully docketed to a High Court judge with a category A listing.
The court also commented on the a proposed review by counsel of the witness statements being included in this phase rather than the trial preparation phase and that two conferences in relation to witness statements were proposed. The court concluded that “a significant proportion of the estimated time falls within the range of reasonable and proportionate costs”.
The fact that the Defendant’s budget was significantly lower in this phase was not in any way determinative as to the possible viewpoints available to each party when considering how much time may be required to complete tasks.
The court finally confirmed it had not allowed any time for supplementary witness statements as no permission for those existed at the time costs budgets were considered. This lends weight to the idea that if reasonably foreseen, these should have been included as a contingency to the budget.
The Master commented here that a 10 day trial was not considered “unduly long” when considering the forum of the case but perhaps of more universal application was the observation that a Claimant’s trial preparation costs would naturally be larger due to the central role played in the litigation.
The court was invited to make an order that in relation to the Claimant’s costs budget Practice Direction 3E para.7.2 can be ignored. This is the paragraph that sets the 1% cap for costs of preparing the initial cost budget and the 2% cap on the costs of subsequent cost budget work. The Practice Direction states that for this to be implemented the circumstances of the case must be exceptional.
When considering this the court rightly confirmed that there was no guidance as to what “exceptional” means in these circumstances. As a result it is not absolutely clear how far out of the norm the circumstances have to be to become exceptional.
The Claimant advanced three reasons in support of their request
Two budgets were prepared in advance of the CMC on the basis of a split trial
There had been redrafting of the budgets following on from that hearing
At the CCMC there had been a request by the BBC for comments to be made and that application was rejected.
In considering the request the court stated that it did not consider that “exceptional” meant wholly exceptional, but it meant something to the effect that the circumstances are significantly out of the norm. The court went on to state that a combination of the factors advanced by the Claimant did amount to exceptional circumstances and the cap was lifted allowing the Claimant to recover more than the 1% and 2%.
Comparison of Costs Budgets
The court observed a number of reasons why it was not useful to compare the Claimant’s and Defendant’s budgets. Firstly that costs budgeting is not a directly comparative exercise. The court went on to say that there can be good reasons, in many cases, why one budget is higher or lower than another budget. Furthermore there can be market considerations or a different view is taken by the party preparing the budget about the likely amount of time required.
The court also commented that the Defendant’s costs in the trial preparation phase were lower than he would have expected and that he could well envisage fees considerably higher than the figures given that would still “[have] come within the range of reasonable and proportionate costs”.
The case shows the many varied and complex issues that can arise during the course of costs budgeting and can often be more complex and fiercely contested than in the main litigation itself. This acts as a timely reminder that when dealing with costs budgeting you need a specialist in your corner to guide you through and advise on these issues and to fight your corner both during budget discussions and at CCMCs. MRN have been at the forefront of costs budgeting ever since its inception. With the use of our advanced Prophet Costs software and the extensive knowledge of our experts gained from acting in thousands of costs budgeting cases we can provide you with the necessary support to prepare an accurate budget that stands up to scrutiny at the Costs Case Management Conference.