‘Alarm bells!!! –Just because costs are approved in the budget does not mean they are proportionate’

The case concerned a breach of contract claim that fell under the Mercantile Court costs management pilot and the budget approved by HHJ Kaye QC in Leeds.

At the CCMC the Claimant’s revised costs budget totalled £129,176 and the defendant’s £59,380. Judge Kay approved the whole of the defendant’s budget, but only part of the claimant’s budget, including the elements relating to witness statements and counsel’s fees. The Defendant sought permission to appeal, arguing that the judge adopted the wrong approach and was too generous in approving these amounts. The Defendant was concerned that, on a detailed assessment, costs judges are likely to treat the approval of a budget, or any relevant part of it as reasonable if they fall within the approved budget.

Moore-Bick LJ appreciated the Defendant’s position and in granting the Defendant permission to appeal Moore-Bick LJ said:

“In Henry v News Group Newspapers [2013] EWCA Civ 19 at paragraph 16 I expressed the view that an approved budget was not to be taken as a licence to conduct litigation in an unnecessarily expensive way. It follows that I do not accept 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. Nonetheless, one of the principal aims of costs budgeting is to control the parties’ expenditure, and that will not be effective if judges do not apply the correct principles.”

“Although the court will not readily interfere with the judge’s decision in a matter of this kind, which essentially involves an exercise of judgment, I think it is arguable that in this case the judge did not apply the correct principles and, as a result, approved an over-generous budget in respect of some elements of costs. Costs budgeting is still in its relative infancy and new provisions of general application came into effect on 1 April 2013 in relation to claims started on or after that date. Moreover, in relation to such claims, proportionality will now assume greater importance in the assessment of costs than it has in the past.”

“I think it is important, therefore, to ensure that the correct principles upon which costs budgeting is to be carried out are established at an early stage, which reinforces my view that permission to appeal should be given in this case. In the light of the way in which the appellant puts its argument, 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, though that will be a matter for the court which hears the appeal in due course.”

So what does this tell us, well obviously there is a stern warning here; proportionality will now play a greater role more than ever and will permeate into, even the costs budgeting process, but does this mean yet another hit on Claimant solicitor’s profit costs!? No not at all, it says that if a budget is prepared accurately with sound thought processes for budgeting those particular costs, then it is likely that your budget will be approved. If on the other hand, a casual, substandard, broad brush approach is adopted that is likely to spiral to costs that are way out of proportionality, then the Court will no doubt see through this and scrutinise the budget resulting in the same being considerably reduced.