Trips, traps and tactics of litigation budgeting

Trips, traps and tactics of litigation budgeting

Every litigator should now be aware of the new obligation to prepare budgets; in his latest article for the New Law Journal, Dominic Regan navigates the trips, traps & tactics of litigation budgeting.

While budgeting arrived on 1 April, it should be appreciated that the court has the ability to impose budgeting retrospectively to cases commenced before the date of reform. If you are concerned about a seemingly profligate opponent there is nothing to stop you making an application for a budget. Frankly, I suspect that not too many old cases will be so managed as the judiciary is intimidated by the thought of having to budget at all.

Henry v NGN

On no account should one be lulled into a false sense of security by the Court of Appeal decision in Henry v News Group Newspapers Ltd [2013] EWCA Civ 19, which I wrote about in an earlier article. That was the action where the claimant substantially exceeded the approved budget in a defamation pilot scheme case. At first instance the senior costs judge held the claimant to the approved figure. On appeal it was directed that consideration should be given as to why the overspend occurred and whether there was good reason to allow recovery of any of the excess. The decision was wrongly interpreted in some quarters as demonstrating a liberal approach to budgeting. Not so. At para 28 of the transcript the court emphasised that it was looking at the terms of a pilot scheme which were more gentle than the reforms which Pt 3 introduced in April. Furthermore, the Master of the Rolls has since pointed out that Henry was decided in the days of the old overriding objective. It is now for the court to deal with cases justly and at proportionate cost, the second limb having been added last month .

Henry left open the question of whether it would be permissible to vary a budget that was ineptly drafted and was just plain wrong. What if it significantly understated the costs? Costs Judge Campbell at the recent Epiq Systems conference in London indicated that that might not be a good reason to vary, an opinion which I respect and think utterly correct. Alexander Hutton QC has made the excellent point that, in such a case, the unfortunate solicitor will end up working for nothing once the (inadequate) budget has been exhausted before the job is finished.

Safetynet

The approach to costs taken by the pioneering HHJ Simon Brown QC in Safetynet Security Ltd v Coppage & Anor [2012] EWHC B11 (Mercantile) is one, I suspect, that would attract the approval of Lord Justice Jackson who, contrary to popular myth, had no involvement whatsoever with the Henry judgment. Safetynet is at once wonderful and terrifying. It was wonderful because the claimant, who came in on budget at the conclusion of the trial, was given his costs there and then. While I do not pretend for a moment that the budgeted sum will become by default the recoverable costs I do think there will be a strong temptation for the judiciary to take this approach. Put simply, where spending plans have been vetted and approved at the outset, the appetite to crawl over them again at the end will be weak.

Safetynet is terrifying for this reason. The first opportunity of the losing, paying party to challenge costs turned out to be their last opportunity as well. There was no detailed assessment. The lesson is that one must be thoroughly prepared to attack at the case management conference. Even if the court declines to award the budgeted amount as costs, the lesson to be gleaned from the Manchester pilot scheme is that judges will be relaxed about awarding a significant payment on account of costs to the winner, based upon their budgeted sum. Note the subtle but important change in April. Whereas before the court might consider a payment on account of costs, today it shall consider ordering a payment.

Uncertain future

There is, as one might expect with such a radical reform, much uncertainty. One area is the correct approach to take. This point was to be considered by the Court of Appeal on 2 May in the Troy Foods appeal but the respondent capitulated. A judge had allowed £350 per hour for junior counsel of 1995 call. The test he applied was to ask whether the figure “made his eyes pop out”. The defendant asserted that this approach was wrong in principle and that a cautious, prudent test was the correct one to invoke. It is inevitable that sooner rather than later the Appeal Court is going to have to give a definitive answer.

Those allergic to budgets can avoid them by a number of means, including agreeing their numbers with the other side which may not be easy or, of course, by taking advantage of the Commercial Court blanket exemption.

Do not forget that budgeting is all about standard costs as between the parties. A good Pt 36 offer can open the door to indemnity costs and, for offers made by a claimant from 1 April, extra damages of up to £75,000 simply for making a good offer.

Professor Dominic Regan is a professor at City Law School columnist for the New Law Journal. He has assisted Lord Justice Jackson & HH Judge Simon Brown QC with costs reform and writes the blog Professor Dominic Regan. This article was first published in the New Law Journal on 19 August 2013.

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