The Hon. Mr. Justice Coulson:
1. INTRODUCTION
- By a judgment handed down on 24 May 2013 ([2013] EWHC 1191 (TCC)), I dismissed the claimant's claim in these proceedings, and allowed one element of the defendant's counterclaim in the sum of £3,500 plus VAT. Together with interest, that gives an agreed total due to the defendant of £4,630.62.
- The claimant accepts that, in consequence, it is liable to pay the defendant's costs of the action. There are, however, disputes as to the basis of assessment of those costs and, perhaps more importantly, the interaction between the existing costs management order (which approved the defendant's budget costs of £264,708) and the total costs now sought by the defendant, in the sum of £497,593.66.
2. A BRIEF PROCEDURAL HISTORY
- On 10 May 2011, the claimant took out ATE Insurance against the risk of having to pay the defendant's costs. The cover was up to £250,000. These proceedings were commenced on 25 July 2011, and the following day, the claimant notified the defendant of both the funding and the limit of the cover.
- At the CMC on 29 March 2012, Edwards-Stuart J ordered that the defendant file and serve its costs budget in accordance with CPR PD 51G, the Costs Management in Mercantile Courts and Technology and Construction Courts - Pilot Scheme. On 31 May 2012, having considered the costs budgets submitted by both parties, Edwards-Stuart J made Costs Management Orders approving the claimant's costs budget of £317,333.25 (being £212,533.25 in respect of costs and £104,800 for the ATE Insurance premiums), and the defendant's costs budget of £264,708.
- At the Pre-Trial Review on 18 January 2013, Ramsey J enlarged the cost management orders to cover the costs of daily transcripts at the forthcoming trial. This had the agreed effect of increasing the defendant's approved costs budget to £268,488. Apart from that, at no time before or at the trial (which started before me on 4 March 2013) did either side apply to increase or revise the costs budgets which were the subject of the costs management orders.
- This was despite the fact that, on 7 February 2013, just a month before trial, the defendant sent the claimant and the court a revised costs budget, which doubled the previous estimate to £531,946.18. On 22 February, the claimant's solicitors objected to the revised budget, but at the same time notified the defendant's solicitors of a much smaller increase in their own budget figure to £372,179.53.
- Although these exchanges were sent to the court, they were not included in the trial bundles, which were the only papers in this case that I ever saw: accordingly, I was wholly unaware that the defendant's estimated costs were now twice the amount approved in the costs management order. I was, however, aware (because I was told this expressly at paragraph 9.1 of Mr Susman's written opening) that:
"The defendant has not yet made any application for further enlargement of the Costs Management Order made on 31 May 2012, but any such application if made will be strongly resisted by the claimant."
No such application was made and the matter proceeded to trial and judgment.
- Also in the run-up to trial, there were a number of offers. On 19 February, the defendant's solicitors wrote a letter, marked 'without prejudice save as to costs', offering the sum of £150,000 in full and final settlement of the claimant's claim, inclusive of interest and costs. On 20 February, that offer was expressly rejected by the claimant's solicitors, who instead indicted that the claimant would accept the sum of £550,000 plus costs. The parties having been unable to reach agreement, the matter then proceeded to trial. Of course, it is now apparent that the claimant would have been considerably better off had it accepted the defendant's offer of 19 February.
- The issues which now arise are these:
(a) Is the defendant entitled to its costs on an indemnity basis?
(b) If so, what is the relevance (if any) of the existing costs management order?
(c) If not (so that the costs are assessed on the standard basis), can the defendant recover more than £268,488 either by seeking to amend the costs budget after judgment, or by asserting good reasons to depart from the existing costs budget?
3. THE LAW
1. Costs Management Orders
- This case is governed by the pilot scheme and therefore PD 51G. The relevant parts are as follows:
"Modifications of Relevant Practice Directions
2…
Estimates of Costs to be set out in detailed costs budgets
(3) Section 6 of the Costs Practice Direction is modified by substituting for paragraph 6.5 the following –
6.5 In proceedings within the scope of the Costs Management in Mercantile Courts and Technology and Construction Courts – Pilot Scheme provided for in Practice Direction 51G, the estimate of costs must be presented as a detailed budget setting out the estimated costs for the entire proceedings in a standard template form, which substantially follows the precedent described as Precedent HB and annexed to that Practice Direction.
Filing of Costs Budgets
3.2 Each party should include separately in its costs budget reasonable allowances for –
(1) intended activities: e.g., disclosure (if appropriate, showing comparative electronic and paper methodology), preparation of witness statements, obtaining experts' reports, mediation or any other steps which are deemed appropriate to the particular case;
(2) identifiable contingencies, e.g., specific disclosure application or resisting applications made or threatened by an opponent; and
(3) disbursements, in particular court fees, counsel's fees and any mediator or expert fees.
Purpose of Costs Management
4.1 The court will seek to manage the costs of the litigation, as well as the case itself.
4.2 The objective of costs management is to control the costs of litigation in accordance with the overriding objective. (See rule 1.1.)
…
4.4 If the court decides to make a costs management order it will, after making any appropriate revisions, record its approval of a party's budget and may order attendance at a subsequent costs management hearing (by telephone if appropriate) in order to monitor expenditure.
…
Revision of Approved Budget
6. In a case where a costs management order has been made, at least seven days before any subsequent costs management hearing, case management conference or pre-trial review, and before trial, a party whose costs budget is no longer accurate must file and serve a budget revision showing what, if any, departures have occurred from that party's last approved budget, and the reasons for any increased budget. The court may approve or disapprove such departures from the previous budget.
…
Effect on Subsequent Assessment of Costs
8. When assessing costs on the standard basis, the court –
(1) will have regard to the receiving party's last approved budget; and
(2) will not depart from such approved budget unless satisfied that there is good reason to do so."
- It should be noted that many of these provisions have now become part of the CPR (see in particular r.3.15 and r.3.18 and paragraphs 2.2 and 2.6 of 3E PD).
- The approach to be adopted towards budget costs, which have been approved as part of a costs management order, was set out by Moore-Bick LJ in Silvia Henry v News Group Newspapers Ltd [2013] EWCA Civ 19 at paragraph 28 where he said:
"[Pursuant to the new Rules] although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, I should expect it to place particular emphasis on the function of the budget as imposing a limit on recoverable costs. The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake."
- The particular issue which arose in Henry concerned the Defamation Pilot Scheme and in particular paragraph 5.6 of that scheme, which is very similar to paragraph 8 of the TCC Pilot Scheme (paragraph 10 above), which states that, when assessing costs on the standard basis, the court "will not depart from such approved budget unless satisfied that there is good reason to do so." The costs judge held that the appellant's solicitors had failed to comply with the Defamation Pilot Scheme (because they did not keep the defendant or the court informed of the fact that the budget was being exceeded by a very significant amount), and felt constrained to hold that the failure prevented the parties from being on an equal footing (one of the express provisions in the Defamation Pilot Scheme which is absent from the Pilot Scheme in the present case). This in turn meant that there was no good reason to depart from the approved budget.
- As a result of what the Court of Appeal described as "the rather unusual circumstances of the case", they overturned the decision of the costs judge, concluding that he had misunderstood the reference to the parties being on an equal footing and had taken too narrow a view of what amounted to good reasons for departing from the costs budget. They said that it was open to a costs judge when considering whether there was good reason to depart from the approved budget to take into account all the circumstances of the case. However, at paragraph 24, Moore-Bick LJ said:
"However, it will rarely, if ever, be appropriate to depart from the budget if to do so would undermine the essential object of the scheme."
- The only other case cited by counsel on this topic was my own decision in Kim Murray and Another v Neil Dowlman Architecture Ltd [2013] EWHC 872 (TCC) in which I said:
"In my view, in an ordinary case, it will be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a costs budget, which is then approved by the court, should be subsequently revised or rectified, for the reasons given by Mr Wygas. The courts will expect parties to undertake the costs budgeting exercise properly first time around, and will be slow to revise approved budgets merely because, after the event, it is said that particular items had been omitted or under-valued. I also agree that any other approach could make a nonsense of the whole costs management regime."
2. Indemnity Costs
- The principles relating to indemnity costs are rather better known. They can be summarised as follows:
(a) Indemnity costs are appropriate only where the conduct of a paying party is unreasonable "to a high degree. 'Unreasonable' in this context does not mean merely wrong or misguided in hindsight": see Simon Brown LJ (as he then was) in Kiam v MGN Ltd [2002] 1 WLR 2810.
(b) The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it out of the norm in a way which justifies an order for indemnity costs: see Waller LJ in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson [2002] EWCA (Civ) 879.
(c) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. But the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order: see, for example, Wates Construction Ltd v HGP Greentree Alchurch Evans Ltd [2006] BLR 45.
(d) If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there was no injustice in denying the claimant the benefit of an assessment on a proportionate basis given that, in such circumstances, the claimant had forfeited its rights to the benefit of the doubt on reasonableness: see Digicel (St Lucia) Ltd v Cable and Wireless PLC [2010] EWHC 888 (Ch).
- These principles have recently been restated in the judgment of Gloster J (as she then was) in Euroption Strategic Fund Ltd v Skandinaviska Enskilda Banken AB [2012] EWHC 749 (Comm).
4. IS THE DEFENDANT ENTITLED TO INDEMNITY COSTS?
- On behalf of the defendant, Ms Day submitted that the defendant was entitled to indemnity costs because this was a speculative and grossly exaggerated claim which, she said, was advanced with little regard for proportionality and reasonableness. She was critical of the poor quality of the claimant's expert evidence which, although thin, required to be met in detail. She also complained that the claimant acted unreasonably in refusing the offer of £150,000 (inclusive of costs) made on 19 February.
- In response, Mr Susman maintained that this was always an arguable case and that the judgment contained significant findings of liability against the defendant. Although he accepted that the arguments as to causation and quantum went against the claimant, he said that this was a long way away from a claim improperly pursued which should be visited with an order for indemnity costs. In addition, in relation to the offer of £150,000, Mr Susman pointed out that this was less than the claimant had already spent, so that the claimant would have been significantly out of pocket if it had accepted the offer. When taken together with the almost simultaneous notification that the defendant's costs had doubled from that set out in its original costs budget, he said that the claimant had concluded that it had become the subject of bullying tactics.
- In my view, this is not a case where indemnity costs are appropriate. That is principally because I accept Mr Susman's basic submission that, although the claimant lost, the various matters raised were plainly arguable. That can, I think, be illustrated in two ways. First, as to the critical obligation to complete all its work by 30 November 2007, I found that the defendant was in breach, although I then went on to conclude that, on my analysis of the facts, the critical delay in making the planning application itself could not be ascribed to the defendant. The defendant had sought to dismiss the obligation to complete by 30 November 2007 as merely aspirational, but I rejected that argument. Thus at least the initial basis of the claimant's claim was sound.
- Secondly, the extent to which the claimant's case was arguable can be measured by reference to the Judgment of 24 May. This was not a claim which, at the end of the trial, I could dismiss in a few paragraphs. A raft of arguable issues were raised by the claimant which needed to be addressed by the defendant, and then analysed in the Judgment. True it is that I resolved the vast majority of those arguments in the defendant's favour, but very few of the matters relied on by the claimant were capable of being resolved in a sentence or two.
- Neither do I think that this case was somehow conducted in a disproportionate manner by the claimant. This is not a case in which wholesale amendments to the claim (or the underlying basis of claim) were made late on or where the subject matter of the trial was very different to that which might have been expected; on the contrary, the allegations that formed the original basis of the claim were there from the outset. In addition, during the trial, at least some of the allegations were abandoned. I find that the remainder were not pursued to an unreasonable extent or in a disproportionate fashion.
- One alternative submission put forward by Ms Day was that, even if she was not entitled to indemnity costs throughout, she was entitled to indemnity costs in respect of the expert evidence. However, that submission was based on the suggestion that the claimant's expert evidence was, in some way, a manifestation of improper conduct or otherwise disproportionate. I do not accept that submission. Whilst, as my Judgment makes plain, the defendant's experts were much the better experts, and it was their evidence on which I relied to the extent appropriate, this was not in truth a case in which the expert evidence was central to the issues I had to resolve. Furthermore, I do not consider that the claimant's experts behaved unreasonably or were responsible for any significant lengthening of the trial or other increase in costs. They were simply unpersuasive.
- Ms Day's other alternative submission was that she was entitled to indemnity costs from the date of expiry of the offer of 19 February (which was stated to be 27 February 2013). She said that, since the claimant would have been in a much better position if it had accepted this offer, its conduct was prima facie unreasonable in refusing the offer and going on with the trial.
- I consider that, of all the arguments put forward by Ms Day in support of the claim for indemnity costs, this had most force. It is undoubtedly true that the claimant would have been better off if it had taken the offer. But there is an inevitable degree of hindsight about that conclusion. Furthermore, it is significant that the offer, which was inclusive of costs, was so low that, if it had accepted it, the claimant would still have been significantly out of pocket. If it was not unreasonable for the claimant to pursue the claim to trial then I think it was not unreasonable for the claimant to refuse an offer that would have rendered it out of pocket if it had been accepted. Accordingly, I am not persuaded that the offer should make any significant difference to my conclusions.
- For all these reasons, therefore, I conclude that the defendant is entitled to its costs to be assessed on a standard basis, and not on an indemnity basis. The particular circumstances required for the indemnity basis of costs assessment have not been made out.
5. IF THE DEFENDANT HAD BEEN ENTITLED TO INDEMNITY COSTS, IS THE COSTS MANAGEMENT ORDER IRRELEVANT?
- Both counsel made submissions as to the extent to which the costs management order was relevant to an assessment of costs on an indemnity basis. Because I have found that the defendant is not entitled to its costs on an indemnity basis, the issue does not arise directly but, having heard submissions; it may be helpful if I set out briefly my conclusions.
- Prima facie, whether under PD 51G paragraph 8, or CPR 3.18, the costs management order (with its approval of the costs budget) is expressed to be relevant only to an assessment of costs on a standard basis. However, as a matter of logical analysis, it seems to me that the costs management order should also be the starting point of an assessment of costs on an indemnity basis, even if the 'good reasons' to depart from it are likely to be more numerous and extensive if the indemnity basis is applied.
- The first reason for this is that, as set out in paragraphs 2 and 3.2 of PD 51G (paragraph 10 above), the costs budgets represent the parties' estimate of all the costs that they think that they will incur. It is not an estimate based on any particular form of costs assessment; it is just an estimate of likely costs. If it is an accurate estimate of all the costs that will be incurred, then it seems to me that it should be the relevant starting point for an assessment of costs on an indemnity basis as well as for an assessment on the standard basis.
- Secondly, this would provide the benefits of both consistency and certainty. There is a concern that, if an order for indemnity costs allows a receiving party to ignore the costs management order, then that will encourage successful parties to argue for indemnity costs every time. That would be unfortunate, and would leave an unacceptable doubt hanging over even approved costs budgets, all the way through to judgment and beyond. A paying party will have fought the trial assuming that, even if it loses, its opponent will be unlikely to recover more than the amount recorded in the costs management order, unless there is good reason for any departure. That is the certainty that the new regime provides. Even if the paying party has to pay costs on an indemnity basis, that does not seem to me automatically to justify an abandonment of that certainty, and the encouragement of a costs free-for-all.
- Of course, in any given case, it might be said that an award of indemnity costs – which does not require any assessment of proportionality – might be a "good reason" to depart from the costs budget approved by the court pursuant to paragraph 8 of PD 51G. I can well see that, in particular factual circumstances, an award of indemnity costs might be a good reason to permit such a departure. But that would be fact-specific, and it would not detract from the principle of at least starting the costs assessment by reference to the approved budget.
6. CAN THE DEFENDANT IN THIS CASE RECOVER MORE THAN THE SUMS IN THE COSTS MANAGEMENT ORDER?
1. General
- I have found that the defendant is entitled to its costs to be assessed on a standard basis. That immediately creates a difficulty for the defendant here because, prima facie, the upper limit of its recoverable costs would be the £268,488 which is the subject of the modified costs management order, as opposed to the sum of almost half a million pounds which it says it has actually incurred.
- It seems to me that, whether regard is had to the TCC Pilot, or the new rules in the CPR, or the guidance in Henry, the result is the same: unless the defendant can amend/revise upwards the costs management order or approved costs budget pursuant to paragraph 6 of the Practice Direction (and now r.3.15(3)), or persuade the court that there are good reasons to depart from it in accordance with paragraph 8 of the Practice Direction (and now r.3.18(b)), then the defendant's costs are going to be assessed by reference to the costs management order.
2. Amendment/Revision of the Costs Management Order
- Paragraph 6 of the PD allows the court to approved or disapprove departures from the previous budget. Three issues arose in the debate before me: what does a party need to do to seek approval or disapproval; when should such an application be made; and what test does the court apply on such an application? In my view the same issues would have arisen under r.3.15(3), which deals with the court's ongoing 'control' of the budgets after the costs management order has been made, and which therefore envisages potential increases or additions to the original budget costs.
- As to what the defendant was required to do in this case, Ms Day submitted that the defendant complied with paragraph 6 of the PD because they filed and served a budget revision just less than a month before trial. She argued that it was not necessary for the defendant to do anything further. Mr Susman disagreed and maintained that, if the defendant had wanted to amend the costs management order imposed by Edwards-Stuart J, a proper application should have been made. He pointed out that, in his written opening for trial, he expressly noted that no such application had been made (paragraph 7 above).
- In my view, Mr Susman was right: if the defendant wanted the court to approve the significant changes to its costs budget, then it had formally to seek such approval. It was not enough simply to file the material at court. As I have said, coming late to this case, I was entirely reliant on the parties to provide me with the information that I needed properly to manage the trial. I was wholly unaware of the fact that the defendant's estimate of costs had almost doubled in the weeks before trial. Had I known, I would have put the defendant to its election at the outset of the trial.
- When should an application to revise/amend a costs management order be made? In my judgment, it ought to be made immediately it becomes apparent that the original budget costs have been exceeded by a more than minimal amount. On the facts of this case, that appears to be late January/early February 2013. Whilst Ms Day argued that the defendant was entitled to concentrate on preparing for trial, rather than taking time out to deal with the costs management aspect of the case, it seems to me that the defendant was taking a significant risk in continuing to incur costs which were so far outside the approved costs budget, without doing anything about the existing costs management order. I note that there is no evidence from the defendant explaining why an application was not made in February or at the start of the trial.
- I am in no doubt that the application pursuant to paragraph 6 of PD 51G ought to have been made before the trial. That is because paragraph 6 identifies expressly the stages when such an application could be made, which are said to be "any subsequent costs management hearing, case management conference or pre-trial review, and before trial". There is nothing in paragraph 6 which envisages an application after the trial; indeed, I consider the paragraph expressly requires any application to be made before the trial.
- Furthermore, in my judgment, an application to amend an approved costs budget after judgment is a contradiction in terms. First, it would mean that the exercise would no longer be a budgeting exercise, and would instead be based on the actual costs that have been incurred. Secondly, it would encourage parties to 'wait and see'; only applying to increase the budget costs if it was in their interests. Thirdly, it would make a nonsense of the costs management regime if, at the end of the trial, a party could apply to double the amount of its costs budget. The certainty provided by the new rules would be lost entirely if the parties thought that, after the trial, the successful party could seek retrospective approval for costs incurred far beyond the level approved in the costs management order.
- There was some debate as to the prejudice that the claimant would or would not suffer if such an application were heard after judgment. These arguments were somewhat hampered by the fact that the defendant's application was only served late last Thursday night, giving the claimant very limited time to respond. I am also doubtful that prejudice is of any real relevance anyway, for the reasons set out in Murray (as to which, see further below)
- But to the extent that prejudice may be relevant, I consider that the claimant would be prejudiced if the application was heard now. The claimant fought the trial knowing that, pursuant to the costs management order then in place, the additional amount for which it might personally be liable beyond the ATE cover was £18,488 (the additional balance beyond the £250,000 for which it had insurance). If the defendant were permitted to revise its budget now, after the trial, the claimant would be faced with a personal liability that might be as much as a quarter of a million pounds. That again seems to me to be unjust and contrary to the costs management rules.
- If I am wrong to conclude that an application to amend the costs management order should not be entertained after judgment, then I consider that, at the very least, the defendant would need to demonstrate good reason why the application was made so late. In my judgment, the defendant has not done that here. Indeed, there is no explanation in the witness statement of Mr Loveday, the defendant's solicitor, as to why the application was not made in early February, or at the outset of the trial, which I consider to be a significant omission. Although Ms Day submitted that the preparation of the trial took precedence over the making of such an application, not only was there no evidence to that effect but, on these facts, I find that that was not a good reason for not making the application.
- Finally in connection with paragraph 6 of PD 51G, there was some debate as to what test the court should apply when approving or disapproving departures from the previous budget. In my judgment, the test must be the same as that noted in paragraph 8, namely that the court should not depart from the approved budget unless satisfied in all the circumstances that there is good reason to do so. In many ways, that only confirms my view that the application needs to be made promptly, because what might appear to be a good reason for a departure well before trial may look less of a good reason later in the process.
- Accordingly, I take the view that, pursuant to paragraph 6 of the PD, the defendant ought to have made a formal application for approval of its budget costs as soon as it became apparent that the budget costs had been significantly exceeded. That required a formal application to the court, at the hearing of which the court would consider whether or not there was good reason to depart from the budget. For the reasons which I have explained, the defendant did not so any of those things and cannot now seek, retrospectively, to revise the budget under paragraph 6 of the PD so as to all but double the original costs budget approved in the costs management order.
3. Is There Good Reason to Depart from the Approved Budget Pursuant to Paragraph 8?
- Of course, my conclusion that no application can be made under paragraph 6 is not the end of the matter because it was always open to the defendant to seek to depart from the original approved budget costs pursuant to paragraph 8 of the PD, on the basis that there is good reason to do so. I note that this route is also available under the new CPR Rules (see r.3.18(b)).
- This part of the process is designed to take place when the court is "assessing costs on a standard basis". That suggests that this is primarily a matter for the costs judge (as it was in Henry), rather than me. However, both counsel were agreed that, whilst the standard assessment would generally be a matter for the costs judge, it would be helpful if I expressed any views that I had as to the alleged reasons for departure from the original costs budget. I therefore do so briefly below.
- The first general point that I would make is this. On the original pleadings, this was a case where there were disputes about delay; about the quality of the defendant's planning application; about the chain of causation; and about the reasonableness, construction and effect of the defendant's terms and conditions. The pleadings were not significantly amended. Those were precisely the issues which were the subject of the Judgment. In other words, this was not a case which some how lurched off track after its commencement, or where the issues ended up being very different to those which had originally been canvassed in the pleadings. Everything went pretty much as it might have been expected to go. In those circumstances, it seems to me that the general scope for alleging in this case that there is good reason now to depart from the costs management order is relatively limited.
- The second general point is that, in the course of her submissions, Ms Day characterised the reasons for the significant overspend, in comparison with the approved costs budget, as being a combination of the costs that were actually incurred and "not getting the budget right in the first place". As to that latter point, there was no evidence: Mr Loveday's statement does not give any indication that errors were made in the estimate of the original budget, much less explain how they happened. But, given the scope of the overspend, I think it must follow that something went wrong in the original estimate.
- In Murray, I said that it seemed to me very doubtful whether the mere making of a mistake in an approved costs budget would, of itself, amount to a good reason for a later departure. That must necessarily be the case in circumstances where, as here, any potential mistakes have not been identified, let alone explained.
- The third general point concerns Ms Day's contention that there was a good reason to amend the costs budget because such amendment would not cause prejudice to the claimant and, if it were not allowed, would cause plain disadvantage to the defendant. As I said in Murray, under the new rules promulgated as a result of the Jackson Review of Costs, questions of prejudice are likely to be much less relevant than they were before. Moreover, I do not accept that, on the facts, the claimant has not suffered prejudice. I accept Mr Susman's submission that, on a proper analysis, the claimant fought the case on the basis that its potential exposure to the defendant's costs was, because of the ATE cover, relatively modest, and it therefore relied on the costs management order to that effect. That also explains why, in his written opening, Mr Susman put down the marker that any attempt to amend the costs management order would be resisted.
- At one point in her submissions, Ms Day said that, following the defendant's notification of their increased costs in February, the claimant could have extended its ATE cover before trial, and she relied on the fact that there was no evidence to the contrary. In my view, both submissions were unrealistic. As to the former point, since the defendant said that it was entitled to concentrate on the trial and not make an application to the court amend the budget, it hardly lies in its mouth to criticise the claimant for not rushing about trying to obtain significantly increased cover at the last minute. And as to the latter, I accept Mr Susman's submission that the absence of any evidence is explained by the very late notice of these points (and the late service of Mr Loveday's witness statement). I also accept his assurance that, as a matter of fact, an application for further cover was made but was not obtained.
- In all those circumstances, to the extent that it is relevant, I consider that the claimant would suffer prejudice if wholesale additions to the costs management order were allowed after the trial.
- Turning to the specific increases in costs, I make the following observations. The most significant increase, worth about £170,000 on its own, relates to the defendant's expert's fees. It appears that the approved costs budget included just £30,500 for experts' fees, whereas the actual experts' fees incurred amounted to more than £200,000. In a case where there were no amendments of any significance, and where the expert evidence was not as critical as it can sometimes be in TCC cases, this is an astonishingly high figure. I would venture to suggest that it is precisely this sort of unjustified expenditure which the costs management regime was designed to prevent.
- There are a number of possible explanations for this huge increase but, on the face of it, none of them amount to a good reason for departing from the costs management order. First, there is the almost inevitable inference to be drawn that the approved costs budget woefully underestimated the experts' fees. For the reasons given, that is not a good reason to depart from the approved costs budget. Secondly, it may be that the experts took longer and cost more than they themselves had originally anticipated. There is no evidence about that, but again, given that the issues which the experts had to address did not change, this would not appear to be a good reason for departure either.
- During the course of her submissions, Ms Day suggested that the expert evidence had been much more extensive than originally anticipated because the claimant had fought through every point and had not abandoned some of its claims or modified others. I confess that I did not understand that submission. If the original figure of £30,500 was based on an assumed abandonment by the claimant of particular issues, then the budget costs should have said so; proper practice requires the budget to be prepared on the basis that all of the pleaded issues are in dispute (rather than making any assumption that many of them would somehow fall away). In the absence of any stated qualification in the costs budget, the court is entitled to assume the comprehensive nature of the figures put forward.
- Thirdly, on an analysis of the material before the court, it appears that one major reason for the defendant's significant overspend on experts was the defendant's failure to prepare its expert evidence in accordance with the earlier directions of the court. As a result, by the time of the Pre-Trial Review in January 2013, the defendant had not served its expert's reports and Ramsey J ordered the prompt service of both their expert planning report and their expert valuers report. In consequence, these reports were not served until late January; almost immediately thereafter, the defendant belatedly woke up to the fact that the experts' fees were far higher than those set out in the approved budget. On that basis, the reason for the late and significant increase in this aspect of the costs was the failure on the part of the defendant to prepare its expert evidence in accordance with the existing court orders.
- I also note in passing that some of the actual elements of the experts' costs are unsustainable. For example, one of the defendant's experts, Mr Stock, attended every day of the trial. That was completely unnecessary. This was never a case in which the expert evidence required that level of knowledge or involvement.
- Save for one exception, therefore, it does not seem to me that the significant increase in the expert's fees, which is far and away the largest single item of proposed departure from the approved budget costs, is justified; putting it another way, no good reason has been made out to justify this departure from the approved costs budget.
- The exception concerns the evidence concerning the costs of implementation; that is to say, the costs of carrying out the works required by way of condition by the planning permission that was granted. I can see that this was not a matter which, originally, either side thought would be the subject of expert evidence. That was a reasonable assumption. However, as the case got closer to trial, I can see that the parties became aware of the potential importance of this topic: if the costs of implementing the planning permission were extensive, then they could easily negate any additional value resulting from the grant of planning permission. Indeed, that is what I found in my Judgment.
- I consider that the defendant was entitled to call expert evidence on this issue. That expert evidence was important and was much more persuasive than the rather ad hoc evidence from Mr Bailey of the claimant company on the same topic. Accordingly, whilst I make no comment on the amount by way of fees referable to that element of the expert evidence, I can see that, as a matter of principle, the fact that there was an increase in the defendant's expert's costs referable to the costs of implementation, which was not included in the original costs management order, would be a good reason to depart, at least to that extent, from the approved costs budget. However, in my judgment, no other element of the expert evidence falls into that category.
- Turning to other matters, I note that there were some increases from the approved budget in respect of counsel's fees. In general terms, whether or not there is good reason for these increases seems to me to be a matter for the costs judge rather than me. In relation to the chronology (a particular item in respect of which it was said that the defendant's counsel had to do much more work than anticipated because the claimant's counsel did not produce such a document), I suspect that the defendant would have produced such a document regardless of what the claimant did. I did not refer to the chronology for the purposes of preparing my Judgment, not because it was not helpful, but because, in cases like this, the judge cannot avoid doing an analysis of the documents for himself.
- As to other potential increases in counsel's fees, I note that it is again suggested that fees were increased because the witness evidence of the defendant had become "more complicated and substantial than envisaged". I do not understand that, given my observations earlier that the issues throughout remained largely unchanged. Furthermore, in relation to the difficulties that were created because the defendant's witnesses no longer worked for the defendant, it seems to me that this was something that was known about at the outset, and should therefore have been taken into account at the time of the preparation of the costs budget. That also covers the related argument that the witness costs were somehow greater than could have been anticipated. As I suggested during the course of argument, paragraph 41 of Mr Loveday's statement, dealing with the evidence of Mr Murkin, is a good example of the problem faced by the defendant: it explains why the costs were as they were, but gives no explanation as to why the costs originally envisaged at the outset were so much lower.
- All the other matters raised in Mr Loveday's witness statement, under headings such as Witness Expenses, Disclosure, Inspection and the like, are all matters for the costs judge.
- Accordingly, whilst I cannot at this stage rule out an application by the defendant to the costs judge that some of the increases in the costs constituted "good reason" to depart from the approved costs budget, in accordance with paragraph 8 of the PD, I consider that the principal increase, in relation to expert's fees, was (with the exception of the fees in connection with the evidence about the costs of implementation) not justified by any good reason and was indeed, the defendant's responsibility.
7. INTERIM PAYMENT ON ACCOUNT OF COSTS
- The defendant is entitled to an interim payment on account of costs. Since, for the reasons that I have given, the costs management order is likely to be the benchmark for the costs to be recovered by the defendant, any interim award of costs should operate on the basis that the defendant's recoverable costs in this case are unlikely to be much less than the costs management order but unlikely to very much greater either. In addition, I note that Mr Susman's principal submission was that the £250,000, which was the subject of the ATE insurance, was available to be paid within 28 days. He had no objection to that sum forming the amount of the interim payment.
- Accordingly, I order that the claimant pay the sum of £250,000 by way of interim payment within 28 days from the hearing on 3 June 2013.
8. CONCLUSIONS
- For the reasons set out in Section 4 above, I consider that the defendant is entitled to its costs of the action, assessed on the standard basis. For the reasons set out in Section 5 above, I consider that, even if I have been wrong about that, and the costs should have been assessed on an indemnity basis, the costs management order and the approved budget costs would still be the starting point for any costs assessment.
- For the reasons set out in Section 6 above, I do not consider that, on the facts of this case, the defendant is entitled now (post-Judgment) to apply under paragraph 6 of the Pilot Scheme, to amend or revise the costs management order made by Edwards-Stuart J. I do consider that, in accordance with paragraph 8 of the Pilot Scheme, the defendant is entitled to argue before the costs judge that there are "good reasons" for departing from the approved costs budget but, in the light of the matters set out in Section 6.2 I consider that the scope of such departure is likely to be limited. In particular, I do not consider that the huge increase in expert's fees can be explained by any 'good reason' for an increase, save in relation to the costs of implementation of the planning permission.
- I am very grateful to both leading counsel for their submissions on this new aspect of the CPR.
