We previously reported on the decision of Master Gordon-Saker in the matter of BNM v MGN Ltd in which he said:

“When applying the new test of proportionality, the court need not consider the amount of any additional liability separately from the base costs. In the event I have considered the after event insurance premium separately.”

This has led to a challenge as to the proper approach to be taken during the Budgeting process on the question of how additional liabilities should be treated at this stage. The matter came before the court in Various Claimants v MGN Ltd [2016] EWHC 1894 (Ch) where Mr Justice Mann was dealing with a complex budgeting hearing. It had been agreed that common costs would be dealt with separately from those in relation to individual Claimants. The Defendant, building upon the argument of the Master argued that the Court should look at the reasonableness of the costs in the budgets and then take a step back and fix the budget at a proportionate level.

Crucially, they argued that that proportionate sum should represent the maximum totality of the costs which should be recoverable upon conclusion, to include additional liabilities. This, it was argued, followed the logic of the Master in that the recoverable, proportionate costs would necessarily include everything which the paying party had to pay, to include additional liabilities.

The Judge was not persuaded by the argument. Noting that the decision in BNM was to be challenged on an appeal, he drew a distinction between the approach there, which was after conclusion of the substantive proceedings and in the assessment proceedings, with what was required at the budgeting stage. At the assessment of costs stage, any Costs Judge would know what the additional liabilities were and the arguments behind them being claimed at that level. He was therefore dealing with known global figures when he assessed proportionality. That simply was not the case at budgeting stage.

He pointed out the difficulties involved should the Defendant’s suggested approach be adopted. There is no requirement on the part of a party seeking additional liabilities to disclose the amount of any success fee nor any ATE premium. The guiding principle behind that is of course that disclosure at a stage prior to conclusion may give an indication as to a party’s perceived view as to the strength of its case.

Further, he noted the explicit wording on Precedent H which says:

“This estimate excludes VAT (if applicable), success fees and ATE insurance premiums (if applicable), costs of detailed assessment, costs of any appeals, costs of enforcing any judgment and [complete as appropriate]”

He accepted that this wording was on a precedent, but found that the form was created by a practice direction and therefore it was proper to pay attention to the explicit wording. In particular, the fact that on the form the word “excludes” was underlined obviously added emphasis the fact that additional liabilities should not be included.

His conclusion was:

“In short, the practicalities and effect of the exercise proposed by Mr Hutton point strongly against its being correct. When allied with the apparent express purpose of Precedent H (mandated by the Practice Direction), it is clear to me that his approach cannot be right. It may be that this gives rise to a form of logical inconsistency when one puts the budgeting process alongside the assessment process (assuming that BNM is correct in its approach) but that is inevitable effect of the different things required of the parties and the process at those two different stages”

He was also not inclined to follow the argument that it was open upon any assessment to argue that the Court should allow more than had been budgeted under CPR 3.18 (b) because that would have to be invoked in a large number of cases in order to justify any substantial recovery of additional liabilities and that would not be a satisfactory answer because of the uncertainty that that would engender.

The Judge was therefore satisfied that additional liabilities should form no part of the consideration at budgeting stage.

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