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Comments on incurred costs; comparing budgets and escaping the 1%/2% limits: Chief Master Marsh's warning to judges when making Costs Management Orders

View profile for Richie Rees
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Chief Master Marsh has provided some useful guidance to practitioners and judges when dealing with several aspects of the costs management process in the high-profile case of Sir Cliff Richard OBE -v- The BBC & Chief Constable of South Yorkshire Police [2017] EWHC 1666(Ch). In a High Court costs hearing that pre-dated the Court of Appeal's pivotal decision in Harrison v University Hospitals Coventry & Warwickshire NHS Trust, Chief Master Marsh put forward strong opinions on how the courts should apply the discretionary power to comment on incurred costs; the limited benefits of directly comparing Claimant and Defendant costs budgets; and his interpretation of when the exception to the 1% and 2% caps on the recoverable fees may be justified. Thankfully his views seem to sit well alongside the Court of Appeal's clear ruling on the overlap between costs management and detailed assessment.

This costs management judgment followed a specific hearing in relation to the court’s discretion to record comments in a costs management order (”CMO”) relating to the incurred costs recorded in the approved Precedent H costs budget. The wider context of this hearing was the controversial BBC coverage of the South Yorkshire Police’s raid of Sir Cliff Richard’s home in 2014. Sir Cliff sought civil remedies for the invasion of his privacy once the CPS had dropped the criminal investigation that necessitated the raid. As the Claimant, his incurred costs would likely be considered substantial in almost any type of claim - totalling £1,167,144.83 of which £526,437.97 were incurred Pre-Action and a further £324,611 under the Issue / Statements of Case phase - and so the Defendant understandably sought adverse judicial comment as part of the costs management process. At the hearing Chief Master Marsh highlighted that there was no statutory guidance on the wording or purpose of any comments that may be recorded. The Defendant proposed that a suitable comment would read:

“The incurred costs based on the information available appear to be excessive and disproportionate."

 This proposal will likely match comments that have been recorded in CMOs up and down the country, and in this context Chief Master Marsh’s decision may be considered surprising, however the reasoning is undoubtedly logical and refreshingly clear for those preparing for the uncertainties of a costs management conference. He addressed three distinct aspects of the costs management process, as summarised below:

Judicial comments on incurred costs

  • The court's power under CPR 3.15(4) and Practice Direction 3E 7.4 is to be considered a ‘very broad’ discretionary power, and there is no guidance on when or how this should be applied.
  • Whilst a costs judge will take into account any comment recorded on the CMO when conducting a detailed assessment of the same matter, that costs judge may disagree with or put the comment to one side if appropriate given the wider scope of information available at the conclusion of proceedings when compared with the CCMC.
  • Given that a CCMC should focus on the approval of the budgeted costs primarily, and even that exercise is conducted with relatively scant detail compared to a subsequent detailed assessment, a degree of caution should be applied when deciding whether to make a comment on the incurred costs at all.
  • It is ‘quite impossible’ for a court to confidently determine that incurred costs are unreasonable and/or disproportionate in absolute terms at the CCMC.
  • If the court is to make any comment at all it should be made on ‘sound footing' and not based purely on an 'impression’; otherwise there is a risk that the comment will unfairly skew a detailed assessment.
  • Comments that the incurred costs are “substantial” or “too high” aren’t useful.
  • The absence of a comment on incurred costs does not create an assumption that those costs are reasonable and/or proportionate.

 

Comparing Precedent H budgeted (future) costs

  • The mere fact that one party’s costs budget is significantly lower than the other should not be determinative to the court's approval of budgeted costs.
  • Parties may reasonably take different views as to how they intend to progress the claim and the level of work or costs required.
  • Other factors, such as market rates, may also explain a difference.

 

The recoverable fee for the costs budgeting and costs management process

  • There is no clear guidance on when or how the 1% and 2% caps set in Practice Direction 3E 7.2 can be exceeded for “exceptional” cases.
  • Exceptional does not mean "wholly exceptional" and may be demonstrated by circumstances significantly outside of the norm.
  • Relevant factors in this case included: a split trial causing the parties to prepare two different Precedent H costs budgets ahead of the first CCMC; the need to redraft costs budgets; multiple CCMCs; and an opponent’s failed application to record an adverse comment on the incurred costs.
  • The receiving party were permitted to escape the 1% and 2% caps imposed by the Practice Direction.

 

Analysis

It is striking that Chief Master Marsh’s caution as to the accuracy or fairness of any adverse comments made on incurred costs at the CCMC stage caused him not to use this discretion in relation to Sir Cliff Richard’s approved costs budget, despite the significant figures detailed above. Yet this cautious approach does assist us when advising on how costs management will dovetail with detailed assessment, especially in light of Harrison. The senior judges appear to be driving a clear divide between incurred costs and approved budgeted costs. Incurred costs should be left untouched at the CCMC stage as they will be subject to a full detailed assessment at the conclusion. It is unlikely that any adverse comments will be made with full knowledge of all factors that may eventually show those incurred costs to be reasonable and/or proportionate to the matter as a whole; and so such comments should not be made unless clearly necessary.

It is unfortunate that Chief Master Marsh did not take the further step to explore the extent to which those incurred costs can or should be “taken into account” when determining the approved budgeted costs. Part 3 of the CPR still contains the anomaly that the court are approving the phase totals, and therefore judges arguably look to set an overall figure of incurred and estimated costs that appears proportionate. Applying Chief Master Marsh’s logic, surely any uncertainty as to the accuracy or fairness of an impression-based comment on the incurred costs at the CCMC stage should also prevent the incurred costs from having any bearing on what should be approved as falling within a range of reasonable and proportionate future costs?  It appears clear from Harrison that the Court of Appeal wants to approve budgeted sums in order to provide certainty for both parties with regards to the costs of all work conducted after a CCMC. This certainty would be undermined to some extent where a judge openly uses a broad-brush impression of disproportionate incurred costs to reduce budgeted costs from an amount that would otherwise fall within the range of reasonable and proportionate costs. On detailed assessment where all relevant factors were considered in full under CPR 44.3(5), if those incurred costs were in fact assessed as being recoverable, surely the receiving party would have "good reason" for departing upwards from all of the court's approved future costs figures?

If Chief Master Marsh’s comments are upheld in practice, or ratified by the Court of Appeal in any later case, it would suggest that costs management is moving specifically towards the approval of budgeted costs in complete isolation. Will it eventually be decided that incurred costs are of such irrelevance at the CCMC stage that they are removed from the Precedent H document altogether?

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