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How are the Courts Dealing with Proportionality and Costs Management? Agents' Mutual Limited -v- Gascoigne Halman [2016]

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Where are we now?

There remains much uncertainty for lawyers in how the courts are approaching budgeting and applying the new test of proportionality therein and whilst there have now been a few key decisions that indicate the courts are taking a rigorous approach when it comes to proportionality (see Hobbs v Guy’s St Thomas NHS Foundation Trust [2015] EWHC B20 (Costs);  BNM v MGN Limited [2016] EWHC B13 (Costs; May and May v Wavell Group plc and another [2016] EWHC B16 (Costs)), more decisions are needed before any reassurance will be felt that we can in any way anticipate the approach the court will take on any particular day in any particular case.  Accordingly, much interest is shown in each and every significant decision that comes through and this case is no different in that it assists us with understanding some of the methodology being used.

How the case came to be costs managed?

This case arose out of a CAT (Competition Appeals Tribunal) case which Mr Justice Roth ordered be subject to costs management, subject to CPR 3.13 to 3.18 and PD 3E.  It is noteworthy that these rules would not otherwise apply in CAT cases which themselves have a broad costs management power under the Competition Appeal Tribunal Rules 2015, rule 53 (2) (m) and this case was the first to be costs managed under the post April 2013 budgeting regime.

The proceedings did not begin in the CAT but had originally been a High Court action with an application for interim relief in the Chancery Division.  The specific competition issues in the matter were transferred to the CAT on 5 July 2016 and were listed for a 12 day trial listed in February 2017.  The costs management order was therefore solely limited to the issues in the CAT.  Of note is that in the High Court proceedings it was directed that costs budgeting not apply.  Of further note is that this case was being heard alongside a parallel case and the Claimant had filed two separate budgets in respect of each. 

In August 2016 both parties filed and served costs budgets; the Claimant’s being in the sum of £1.8 million (incurred costs £417,000) and the Defendant’s being £2.8 million (incurred costs being £1.2 million).  Mr Justice Roth familiarised himself with CPR 44. 3 and 44.4 and CPR 3.15 and 3.18, and 44.3 and 44.4 together with PD 3E and confirmed that the approach taken would be as if an eventual assessment would be on the standard basis.

Preliminary Observations

Mr Justice Roth made the following preliminary observations:

  • Costs management of the Defendant’s budget was not concerned with what the solicitors and Counsel may actually charge their client but with what their recoverable costs would be should costs on the standard basis be awarded in its favour after trial in the CAT.
  • Proportionality is fundamental to the standard basis of assessment. It is inherent in the concept of proportionality that even when costs were reasonably or necessarily incurred, they may be disproportionate"; CPR 44.3(2)(a).
  • A costs management order was not concerned with a determination of rates or hours, however, the details set out in the Precedent H could be examined to understand the constituent basis of the overall figures and in order to assist with the evaluation; PD3, para 7.10.
  • The proceedings were complex and involved a specialist area of law and would therefore involve higher costs; both parties were using City of London solicitors which the court deemed was not disproportionate.  Additionally the issues were of high importance to both parties although the court acknowledged these were higher for the Claimant.
  • The Defendant had agreed the Claimant’s costs budget so it was not subject to review by the CAT and accordingly the Claimant would on the face of it be able to recover on the basis of its budget if costs were awarded in its favour, even if the court considered some of those costs to be disproportionate.  Accordingly the court deemed it would not be fair to revise the Defendant’s costs budget for the same phase of the action to a lesser amount unless there was a material difference between the two sides in terms of the work involved.


Burden of Proof

The Claimant argued that that it carried the burden of proving its case and as such its costs could expect to be the higher of the two parties.  The court dismissed that approach as being applicable in this case and found that there was parity between the parties save only as regards to the preparations for trial which as usual fell to being the Claimant's primary responsibility.

Costs Management

The court proceeded to go through each phase of the budgets for both parties with the following notable decisions being made:

Incurred Costs – the court made no comment on either party’s budget save insofar as confirming they would inform the court’s decisions on the future phases of the claim.

Witness Statements – the Defendant’s costs under this phase were £299,819 allowing for it having 6 to 7 witnesses and the Claimant having 4 witness statements and the evidence in the related action; the Claimant had budgeted £147,650 for the phase.  The court found the figure of £300,000 to be unreasonable and disproportionate and deemed a reasonable and proportionate sum to be £200,000 and given that £53,194 had been incurred Mr Justice Roth revised the figure to £146,806.

Expert Reports –the court found the Defendant's costs to be unreasonable and wholly disproportionate to what was involved in the case and gave careful regard to the comparison between the two parties' budgeted fees; reducing the Defendant's total phase from £317,133 to £240,000 including incurred costs.

PTR – the Defendant’s budgeting phase of £105,735 was on the basis of a one day substantive PTR with various substantive applications being made, whereas in reaching its figure of £40,390 the Claimant had assumed a standard half day hearing.  The Claimant made the argument that should any unexpected substantive application arise it would fall outside of the budget.  The court favoured the Claimant's approach and approved a revised phase of £40,000 for the Defendant, in keeping with the Claimant's figure of £40,390 for this phase.

Trial Preparation – this phase of the Defendant’s budget was £98,175 (inclusive of expert witness fees) compared with the Claimant’s budget which was £122,975 exclusive of the fees of its expert.  Referring back to his previous comment on the burden of preparing for trial Mr Justice Roth reduced the Defendant’s costs to £80,000 on the basis that the expert’s preparation costs were high and whilst the solicitors' costs appeared to be within a reasonable band the overall figure was “nonetheless significant and contributed to the disproportionality of the total budget”.

Trial – when approving this phase the court noted that it was “not appropriate as part of the costs budgeting exercise to revise the individual figures of the various constituent elements but instead to take a headline view for the phase, informed nonetheless by the observations I have made regarding those elements".  He confirmed there was “no substantive reason why the costs of Gascoigne Halman should be greater than the costs of the Claimant, when assessed by the criterion of proportionality”.  The court deemed proportionate costs for the lengthy and complex trial, the issues at stake and the specialism was £550,000 compared to the £842,195 claimed.
ADR/Settlement – the court agreed the sum claimed in the budget.

Investigation, Research and Review of Third Party Material & Contingencies – the Defendant had allowed £15,661 and £174,830.08 respectively under these phases in respect of costs which had already been incurred.  The court acknowledged these fell outside of the budget approval process. 

Final Figures

The Defendant’s budget was approved in the figure of £922,635 for estimated future costs which when combined with those incurred amounted to £2,122,635.

What have we learned?

Whilst this is not a ground breaking decision it is a helpful one in examining and understanding how the court can and will apply the test of proportionality at every level during the budgeting process and, on a practical level, what factors it will take into account when doing so. 

Full judgment can be found here.