In the matter of Bates & Ors v Post Office Ltd (No.5 : Common Issues Costs) Mr Justice Fraser considered the correct approach when making an order for costs and provided guidance on the amount and whether there should be a Detailed Assessment at that stage.
Mr Justice Fraser considered the correct approach when making a costs order and the implications upon future litigation. He suggested that to reserve the costs of an unsuccessful preliminary issues trial to the end of the litigation goes against CPR 44, CPR 44.6 and the overriding objective.
He also considered the method for calculating the amount of costs the Claimants should be entitled to, as the parties could not agree a figure. Mr Justice Fraser awarded the Claimants 90% of all costs attributed to the common issues and ordered a payment on account amounting to the full 90% of the recoverable budgeted costs; and 60% of the recoverable 90% of incurred costs. This was found to be a reasonable figure which balanced the need to place the Claimants on equal footing with the Defendant, while ensuring the possibility of an overpayment was kept to a minimum.
Finally, Mr Justice Fraser considered the Claimants’ request for exemption of budgeted costs from the Detailed Assessment. He considered the correct approach and agreed with the Defendant that budgeted costs should be subject to Detailed Assessment proceedings as budgeting should not create a ‘third way’, ignoring the requirements of CPR 44.6.
The case is a class action by around 600 former sub-postmasters who allege the post office has unlawfully abused its position to suspend, dismiss and criminalise former postmasters for theft, fraud and false accounting practises. It is alleged that the Post Office’s faulty IT system, Horizon, was to blame for the discrepancies rather than the former postmasters. The Post Office is a publicly funded body, the Claimants are backed by third-party funding.
Over the course of proceedings, costs had reached a level where they were estimated to have reached £25 million and were cause of concern to Mr Justice Fraser.
The Defendant had been denied permission to appeal on every single one of the 26 grounds it had sought following the “common issues” trial. Following the Claimants success on a number of issues at the preliminary issues trial, and the refusal of the Defendant’s request to appeal, the Claimants obtained a costs order in their favour. As the Claimants had not been successful on all of the preliminary issues, they were awarded 90% of their costs.
The Defendant submitted that the issue of costs should be stayed to the end of proceedings to enable the judge to be better placed in deciding who had won.
The judge disagreed with this view as, if correct, it would prevent costs orders ever being made until the end of litigation. The judge referenced CPR 1.1 and the overriding objective which states that in order to deal with a case justly, the parties should be on an equal footing. The Post Office, a publicly funded body, has greater access to resources than the Claimants who were being funded by a third party. A payment on account would lessen the funding chasm between the two parties.
The amount to be paid on account
When calculating the amount to be paid on account, Mr Justice Fraser ordered 90% of the costs of the Common Issues trial to be recoverable by the Claimants. The judge awarded the payment on account in the full amount of the budgeted costs but took a different approach to incurred costs. The Claimants sought an interim of 60% of the 90% award of incurred costs. The judge agreed that that a payment of this sum on account would be unlikely to be more than was ultimately recovered on assessment and the interim payment was awarded for this sum. These figures were net of VAT and the 1% budgeted amount.
A Detailed Assessment to occur?
The parties were unable to agree which costs of the Claimants should be subject to a Detailed Assessment. The Defendant argued that all of the Claimants’ costs should be subject to a Detailed Assessment, whereas the Claimants argued that the Costs Management Order did not require Detailed Assessment of the budgeted costs and therefore, the budgeted costs should not be subject to Detailed Assessment.
The Claimants submitted that even should the budgeted costs be subject to a Detailed Assessment, CPR 3.18 would apply and the costs judge would only be able to depart from an approved budget if there is good reason to do so; and there was no such reason. The Claimants’ intention was that the budgeted costs should essentially be rubber stamped at this point and not be subject to any further scrutiny.
The judge finally relied on CPR 3.18.1 which states that when a party is awarded costs and the amount of costs cannot be agreed, then those costs are to be assessed by the court. The judge requested that all of the Claimants’ costs be subject to Detailed Assessment and not just the costs that were not budgeted.
The issues in this case highlight the difficulty judge’s face when balancing the requirement that parties are on an equal footing while ensuring the matter is dealt with fairly and proportionately.
While a costs order may seem like a punishment to the paying party, it serves a deeper purpose in litigation to ensure that the party put to the cost of a trial that was ultimately successful is not prejudiced by the costs of that trial.
The insistence that a payment on account is paid when the costs order is made allows the successful party to utilise these funds to continue to finance further litigation and prevents a wealthy client from incurring costs to such a level the that other side can no longer afford to proceed with the litigation. This is especially true in this matter as the differences in funding availability between the Claimants and the Defendant would always be a factor during the litigation.
The circumstances should also be considered when deciding how much should be paid on account. It is important to carefully balance the need to place the receiving party on equal footing, whilst avoiding a potential overpayment to occur.
Finally, it has been shown that while costs may have been budgeted and approved, they should still serve a starting point when conducting a Detailed Assessment, rather than avoiding the need for assessment proceedings to take place. The costs judge would need good reason to depart from the budget when assessing the costs, but budgeting does not replace or prevent the assessment process.