Background
The underlying claim related to a claim made under s423 of the Insolvency Act 1986. S423 grants the Court power to grant relief in respect of transactions where assets are put out of the reach of creditors. The transaction in this claim related to the sale of property in Hampstead, London.
The Claimant’s claim was ultimately unsuccessful, as the Court found that the transaction of the property in London was not done with the intention of defeating the interests of the creditors. The Claimants’ claim was dismissed and a costs liability was established, requiring the Claimants to meet the costs of the Defendants
The Costs Management Orders made
During the course of the action, costs budgeting was in effect to ensure the claim was proceeding in accordance with the overriding objective, Two Orders were made during the proceedings that were considered likely to have an effect on the assessment proceedings.
The first order, dated 11 October 2022, read:
“1. Pursuant to CPR Rule 3.15, the court has made a costs management order as follows:
a. The court has provisionally approved the Claimants' budgeted costs subject to determination of the Further Issue as set out in the Schedule to this Order ("Schedule");
b. The Defendants' budgeted costs as set out in their Precedent H costs budget dated 19 September 2022 are recorded as agreed by the Claimants but such recording is subject to determination of the Further Issue.
c. The budgets for each phase, as provisionally approved by the Court or agreed in the terms of sub-paragraphs a. and b. above are set out in the Schedule.
2. Upon the determination of the Further Issue the Claimants' budgeted costs in the amounts provisionally approved and the Defendants' budgeted costs as agreed by the Claimants may be disapproved or revised downwards but not upwards if the Court considers it appropriate to so in the light of its consideration of the written reports to be filed pursuant to paragraph 3 below.
3. Within 28 days of the date of this Order, the parties shall exchange and file at court written reports (not to exceed four sides of A4 paper) ("Reports") justifying for the purposes of the Court's costs management powers, by reference to work already done and work to be done, the costs (both incurred and future) in their budgets both agreed and provisionally approved (taking into consideration any reductions either may consider appropriate, if any).
4. The reports in addition to being filed on Ce file shall be emailed to I.C.C. Jones's clerk for his consideration for determination of the Further Issue if satisfied by the justification(s) or for further directions.
5. The Costs Management Conference is adjourned pending further directions.
6. Costs reserved”
The second order, dated 30 January 2023 read:
"IT IS RECORDED THAT:
1. The Court does not consider on the information currently available that either the Claimants' or the Defendants' costs (including incurred costs) are reasonable and proportionate, for the reasons set out in the Judgment.
2. Subject to paragraph 1 above and as explained in the Judgment, the Court made a provisional assessment of the Claimants' estimated costs in the total figure of £893,455.00, as more particularly set out in the Schedule to the First Costs Management Order, a copy of which is appended to this order;
3. The Defendants' budgeted costs in respect of estimated costs is agreed by the Claimants in the total sum of £860,355.00, as more particularly set out in the Schedule to the First Costs Management Order."
It was necessary for the Court to decide on the interpretation of the two orders in order to assess the impact on the assessment proceedings.
The interpretation of the orders
It should be noted that the Claimants’ Precedent R agreed with the budgeted figures of the Defendant prior to the hearing of 11 October 22, while making it clear that the incurred costs ‘remain subject to assessment’.
As the budgets had been agreed, the Court considered they did not have discretion to alter the agreed budgets but recorded in the recital to the order dated 11 October 2022 that the Court took issue with the budgets as agreed and invited both the Defendants and Claimants to review their Precedent R budget discussion reports and to justify their own budgets.
A further hearing was held on 23 January 2023 and handed down on 30 January 32023, which set out that the Court was of the view that neither the Claimants’ or Defendants’ budgets were reasonable and proportionate. It was considered that this Order both recorded the extent to which budgeted costs are agreed between the parties (as required by CPR 3.15 (2)(a) and records on its face the comments the comments the Court has about the incurred costs, which are to be taken into account in any subsequent assessment proceedings.
Upon considering the two orders made, Costs Judge Nagalingam considers that two costs management orders had been made. The first recorded the agreement of the budgets between the parties and the second recorded the Court’s comments on those budgets. As such, the cut off point for the bill was to be the first CMO, as the second CMO did not alter the agreed sums, it simply recorded comments.
The comments recorded against the budget would be taken into account during the Detailed Assessment, primarily when assessing reasonableness and proportionality. The judge also mentioned that good reason arguments may also be raised during assessment, provided they are contained within the Points of Dispute
Analysis
This matter only further demonstrates that parties cannot seek to both agree a disproportionate budget and expect the Court to simply rubber stamp the agreement. Where the Court consider costs budgets to be unreasonable or disproportionate, they have the power to make a Costs Management Order to record their comments, which will subsequently be taken into consideration during the detailed assessment.
In order to avoid such issues, parties are encouraged to agree reasonable and proportionate budgets from the outset, to minimise any potential arguments as to good reason being raised during assessment.
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