Where an application to revise a costs budget is made, the date of the last agreed or approved budget is to be used as the ‘base reference point’, the chief Chancery master has ruled.
Master Marsh said that costs which have been incurred since that date (or, as in the case before him, an antecedent date set by the court) and relate to significant developments are, for the purposes of revision, placed in the estimated columns of the revised Precedent H in one or more phase.
“In some cases, it may not be obvious where they go (for example, a late application for security for costs) but I can see no reason why Precedent H may not be adapted as necessary to accommodate work that does not easily fit in,” he said.
Sharp v Blank and Ors [2017] EWHC 3390 (Ch) was an application to increase the defendants’ budget during the ongoing trial in the Lloyds/HBOS litigation.
The trial commenced in October 2017 and is due to finish in March, with approximately 5,800 claimants making allegations against five former directors of Lloyds TSB, and the bank itself, in relation to Lloyds’ acquisition of HBOS in January 2009 and their involvement in the government’s bank recapitalisation scheme. The total value of the claim is approximately £600m.
Last January, the claimants were granted a costs management order to bring much greater clarity to their costs exposure. The budgets were set at £17.6m for the claimants and £19.1m for the defendants. Both budgets were agreed without any budget phases being set by the court. The defendants came back to court during the trial to increase their budget, citing seven “significant developments” that justified the move.
Chief Master Marsh observed that the procedure for costs management “does not easily apply to cases of this substance and complexity”. He was particularly troubled by the fact that, by the time the defendants made their application, they had already incurred a substantial part of the revised costs, leading to the question of whether they were actually incurred costs and so not subject to budgeting.
The claimants said they were incurred costs, but the defendants argued that retrospective amendments to costs budgets were permissible under the CPR and that the decision of Warby J in Yeo v Times Newspapers Limited [2015] EWHC 2132 (QB) was no longer good law in light of the subsequent amendments to the CPR.
The master said: “To my mind, the defendants’ approach finds some limited support in the rules and the practice direction, but much stronger support in the principles that lie behind costs management and in the way in which they have to work in practice.
“Although paragraph 7.4 read literally prevents the court from approving costs incurred before the date of a cost management hearing, the requirements of the paragraph are impossible to implement in that way. Rule 3.13(1) requires the parties to file exchange budgets not later than 21 days before the first CMC. They are required after filing and exchanging their budgets to engage and produce a budget discussion report with a view to the court having the benefit of the fruit of that discussion at the CMC.
“In every case, the budgets will be at least three weeks out of date (and often more out of date than that) and the estimated costs for the CMC itself will have been incurred by the time the hearing of the CMC has concluded.
“That is not to say, however, that the estimated figure will automatically become the figure for incurred costs. Whether the estimate for the CMC proves to be accurate can only be known by looking backwards in time. Moreover, there is plainly no point in requiring the parties to engage with each other and produce a budget discussion report in relation to costs that cannot be approved by the court…
“I accept that a detailed assessment is needed for costs incurred up to the date of a costs management order and there may be elements of later costs that fall outside the costs management regime. However, I do not consider the rules and practice direction intended that only certain elements of the costs relating to significant developments must be dealt with as revisions with the other elements, those pre-dating the hearing or, on another view, those pre-dating the application being dealt with on a detailed assessment.
“This approach would run contrary to the purposes of costs management and lead to unnecessary fragmentation of the costs dealt with at a detailed assessment… It seems obvious to me that some degree of retrospectivity is inevitable if the costs management regime is to be made to work.”
The chief master found four of the seven extra elements were significant developments that justified increasing the budget, the main one being an extra £1.2m arising from the trial estimate being extended from an initial 59 days (it was originally meant to conclude on December 21) to 107 days.
He allowed a further £47,485 following the delivery of 984 further documents after an application for specific disclosure in June, and £225,000 to respond to an expert report served by the claimants the same month.
The three elements not approved amounted to approximately £240,000 and, in relation to one of them concerning extra questions sent by the claimants to the defendants’ experts, Master Marsh said: “It is not appropriate only to take work which has cost more than was originally anticipated and to say that there has been a significant development.
“There must be something more than merely a modest increase in the anticipated cost of the work to amount to a significant development.”