19 May 2022
When the litigation goes down a different track, an existing CMO still applies
Once a costs management order (CMO) has been made, parties are required to revise costs budgets if significant developments in the litigation warrant such revisions. If the revised costs budgets are not agreed, the court’s approval of the variations must be sought by the revising party.
The requirements for revisions to costs budgets and approval by the court were in paragraph 7.6 of PD 3E and, following amendments in 2020, are now in CPR 3.15A.
Where there are significant developments in the litigation, a failure by a party to obtain the court’s approval of variation costs may have drastic consequences in respect of the costs recovered. In this article, I will address this issue by reference to the detailed assessment proceedings in Price v Saundry, in which I was instructed on behalf of the first defendant (D1), the paying party. This case is illustrative of the application of several of the costs management rules in practice.
Background
Price v Saundry concerned complicated trusts litigation, which had gone to the Court of Appeal ( [2019] EWCA Civ 2261) on one issue, although the detailed assessment proceedings related to the costs in the High Court, which had not been affected by the Court of Appeal’s decision.
Proceedings had been commenced by the issue of a part 8 claim form and the claimant (C) sought an order removing the then trustees of the trust (which was a bare trust of residential properties). Further relief was sought in the form of “such further orders (for example as to the sale of trust assets and the taking of accounts and enquiries as appears to the court to be necessary)”.
The original focus of the litigation was the removal of the trustees. At a case and costs management conference in October 2016, directions were given leading to a trial in respect of the removal of the trustees and a CMO was made, with the total of C’s incurred costs being £73,159 and the total of the approved budgeted costs being £52,640.
At a hearing in September 2017, the trial in respect of the removal of the trustees was vacated as the trust properties had been/were sold and the focus of the litigation shifted to ‘accounts and enquiries’. Directions were given and very substantial costs were thereafter incurred, with the matter proceeding to a three-day trial in February 2019.
Following the trial, in respect of the costs of the proceedings the court made different orders for three separate periods. For the first period, the court made no order as to costs; for the second (from September 2017, when the focus of the litigation changed), D1 was ordered to pay C’s costs on the standard basis; and from approximately 15 months later, D1 was to pay C’s costs on the indemnity basis as C beat its part 36 offer.
Despite the period where there was no order as to costs, C claimed more than £270,000. The costs for the second period were £158,225.
The only CMO was made in October 2016, although C did, in July 2018, serve further costs budgets but they were not agreed by D1, and C did not seek the court’s approval of the revisions.
C’s bill of costs was not phased (i.e. it did not take into account the CMO) on the basis that it was said that the CMO related only to the ‘removal proceedings’ (when there was no order as to costs) and would not be a useful comparison.
Points of dispute and replies
A preliminary issue arose in the detailed assessment proceedings. D1 contended in the points of dispute that the budgeted costs in the only CMO of October 2016 related to the application to remove the trustees and not in respect of the taking of an account and that there was “in effect no costs budget covering the costs that were the subject of the bill of costs”; unless the claimant could persuade the court there was good reason to depart from the approved costs budget, it was argued that only the hearing fee should be allowed.
C maintained in the replies that the budgets approved in October 2016 related to the removal of the trustees and not to the accounts and enquiries proceedings. C stated that no costs management order was made in September 2017 and that the court clearly did not consider that the accounts and enquiries should be costs managed.
C argued that the default position was that part 8 proceedings were excluded from costs management unless the court orders otherwise, and therefore no costs budgeting applied to the accounts and enquiries. C averred that it had taken the view that costs management should be dispensed with and that D1 had not responded.
C also contended that D1 could not say that no costs budget covered the period and that a good reason to depart from the budget was required.
D1’s argument at preliminary issue hearing – CMO
I was instructed by D1 for the preliminary issue hearing, which was listed within the detailed assessment proceedings before District Judge Woodburn, regional costs judge in Bristol.
The point of dispute referred to above did not refer to any specific rules; it reflected the wording and sanction of CPR 3.14, which provides that, unless the court otherwise orders, “any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees”.
C had, of course, filed a costs budget in the proceedings, which had led to the CMO. CPR 3.12 deals with the application of the costs management section of part 3 and PD 3E and significantly refers to the application of the section and the PD to ‘proceedings’.
I therefore argued that it was in fact CPR 3.18 that was applicable to the detailed assessment of the claimant’s costs of the proceedings on the standard basis and, as such, the court could not depart from the budgeted costs approved or agreed unless satisfied that there was a good reason to do so.
I emphasised that the proceedings encompassed the removal part of the proceedings and the accounts part of the proceedings. Both aspects were within the same claim number. The replies therefore incorrectly referred to the ‘accounts and enquiries proceedings’. There were no separate proceedings.
In response to C’s argument that costs management did not apply to part 8 proceedings, it was relevant to refer again to CPR 3.12, which provides that the section and PD apply by default to part 7 proceedings, and by CPR 3.12(1)(A) they “apply to any other proceedings where the court so orders”. The court did so order, a CMO had been made and therefore it was argued that costs management applied to the proceedings.
It was not surprising that the court ordered that costs management should apply and made a CMO. PD 3E specifically provides at paragraph 2(e) that costs management may particularly be appropriate in “any part 8 claim… involving a substantial dispute of fact and/or likely to require oral evidence and/or extensive disclosure” – this litigation did.
Further relevant rules referred to were: CPR 3.12 (2), which provided that “the purpose of costs management is that the court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective”; and CPR 3.15, which provides that “(1)… the court may manage the costs to be incurred (the budgeted costs) by any party in the proceedings”, and goes on to state “(3) If a costs management order has been made the court will thereafter control the parties’ budgets in respect of recoverable costs”.
It should be note that CPR 3.12(2) has been amended slightly to include after ‘proceedings’ the words “(or variation costs as provided in rule 3.15A)”, albeit it is difficult to see why that was necessary.
Based on the rules, it was argued it was clear that, once a CMO is made, then costs management continues to be applicable and that C was therefore wrong to ignore the CMO and argue that no costs management was applicable from 14 September 2017.
I argued that the shift in focus of the litigation from 13 September 2017 was a significant development. As a CMO had already been made, it was therefore for the parties to comply with the procedure provided for the revision of costs budgets and seek the court’s approval if the revised costs budget was not agreed. The obligation was on each party to comply. The fact that D1 also did not comply was of no consequence to her costs as there was no costs order in her favour.
Court’s conclusion on application of CMO
District Judge Woodburn accepted the arguments on behalf of D1. He held that there was clearly a significant development and C could not do nothing; the rules do not allow for that. It was erroneous for C to argue that the court lost control of C’s budget. It was recorded in the order that, a CMO having been made on 17 October 2016, in assessing the C’s costs on the standard basis the court would not depart from the approved or agreed budgeted costs in that CMO unless satisfied that there was good reason to do so.
Good reason to depart
Having lost the argument that no CMO applied, C argued at the preliminary issues hearing that the court should find that there were good reasons to depart from the costs budget. I argued that it should not.
It was contended that C’s approach seemed to have been to avoid costs management and therefore prospective control of her costs. C knew from 13 September 2017 that there was a significant development that required revision to her costs budget and did not do so in breach of the PD. Instead, she sought to argue that costs management did not apply after 13 September 2017.
To allow good reason in this case would amount to condoning a party ignoring the PD and circumventing prospective costs control, to then claim £158,225 in costs, without consequence.
Court’s conclusion on good reason to depart
District Judge Woodburn again accepted the arguments on behalf of D1. He held that there were multiple opportunities to bring costs management back before the court which were spurned by C. He commented that the provision in the PD was there for a reason and to accede to C’s arguments for good reason would indulge their failure to comply, which he considered should be sanctioned. He held that he was not satisfied that there was a good reason to depart from the approved or agreed budgeted costs upwards.
Outcome
The judge refused permission to appeal and there was no renewed application to the High Court. Following the preliminary issue hearing, the parties negotiated settlement of C’s costs, with C having to accept a very substantial reduction to the costs claimed and no recovery of any costs of assessment.
Conclusions
C’s failure in Price v Saundry to seek approval of revisions to her costs budget proved to be very costly. The effect of CPR 3.18 would have been greater still, and therefore the outcome would have been even worse for C if she had not had an indemnity costs order for period 3.
C should have understood from the rules that, where there is a CMO, the proceedings remain under that CMO even if there is a complete change of focus of the litigation.
There was no question that there was a significant development in the litigation. In such a situation, it cannot safely be ignored.
The parties did not address their minds to the costs management implications at the hearing when the focus of the litigation changed; if they had and counsel had sought a direction which recognised the significant development and provided for compliance with what is now CPR 3.15A by certain dates, C would probably have avoided being in the position she was at detailed assessment.
Case management and costs management must be considered together. My experience is that message that some practitioners (and judges) still forget.
C was ultimately left trying to argue for a good reason to depart. There is a great risk in seeking to rely on a good reason – as is apparent from the Court of Appeal’s guidance in Harrison.
A significant development is not the same as a good reason. In some circumstances, it might reasonably be argued that it would have been impractical or disproportionate to obtain the court’s approval of variations to a costs budget following a significant development and the court accepts a good reason argument.
However, a good reason argument is unlikely to be a sufficient fallback in most cases where a party has not sought the court’s approval of variations to its budget following a significant development.
Oliver Moore is a barrister at Guildhall Chambers