Successful costs management order appeal
With thanks to Tom Jenkinson at Bolt Burdon Kemp for kindly making the full judgment available.
Yirenki v MOD – QB/2018/0134 – 2 November 2018
Appeal to Mr Justice Jacobs against a decision made at Costs Case Management hearing. The decision may be one that many have experienced following the introduction of costs budgets.
Jacobs J was concerned with the approach to the making of the costs management order: specifically, to use the language of CPR 3.15, recording, “in respect of the budgeted costs which were not agreed” of the court’s approval, “after making appropriate revisions,” referring to paragraph 19 of the relevant Master’s decision made at the CCMC which stated:
“Save that the parties reserve their positions as to incurred costs and as to hourly rates, the Master approved the budgets subject to the proviso that it remains open to them to dispute those matters (and to that extent the figure for each phase) at a detailed assessment, the claimant’s cost budget is approved in the total sum of £206,669.72 and the defendant’s cost budget is approved in the total sum of £100,639.”
The Claimant/Appellant had taken issue with the Master’s decision to (1) approve a budget subject to possible debate at a later stage as to hourly rates and indeed anything else and (2) the approval being given by the Master in the course of the hearing, and as reflected in the approved budget, being approved at a detailed level of a number of specific hours by various fee earners of different grades. The Master had also approved various detailed figures for disbursements, counsel’s fees, expert fees and other matters. The transcript of the hearing confirmed that the Master approved hours rather than a composite figure for each phase of the hearing.
The Master indicated the approach was his usual practice and advised the Defendant, on handing over the draft order, that he had a standard approach to costs budgeting and:
“This is the order that I make on costs budgeting which just allows you to keep your powder dry and incur costs and rates.”
The Claimant’s representative at the CCMC endeavoured to persuade the Master that his approach was wrong as it failed to result in any certainty; in response the Master said:
“I don’t agree there will be no certainty because the claimant will know how many hours he can expend, he simply won’t know the rate. I agree with you that it would be desirable to specify a rate but the trouble is that the Practice Direction says this is the very thing we’re not allowed to do and furthermore, I don’t think this budgeting exercise or in the general run of them have any information about hourly rates. So if I were to budget in a more conventional way which I acknowledge would involve setting a figure rather than hours then I would simply be taking a bit of a leap in the dark about rates and I would also be having in the back of my mind somewhere an expressed figure for an hourly rate which I would have had to have derived simply from experience and guesswork.”
The Claimant pointed out that the Practice Direction involved, “a leap in the dark,” however the Master was not persuaded from his usual approach.
On the appeal Jacobs J considered the Master was wrong as the approach was clearly contrary to the Practice Direction to CPR Part 3.
Starting with 3.15(2)(b) – this provided a final figure rather than a provisional figure that would be, “up for grabs”.
The Judge found the correct approach was made clear by the Practice Direction E3 and in particular paragraphs 7.3 and 7.10:
7.3 – “If the budgeted costs or incurred costs are agreed between all parties, the court will record the extent of such agreement. In so far as the budgeted costs are not agreed, the court will review them and, after making any appropriate revisions, record its approval of those budgeted costs. The court’s approval will relate only to the total figures for budgeted costs of each phase of the proceedings, although in the course of its review the court may have regard to the constituent elements of each total figure. When reviewing budgeted costs, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.”
7.10 – “The making of a costs management order under rule 3.15 concerns the totals allowed for each phase of the budget. It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.”
The Judge added that 7.10 above put the correct approach “beyond doubt.”
Having dealt with the issue of hourly rates the Judge then went on to address the approach of the Master in allowing hours and to some extent disbursements.
Again referring to paragraph 7.3 of the Practice Direction 33E the Judge considered that the idea of the budget is that the figures should be given for each phase of the proceedings which fell within the range of reasonable and proportionate costs.
The aim of the exercise, went on the Judge, is that a party has the advantage of knowing what its budgeted figure is.
The Judge acknowledged that the figures given at CCMCs are given well in advance of the costs actually being incurred and that anyone involved in litigation knew that it was difficult to work out and predict, in advance, exactly who would be doing what and for how long.
An example was given by the Judge as follows:
…the preparation of witness statements. A party may estimate that: a grade A fee earner will have to spend 20 hours; counsel 10 hours; and a grade B fee earner 30 hours. But it may turn out, as matters progress, that the allocation of resources could be more efficient or needs to be done differently. For example, it may be more useful to have a few more hours of counsel’s time and fewer hours of the grade B fee earner’s time, or indeed vice-versa.
The Judge considered the Master’s approach removed any flexibility of the party deciding how to spend the budget in light of the way the case developed.
Finally the Judge referred to what he described as the final vice to the Master’s approach as:
the process of setting the budget, and then the question at a detailed assessment of comparing how the budget was spent, becomes something which is being micromanaged by the court. That is something to be avoided. Paragraph 7.3 of the Practice Direction indicates that the ultimate aim is to arrive at budgeted costs which fall within the range of reasonable and proportionate costs. None of that means, of course, that it is not appropriate for the Master, when setting the budget and approving the figures, to look at the constituent parts. Indeed, it is impossible to see how a Master can sensibly come to figures without looking to see how they have been calculated by the party putting them forward. In so doing, the Master would use his or her experience as to how much time should be spent, the type of people who should be doing the relevant work, and his or her experience of hourly rates. However, all of those matters feed into the identification of all of a reasonable and proportionate figure. They do not feed into a finding as to the specific number of hours which are to be spent in the future, or a finding as to specific figure for disbursements to be incurred in the future.
The Master’s decision was set aside.
This is a useful judgment; there is little doubt that Master’s received limited guidance on how to deal with budgets at Case Management hearings and Master’s approached budgeting with no case law upon which to formulate their approach. Clearly Mr Justice Jacob’s decision summarised above, is the appropriate approach and should be adopted at CCMCs.
Solicitors are to work within the phased allowance; there is no justification in breaking down the allowance and there is also no justification for any Master or District judge at the CCM hearing simply allowing a grand total for the budget and expecting the parties to pro-rata the figure against each phase.
Mr Justice Jacob’s decision is most welcome.
Gary Knight, Partner and Costs Lawyer
