The recent decision on revising costs budgets handed down by Chief Master Marsh in this large and complex HBOS acquisition litigation is a must read for costs practitioners. Although it is of a rather daunting length, the judgement which runs to almost 28 pages over 94 paragraphs is eminently readable, which is testament to the common-sense approach taken by Master Marsh. The time and effort spent in reading and digesting the judgment is eminently worthwhile to solicitors, cost lawyers and other practitioners who are involved in the costs management process on a regular basis.
The full Judgement is found at http://www.bailii.org/ew/cases/EWHC/Ch/2017/3390.html . The reason it makes such interesting reading is because it sets out in great detail the principles of Costs Management and especially the process of revising budgets where “significant developments” occur. We would venture to suggest that there isn’t a question on the process that isn’t answered somewhere in this Judgement.
The judgement was handed down following the hearing of the Defendants application to seek the courts permission to revise a Precedent H costs budget on the basis that there had been ‘significant developments’ in the litigation warranting revision and they asked court to exercise its power under para 7.6 of Practice Direction PD3E.
Paragraph 7.6 provides that:
“Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions. Such amended budgets shall be submitted to the other parties for agreement.
In default of agreement, the amended budgets shall be submitted to the court, together with a note of
(a) the changes made and the reasons for those changes and
(b) the objections of any other party.
The court may approve, vary or disapprove the revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed.”
Background To the Case
This hugely complex litigation consists of seven claims that are subject to a group litigation order, with approximately 5800 claimants making serious allegations against 5 former directors of Lloyds TSB and Lloyds TSB itself, in relation to the acquisition of HBOS by Lloyds.
On 27th January 2017 a case management conference took place and a cost management order was made. The Judge at the CMC said that the real value in making the order was that the Claimants would have clarity as to the costs exposure that they face in respect of the trial. Directions were given for the parties to serve and file budgets ‘calculated to today’s date for incurred costs and estimated costs thereafter to trial.’
The subsequent case management hearing of 3rd May didn’t take place as budgets had been agreed. Neither party had agreed incurred costs.
By the date of the order of the 2nd May there was already a mismatch between the agreed incurred costs as set out in budgets as set out in the budgets and the actual amount of incurred costs.
In October 2017 the Defendants took out an application to revise their budget on the basis that there had been seven ‘significant developments ‘of the type envisaged by Paragraph 7.6 PD3E.
The Claimants opposed the application on the grounds of lateness, oppression and above all on jurisdiction. They argued that none of the matters relied on could properly be classified as significant developments, that the court has no jurisdiction under the costs management regime to deal with any costs that were incurred by the Defendant prior to the date of the hearing of the application and that the court has no power to treat interim applications as being significant developments ie that interim applications are outside the costs management regime.
The pertinent points that the Chief Master had to provide answers to;
- Whether the seven developments outlined by the Defendants, amounted to significant developments that required them to revise their budget under paragraph 7.6 of PD3E.
- Whether the court has jurisdiction to deal under the costs management regime with any costs that were incurred by the defendants prior to the date of the hearing of their application – ie any costs incurred before the application was issued and costs incurred between the date of issue and the hearing
- Whether the court has power to treat interim applications as being significant developments.
The Master helpfully, in reviewing the parties’ submissions, provided a reminder of the policy considerations that underlie the costs management regime;
i) The benefit for a party in knowing its exposure to costs;
ii) Greater predictability in the costs that will be recovered;
iii) A reduction in the cost of detailed assessment;
iv) The need for court to avoid undertaking a detailed assessment in advance;
v) Significant developments should be reflected in budgets.
The Master after outlining his reasoning in some detail in paragraphs 46-61 of the judgement concluded on the legal issues, in summary, as follows;
a) The court has jurisdiction when revising a budget under PD3E 7.6 to revise a budget taking the last agreed or approved budget as the base reference point.
b) Where, as in this case, the budgets were directed to be prepared to an antecedent date, the relevant date is the date set by the court.
c) Costs which have been incurred since the date of the last agreed or approved budget (or the antecedent date) that 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.
d) Interim applications may be significant developments as may the consequences that flow from an interim application.
The Master decided that the Defendant took reasonable steps to ensure that their application was made in timely fashion. He found that any disadvantage that the claimants now found themselves in should the court decide to exercise its discretion under paragraph 7.6 (because they will have failed to comply with the obligation under paragraph 7.6 to apply to revise their budget and have lost the opportunity with the costs management regime to level the playing field) should not affect how the court dealt with the Defendant’s application. Finally, he was satisfied that the scope of the court’s discretion in relation to the final sentence of paragraph 7.6 to “…approve, vary or disapprove the revisions…”, to decline to follow any of the options, was quite limited. Accordingly, there were no good reasons he held, for the court to decline to exercise its discretion under para 7.6.
Accordingly, the Master then went on to consider each significant development and permitted adjustments to the Defendants agreed budget in relation to 4 items, declining permission to revise in respect of three of them.
This decision read in in conjunction with the two decisions of Warby J in Yeo –v- Times Newspapers (2015) EWHC 209 QB and (2015) EWHC 2132 QB, provide a comprehensive judicial overview of how, even though the rules are badly worded, the whole costs management process should work in practice.