COSTS BUDGETING IN BIG CASES: COSTS BUDGETS DO NOT PREVENT REASONABLE AND PROPORTIONATE COSTS BEING RECOVERED

The short judgment of Mr Justice Birss in Napp Pharmaceutical Holdings Ltd v Dr Reddy’s Laboratories (UK) Ltd & Ors [2017] EWHC 1433 (Pat)  has some important lessons for litigators.

“I entirely reject the submission that cost budgeting creates a problem whereby reasonable and proportionate costs may not be recovered… budgets can and indeed often are altered during the course of proceedings, precisely in order to accommodate things that happen which were unexpected. That fundamental objection by Sandoz to cost budgeting is wrong.”

IN A NUTSHELL

  • This was a £100 million claim based on an cross undertaking given when the claimant/respondent obtained an injunction.  The claimant was unsuccessful and has to pay damages. It highlights the dangers of injunctions and the clear warnings that need to be given to clients.
  • There is a detailed consideration of the information the defendant/applicant should have given in relation to its claim for damages, this includes consideration of the Part 18 questions that the defendant had to reply to.
  • The question of whether costs budgeting should be ordered was considered and the decision deferred.
  • An argument that costs budgeting impeded the recovery of reasonable costs was roundly rejected.

THE JUDGMENT ON COSTS BUDGETING

  1. I now need to deal with the question of cost budgeting. The Respondent (Napp) submits that although this case falls outside the letter of CPR Rule 3.12, which excludes cost budgeting for cases with a value over £10 million, nevertheless cost budgeting should be ordered in this case.
  2. Mr. Segan submits that the judgment of Coulson J in CIP Properties v Galliford, particularly paragraphs 25 to 28, finds that there is no presumption either way; that just because a claim is outside the regime on value grounds, this does not impose an additional burden on the party to suggest that cost budgeting should be ordered to overcome. The discretion is unfettered. I accept these submissions.
  3. Mr. Segan also points out that the judge in that case explained that cost budgeting is, generally, good idea and can be a useful case management tool. I agree. It certainly is and can be. He also submits that in this case there are particular reasons for requiring cost budgeting to apply. They are because this is a damages inquiry and so, subject to offers without prejudice save as to costs or the possibility that the claim fails utterly, the likelihood is that the claiming party (Sandoz) is litigating at the expense of the paying party (Napp) and believes it is litigating at the expense of the paying party. Therefore the usual considerations of self-interest which might constrain a party in incurring costs, since it might have to bear them itself, does not apply. Therefore there is a good reason for the stringencies of cost budgeting to be applied in these kinds of case in general.
  4. Mr Segan also submits that this case has particular features which cause concern to his clients and suggest that Sandoz do appear to be approaching the matter as if they are litigating at Napp’s expense rather than their own. He refers to the fact that the initial letter which set out how much the claim was going to be estimated the claim value at £53 million, whereas, without any explanation when the claim was issued the value had doubled to just over £100 million. He says this is the hallmark of a party behaving in the way I have described. Mr. Segan also submits that the claimants, while they resist cost budgeting, have not given any good reason why it should not be imposed, other than by reference to the £10 million point in the rule.
  5. Ms. Edwards-Stuart, who appears for Sandoz, submits that the court should not impose cost budgeting in this case. She submits that the detailed assessment process, which will only allow a party to recover reasonable and proportionate costs, is a sufficient safeguard. She also submits that the imposition of cost budgeting can prevent the recovery of reasonable and proportionate costs in some cases, and that cases of complexity, such as she submits this one is, are difficult to cost budget and therefore it would be inappropriate in this case to do so.
  6. I entirely reject the submission that cost budgeting creates a problem whereby reasonable and proportionate costs may not be recovered. As Mr. Segan pointed out, budgets can and indeed often are altered during the course of proceedings, precisely in order to accommodate things that happen which were unexpected. That fundamental objection by Sandoz to cost budgeting is wrong.
  7. Ms Edwards Stuart also submits that appropriate transparency about costs can be arranged in this case. Having read the papers overnight, I sent a message to the parties first thing this morning to ask if they could tell me what their costs to date had been and what their estimates for the future were. The costs to date are between £125,000 and £155,000 for Napp and about £250,000 for Sandoz. As regards the future costs, so far Napp are not in a position to say. Sandoz were not confident they could give an accurate estimate in the time available although they did suggest a figure but given that Napp were not in a position to give a figure at all I will not set out the Sandoz figure. Ms Edwards-Stuart submits that statements about what has been incurred and proper estimates can be provided in future and would amount to a sufficient safeguard from Napp’s point of view.
  8. As regards the complexity of the proceedings and whether that means it would be difficult to budget, Mr. Segan replies that Napp is not proposing that cost budgets be provided at this very early stage. Rather that they be provided after pleadings have closed, which will be the norm in any event. In this case, that will be some time in September. So by that time the nature of the issues in dispute will, or should, be clear.
  9. It seems to me the real question is whether requiring the parties to produce estimates is a sufficient safeguard in these proceedings or whether I should go further and direct the matter actually be budgeted in accordance with CPR Rule 3.12.
  10. I am not satisfied, yet, that cost budgeting in this case is required. As the matter stands, the way to deal with costs is to require the parties, after pleadings have closed, to produce and exchange statements of how much they have incurred by that stage and estimates as to what their future costs in these proceedings will be. Mr. Segan is right that estimates do not have the same stricture as cost budgets, but when the parties produce this information, at that stage it will be possible to evaluate what the likely position is. It may be, armed with that information, that Mr. Segan’s clients will be able to come back to court and submit that cost budgeting should be imposed, having regard to the information which has been provided. As the experience in the recent Unwired Planet v Huawei case shows, the estimates given before trial can operate as a practical constraint on a payment on account of costs ([2017] EWHC 1304 (Pat) paras 40, 58-59).
  11. It is quite likely that this case will be able to carry on to trial without a significant overspend on costs without the need to impose the extra cost of budgeting. Costs budgeting can be reviewed, as I have said, in the autumn at the CMC. It may also be that even if cost budgeting is not to be imposed at that stage that the CMC should direct the parties to provide further costs information at a later stage, possibly in the early part of 2018. In any event I am not satisfied that I should impose cost budgeting now.