COSTS BUDGETS IN HIGH VALUE CASES, ADR AND CASE MANAGEMENT: A VERY IMPORTANT HIGH COURT CASE
In CIP Properties (AIPT) Ltd -v- Galliford Try Infrastructures Ltd  EWHC 3546 (TCC) Mr Justice Coulson set out important principles in relation to granting specific stays to allow ADR, Case Management and the ability of the court to impose costs budgeting in high value cases that are not subject to mandatory budgeting.
The case was a construction case where the claim was in the region of £18 million. In the course of a case management hearing issues arose both in relation to ADR and also the power of the court to order that costs budgeting take place.
THE VALUE OF ADR
The first part of the judgment highlights the value of ADR in this type of case.
2. A ‘Window’ or Stay for ADR
- Often at a CMC, one or more of the parties will seek a stay of the proceedings whilst they endeavour to resolve their disputes by way of mediation or some other form of ADR. There can either be an application for an immediate stay, or for a stay further down the line, sometimes after disclosure or after the exchange of witness statements or expert’s reports. As an alternative, the party making the application will not seek a formal stay of proceedings, but will instead ask the court to identify and fix a ‘window’ in the timetable, which can commonly be as long as three or four months, during which it is proposed that the parties can put the proceedings on hold and devote their attention to resolving the dispute by way of ADR.
- The judges in the TCC set great store by ADR. Disputes like this one are time-consuming and therefore expensive to fight out in the traditional way. Even if the court adopts all the various techniques for reducing the trial to a minimum (such as ‘hot-tubbing’ the experts and carefully timetabling the cross-examination), trials are often unwieldy and cost-inefficient. Expert’s fees often account for a large proportion of the costs. A professional mediator, engaged at the right time in the process and in the right spirit of cooperation by the parties, will often be able to resolve the most intractable case and save everyone a good deal of money, time and effort. The TCC lists in London would be impossible to operate without the good work of mediators and others involved in the ADR process.
- In consequence, when setting directions for the trial of a large TCC case, such as this, the court will allow a reasonable period between each step in the process, so that the parties not only have sufficient time to take that step, but also have an opportunity to reflect and consider their positions before incurring the next tranche of costs. Commonly, the court will identify a period of two months or so between, say, disclosure and the exchange of witness statements, or between the exchange of witness statements and the production of the experts’ joint statement (a document which, in the TCC, usually comes before the reports themselves, in order to ensure that the reports simply focus on those matters on which the experts are not agreed). Such a period is usually long enough, in all but the most complex cases, to allow the parties to engage in ADR between those two steps, if they are agreed that this is a sensible course.
- In this way, the TCC endeavours to facilitate the ADR process at each stage of the litigation, whilst also keeping at the forefront of its consideration the requirement to put in place a cost-efficient and sensible timetable to lead up to a fixed trial date (on the assumption – which the court must make for these purposes – that there will be an effective trial). The fixing of the trial date, which often then dictates the timetable itself, is one of the critical elements of any CMC in the TCC. The trial date needs to be as soon as reasonably possible in order to ensure that costs do not get out of control, but not so soon that the parties have no time to reflect or even pause for breath in the preparation process.
HOWEVER THE COURT WILL NOT BUILD INTO THE TIMETABLE A SPECIFIC STAY OR “WINDOW” FOR ADR
The judge went on to state that, since generous times were built into the timetable already, it was in inappropriate to build into the directions a specific “window” for ADR..
- For these reasons, it is usually inappropriate for the court at a CMC to build in some sort of special ‘window’ of three or four months in order that the court proceedings can be put on hold whilst the parties engage in ADR. Such a course inevitably delays the trial date by the period of the ‘window’. That delay will then inevitably increase the costs of the case. Thus, in my view, the fixing of any lengthy ‘window’, for purposes unconnected with the preparation for trial, is bad case management.
- Such a course is even less appropriate in circumstances, such as the present case, where there is a dispute about when the ‘window’ should be. Here the claimants vehemently oppose the fixing of the ‘window’ before disclosure, the course proposed by the other parties. The claimants say they need disclosure before they can engage in a meaningful mediation. As assignees, their position is readily understandable: they will not have seen, let alone have been party to, much of the contemporaneous documentation. Not only is it inappropriate for the court to decide a dispute as to precisely when the parties should mediate (it is a consensual process so that must always be a matter for the parties), but it is wrong in principle for the court to fix a ‘window’ for ADR at a time when at least one significant party – in this case the claimants – positively does not want it.
- Staying the whole proceedings to allow ADR or mediation to take place is an even worse option. It has all the disadvantages previously mentioned but, in addition, it can create uncertainties and the potential for tactical games-playing. The case of Roundstone Nurseries Ltd v Stephenson Holdings Ltd  EWHC 1431 (TCC), where a stay for mediation did not lead to a settlement, and one party then sought to enter judgment against the other because of a mix-up about when the stay came to an end, is a good example of the sort of thing that can happen when proceedings are stayed and one party resorts to a purely tactical stance.
- A sensible timetable for trial that allows the parties to take part in ADR along the way is a sensible case management tool. A stay or a fixed ‘window’ is likely to lead to delay, extra cost and uncertainty, and should not ordinarily be ordered. The same applies, a fortiori, if the stay or the ‘window’ proposed is opposed by a significant party to the litigation. It has to be recognised that the requirements of ADR, on the one hand, and sensible case management to lead up to a prompt trail date, on the other, can sometimes be at odds: what is appropriate for one process may not be appropriate for the other. At a CMC, I take the view that, to the extent that there is such a clash, sensible case management must come first.
- As I have already stressed, none of this is designed to undermine the importance of ADR, or the adverse costs consequences that may be visited on those parties who do not engage in that process (see for example Halsey v Milton Keynes General NHS Trust  EWCA Civ. 576). It is simply to emphasise that parties must take all proper steps to settle the litigation whilst at the same time preparing the case for trial. It is not an either/or option.
- For all those reasons, as I told the parties at the hearing, I decline to order a ‘window’ of four months prior to disclosure in this case, a course of action and a time slot which the claimants oppose.
COSTS BUDGETING: CAN IT BE IMPOSED IN CASES WHERE THE CLAIM IS MORE THAN £10 MILLION?
At £18 million the case was outside the range for compulsory cost budgeting. However some of the parties requested it. The judge considered two points of principles. The judge held that:
1. The words “or the court otherwise orders” gives the court an overriding discretion to order the provision of costs budgets even in cases where the claim was over £10 million (£2 million under the old regime).
2. The use of costs budgets should be considered even in cases that fell outside the compulsory regime.
3. Although the judge was considering the case under the old wording his view was that the new wording of r3.12(1A) would lead to exactly the same result under the new regime.
4. The judge had no doubt that the court had to power to order costs budgeting.
SHOULD THE COURT ORDER COSTS BUDGETING AND WAS ITS DISCRETION FETTERED?
- I take the view that the exercise of the court’s discretion under CPR 3.12(1) is unfettered. There is nothing in the CPR to suggest otherwise. The discretion extends to all cases where the claim is for more than £2 million (old regime) or £10 million (new regime). In such a case, if there is an application for the filing and exchanging of costs budgets, the court has to weigh up all the particular circumstances of the case, in order to decide whether, in the exercise of its discretion, such budgets should be provided. There is no presumption against ordering costs budgets in claims over £2 million or £10 million, and no additional burden of proof on the party seeking the order.
- Costs budgets are generally regarded as a good idea and a useful case management tool. The pilot schemes (including the one here in the TCC) have worked well. They are not automatically required in cases worth over £2 million or £10 million, principally because the higher the value of the claim, the less likely it is that issues of proportionality will be important or even relevant. A claimant’s budget costs of £5 million might well be disproportionate to a claim valued at £9 million, but such a level of costs is probably not disproportionate to a claim worth £50 million. Thus, whilst the fact that the claim is worth over £2 million or £10 million means that the court has to exercise its discretion in favour of the application before the filing and exchange of costs budgets are ordered, it seems to me that such an exercise of discretion should take into account all of the relevant material, without prejudging or making any specific assumptions one way or the other. 
- Finally, a point arose in the written submissions on behalf of Kone to the effect that the defendant should be obliged to provide a number of different costs budgets, dealing with its defence of the claims from the claimant, and then separately with its claims over against the other parties, including Kone. The defendant resists that, arguing that the issues between Kone and the defendant overlap with issues between the claimant and the defendant. They also say there are overlaps between these issues and those against DLG, so that to order a separate budget for the third party claim against Kone would require the defendant to allocate costs common to three separate cases and with overlapping issues to particular actions. They maintain that it would be unworkable, impractical and expensive to require them to undertake such a task.
- In my view the defendant is right in its submissions on this point. In a case like this, where a defendant is seeking to pass on the claims made against it as a main contractor to the specialist sub-contractors involved in particular aspects of the work, it is always difficult for the defendant to identify what costs might be spent on defending the claim and what costs might be spent passing it on. In addition, I am acutely aware that the preparation of costs budgets can, of itself, be an expensive task. That is one of the complaints regularly made about these new provisions. It would be unfair, and not in accordance with the overriding objective, to require the defendant to incur significant cost in providing such a breakdown within its costs budgets.
- I am reassured that this is the right approach in multi-party litigation, or a series of cases with common parties, by reference to the judgment of Master Kaye QC in Lotus Cars Ltd v Mechanica Solutions Inc  EWHC 76 (QB). There, he refused to order a series of separate costs budgets. At paragraph 18, the Master said that “in the case of large group actions where the management of cases is to be treated as common and is dealt with accordingly, there is no sensible reason why the costs budgeting should always be considered separately and some good reasons why it should not.” In my view, the same is true of multi-party litigation were there are a number of third parties. The defendant will be able to provide some information as to the specific costs to be incurred against third parties but there will be common costs which cannot be allocated and which they should not be required to allocate at this stage.
6. Costs Budgets: Conclusions
- Accordingly I decide the points of principle against the claimants, and rule that the court in this case has a complete discretion to decide whether costs budgets should be filed and exchanged. If the claimants continue to oppose the provision of such budgets, this CMC will need to be re-fixed for a date, possibly in November, for the matter to be argued out on the detail. As noted above, I make no comment at this stage on the facts, although I do observe that, in view of the likely involvement of many experts, whose fees can often be the single largest items of cost in any bill, the provision of costs budgets and the possibility of subsequent costs management orders comprise at least one way of keeping such fees under some control.
1. In construction cases the court will not, usually, build a specific stay into directions to allow for ADR.
2. The appropriate means of proceeding is to order a realistic timetable to enable the parties to engage in ADR at an appropriate time in the action.
3. The court has an unfettered discretion to order costs budgeting even if the case is outside the £10 million for compulsory costs budgeting.