COST BITES 116: YOU CAN’T AVOID PAYING THE COSTS OF AN APPLICATION AND APPEAL JUST BECAUSE THEY WEREN’T IN THE COSTS BUDGET…

We have seen some “interesting” submissions in relation to costs on this blog.  However one of the most novel is the point taken by the Third Party in  South Tees Development Corporation & Anor v PD Teesport Ltd & Anor (Re Costs) [2023] EWHC 2270 (Ch).

“As the costs of any appeal are not to be included in the form of costs budget mandated by the CPR, I disagree with the third party’s submission that the defendant was under any obligation to vary its precedent H to reflect the costs of the appeal or that the fact it did not do so has any effect on the way in which the court’s discretion ought to be exercised when considering the appropriate cost order to be made in relation to the appeal.“

THE CASE

The defendant had been successful in an appeal against an order giving the claimant permission to amend.  Mr Justice Trower then considered the question of costs. The third party argued that the defendant should not recover the costs because they were not included in its costs budget, nor had any application been made to amend that budget when the defendant knew an appeal was pending.   The judge rejected that argument.

THE JUDGMENT ON THIS ISSUE

Costs of the appeal

1. 1. The defendant submits that the general rule for which CPR 44.2(2)(a) provides should apply. It was the successful party on the appeal. The claimants and the third party both argued against the appeal and were the unsuccessful parties. Costs should therefore follow the event in the normal way. It also sought a payment on account of its costs in accordance with CPR 44.2(8) on the grounds that there was no good reason not to do so. It claimed £33,092, being 50% of the amount on its schedule, as a reasonable sum.

1. 1. The principal argument made by the third party (but not the claimants) for not making an order for costs of the appeal in favour of the defendant was that, although a costs management order (“CMO”) has been made, the costs of the appeal were not included in the defendant’s costs budget. It was said that the defendant should have made a variation to its costs budget to reflect the costs of the appeal but did not do so despite being aware since at least 11 August 2023 that it would be bringing the appeal. It was said to follow that the defendant was not therefore entitled to recover any costs in relation to the appeal.

1. 1. In support of this argument, the third party submitted that the effect of making a CMO is that the court thereafter controls the parties’ budgets in respect of recoverable costs (CPR 3.15(3)). It went on to submit that CPR 3.18 be applied. The relevant parts of this rule provide that “when assessing costs on the standard basis, the court will (a) have regard to the receiving party’s last approved or agreed budgeted costs for each phase of the proceedings; (b) not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so”. This means that there is what Davis LJ in Harrison v University Hospitals Coventry and Warwickshire NHS Trust [2017] 1 WLR 4456 (CA) at [44] called “a significant fetter on the court having an unrestricted discretion” in relation to costs.

1. 1. It was also submitted that CPR 3.15A imposes obligations on a party subject to a CMO to revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions, a rule which records the desirability of reflecting significant developments in the litigation in costs budgets. It was said that no steps were taken by the defendant to reflect its costs of the appeal in its costs budget and its failure to do so was “a glaring one”. In particular, it was said that the defendant had been aware since 11 August 2023 that it was intending to pursue its appeal but it took no steps to vary the costs budget and there was no good reason to depart from it. The third party said that the position was all the more striking because the defendant’s costs were said to be £67,000 for the appeal alone, which amounted to a very significant departure from the budgeted costs.

1. 1. In my judgment these submission are misconceived for the reasons explained in the defendant’s written submissions. Unless the court otherwise orders, a costs budget is required to be in the form of Precedent H as annexed to CPR PD 3D (see PD 3D para 4(a)). Precedent H provides for estimated costs for a number of different headings such as disclosure, witness statements and experts reports, but makes no provision for the costs of any appeals. The form anticipates the inclusion of an estimated figure for unidentified categories of contingent cost (in so far as they can be anticipated at the relevant time), as to which CPR PD 3D para 9 and the guidance notes both give examples such as the trial of preliminary issues and applications for permission to amend, but do not refer to the costs of any appeal.

1. 1. The omission of the costs of any appeal from the categories of anticipated contingent cost contemplated by precedent H is confirmed by the wording of precedent H itself which specifically provides, by reference to the aggregate amount of the estimated costs, that “This estimate excludes VAT (if applicable), success fees and ATE insurance premiums (if applicable), costs of detailed assessment, costs of any appeals, costs of enforcing any judgment and [complete as appropriate]”. Likewise, Precedent T, which is required to be used in the event of variation of a budget pursuant to rule 3.15A (see CPR PD 3D para 3(b)), makes no provision for the costs of any appeal and contains the same exclusionary language as appears in precedent H.

1. 1. In Various Claimants v. MGN Ltd [2016] EWHC 1894 (Ch) (a case concerned with success fees and an ATE premium), Mann J at [18] concluded that this exclusionary form of words amounted to a clear direction as to what is not to be included as part of the budgeted costs. He pointed out that the form is mandated by PD 3D and so its express contents as to what the form should not include has the force of the practice direction. I agree with this reasoning. It follows that, like success fees, the costs of any appeals are not to be included as part of the budgeted costs within precedent H. Nor, as it seems to me, are they to be included within precedent T in the event of a significant development in the litigation within the meaning of CPR 3.15A.

1. 1. As the costs of any appeal are not to be included in the form of costs budget mandated by the CPR, I disagree with the third party’s submission that the defendant was under any obligation to vary its precedent H to reflect the costs of the appeal or that the fact it did not do so has any effect on the way in which the court’s discretion ought to be exercised when considering the appropriate cost order to be made in relation to the appeal.

OTHER UNSUCCESSFUL ARGUMENTS SEEKING TO AVOID PAYING THE COSTS OF THE APPEAL

The judge also rejected the arguments that because the appeal was “finely balanced” the costs should be reserved to the trial judge.

1. 1. The third party made another argument in support of its submission that the general rule should not apply in relation to the costs of the appeal. It said that the just order was for costs in the case, alternatively costs reserved, on the basis that the appeal was finely balanced and that two judges had come to different conclusions on the merits of the application to amend. It is said that the issue of liability for costs could be more justly exercised by the trial judge in light of the outcome of the trial. These submissions were also supported by the claimants who made the additional point that it was premature to deal with the costs of the appeal, because the costs of the application to amend before the master have not yet been determined (see paragraph 15 of the master’s order dated 15 August 2023).

1. 1. I do not agree with either of these ways of putting the case for an order that costs of the appeal should be in the case or reserved. In my view the appeal against the decision of the master to permit the LR amendments was an appeal in respect of which the defendant is the successful party and the claimants and the third party are the unsuccessful parties. I have determined that the claimants and the third party were not entitled to the relief they sought. Even if I had thought that the appeal was finely balanced (and I do not think that is a fair reflection of what I said), I do not think that is a factor of any real relevance in the present case, and certainly not to the extent of ousting the general rule.

1. It follows that, so far as the appeal is concerned, the claimants and the third party are to pay the defendants costs to be assessed on the standard basis.