Trial Judges should not overstep Costs Judge’s jurisdiction on Costs Budgets

Mr Stephen Furst QC, sitting as a Deputy High Court Judge, has ruled that a trial judge should not comment on the reasonableness of an exceeded costs budget, as doing so would overstep into the Costs Judge’s jurisdiction ‘particularly where the Costs Judge has much greater experience of such matters than I have’.

In Car Giant Ltd & Anor v London Borough of Hammersmith, the Claimant had failed to beat the Defendant’s Part 36 offer at the trial of a dilapidations claim. It was common ground that Car Giant was to pay LBHF’s costs from the expiry of that offer, together with interest on those costs at 1% above base rate. LBHF made a costs application, seeking, in particular, payment of its costs incurred prior to the Part 36 offer being accepted, indemnity costs, and an indication as to the reasonableness of exceeding the Costs Budget in certain aspects.

The Judge outlined that the usual rule should apply with regard to the payment of costs incurred prior to the offer being accepted. Although the Judge had discretion to award costs as he saw fit, he stated that ‘Car Giant is properly to be regarded as the successful party’ in respect of the period up to the date of expiry for acceptance of the offer. Car Giant’s conduct was not unreasonable. However, given that LBHF was more successful on a general view, the Judge reduced Car Giant’s entitlement to 50% of its costs.

No lines in the sand

With regard to LBHF’s application for indemnity costs, of particular relevance was Car Giant’s alleged unreasonable delay in agreeing to mediate or take part in some form of ADR.  However, the Judge stated that ‘a Court should be slow to conclude that this delay is unreasonable or that, if it is, it would justify an order for indemnity costs’. Accordingly, the Judge did not order indemnity costs. This issue has echoes of the recent decision of Mr Justice Singh in Briggs & 598 Ors v First Choice Holidays & Flights Ltd (2017), which stated that the mere presence of ADR was not enough to mean that it was unreasonable to litigate.

These cases contradict with previous case law, in particular the matter of PGF II SA v OMFS Company 1 Limited , Court of Appeal from 2013, where it was stated that:

‘In my judgment, the time has now come for this court firmly to endorse the advice given in Chapter 11.56 of the ADR Handbook, that silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds. I put this forward as a general rather than invariable rule because it is possible that there may be rare cases where ADR is so obviously inappropriate that to characterise silence as unreasonable would be pure formalism.’

PGF outlined that it is the general rule that it is unreasonable to refuse ADR unless it can be shown that ADR was ‘so obviously inappropriate’.

It seems that there is no obvious costs consequence if mediation is refused, and that the specific facts of a case will be considered to assess whether that refusal was reasonable.

Wrong Judge

On considering the Costs Budget points raised by LBHF, the Judge was not inclined to comment that any costs exceeding the budget were reasonably incurred. LBHF had set out reasons for their budget being exceeded such as unforeseen expert expenses and costs in relation to trial bundles.

When considering this issue, the Court referred to the recent decision in Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB), when considering the circumstances surrounding a ‘good reason’ to depart from the budget – as required by CPR 3.18(b). The Judge further stated that he felt that he was not in a position to override the costs budget and ‘should not seek to trammel the Costs Judge’s jurisdiction’ for when the matter eventually comes to a detailed assessment. Mr Furst QC therefore left the discretion to depart from the budget to the presiding Costs Judge.

This gives an insight into the weight given to the initial setting of the costs budget, and shows the unwillingness of a Trial Judge to depart from that approved budget. Given the recent Merrix decision, it is now of greater importance that the initial budget is prepared accurately, as it can be difficult to convince a Court to depart from a budget which has already been scrutinised and set by the Court. Proper consideration must be given to the budget assumptions, and costs representation is recommended at any budgeting hearing to ensure that all arguments concerning forecasted costs are dealt with effectively.

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