Comments on incurred costs and the meaning of exceptional for the purposes of paragraph 7.2 of PD 3E – Guidance from the Chief Master of the Chancery Division
Despite having been in place for over 4 years now, the Costs Management regime continues to evolve and this latest decision from the Chief Master of the Chancery Division has given practitioners food for thought in respect of which issues they should and shouldn’t be raising at the CMC.
This decision has seen the Chief Master of the Chancery Division outline his views on the making of comments in respect of incurred costs as part of the budgeting process. The trend on requesting that comments/a recital in the Costs Management Order stems from the case of SARPD Oil International Ltd v Addax Energy SA & Anor  which considered the appropriate time to raise issues in respect of incurred costs.
In Richard v The British Broadcasting Corporation , Chief Master Marsh has stated that there is “little or no value” in recording a general comment that the incurred costs are “too high”. To put the same into context, Sir Cliff Richard’s incurred costs were just shy of £1.2m.
The comments came from Chief Master Marsh’s ruling as part of the case against the BBC and South Yorkshire Police by Sir Cliff Richard. At the CMC, the BBC requested that the Master make a comment recording that the incurred costs appeared to be excessive and disproportionate based on information available at that time.
Master Marsh opined that a “degree of caution” is required by the court in deciding whether or not to make a comment in respect of the incurred costs. His cautious approach stemmed from his acknowledgement that the costs management exercise is a summary exercise which is often undertaken briskly where figures are approved at an “impressionistic level, unless the litigation is of a standard type where the scope for non-standard budget phase levels is more limited. In a claim like this one, the variables that may affect the level of future costs are considerable”.
Master Marsh went on to acknowledge that the “exercise of producing budgets and their review is, necessarily, an exercise based on limited information, even in relation to incurred costs; the amount of information that is to be included in the budget is very limited indeed.”
When noting the substantial costs incurred by Sir Cliff, Master Marsh went on to state that “the difficulty for the court, however, is that, although those figures appear to be substantial in absolute terms, it is quite impossible for the court today to form any meaningful view about whether those costs can properly be characterised as being unreasonable and/or disproportionate, let alone to be significantly or substantially unreasonable and/or disproportionate. To my mind there is little or no value in the court recording a general comment about incurred costs along the lines that the incurred costs are ‘substantial’ or they are ‘too high’. If the court wishes to record a comment that the incurred costs are ‘excessive’ or they are ‘unreasonable and disproportionate’, it will wish to be sure that the comment is made on a sound footing, rather than impression, because commenting is quite unlike the exercise of approving a figure per phase for future costs”.
In concluding, Master Marsh stated that there was “no significant benefit to be gained in the court making the sort of anodyne comment that the BBC proposes”.
Master Marsh stressed that a comment is not a finding of fact but rather a matter to be taken into account at a later stage. He acknowledged that the making of a comment at the CMC stage may well have wider reaching implications at a detailed assessment based on the potential weight given to a comment on the incurred costs which is more often than not based on very little information. He further aired his concern that an early comment based on little information could well skew a detailed assessment.
Master Marsh further noted that “the costs judge, on a detailed assessment, will have the benefit of a full review of all the work that has been carried out. That is a far safer basis for a review to be taken”.
In seeking to persuade Master Marsh that a comment was necessary, the BBC suggested that if a comment was not made there was a risk that the Costs Judge would proceed on the basis that the incurred costs were deemed to be both reasonable and proportionate. This suggestion was rejected by Master Marsh who deemed the same to be a “fanciful suggestion”. The Master went on to acknowledge the extensive experience of Costs Judges in determining reasonableness and proportionality in a broad range of cases, suggesting that the lack of any such comment would not prevent Costs Judges from properly dealing with the incurred costs.
A further important decision made by Chief Master Marsh was his decision to exercise his discretion in departing from the fee cap for drafting the budget as detailed in paragraph 7.2 of PD 3E.
He declared that that Sir Cliff’s costs in relation to preparing his budget and dealing with the costs management were “exceptional”. To date there has been no official guidance as to what is classed as exceptional although Master Marsh defined “exceptional” as “significantly out of the norm” which he confirmed did not mean “wholly exceptional”.
With particular reference to Sir Cliff’s case it is noted that two budgets were prepared in advance of the CMC on the basis that a split trial would take place, with the consequence that thereafter further work had to be undertaken. In addition, due to a deferred hearing, redrafting of budgets was also required also required. These factors led Master Marsh to lift the cap of paragraph 7.2 of PD 3E.
It will be interesting to see whether Master Marsh’s guidance in this matter leads parties to cease requesting a recital in Costs Management Orders regarding incurred costs and furthermore whether it encourages parties to request that the cap of paragraph 7.2 of PD 3E be lifted on the basis of the guidance given as to what may constitute “exceptional”. The decision in Richard v The British Broadcasting Corporation , may be a welcome decision for practitioners of complex litigation whereby the incurred costs are substantial or where factors have led to the cost of the budgeting exercise to exceed that provided for under PD 3E.
Written by Leigh Nagler - Solicitor
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