In a dispute which is valued at up to £245m, Michael Furness QC, sitting as a Deputy Judge of the High Court, significantly reduced a Claimant’s budget whilst giving guidance on the approach to be followed in similar cases. It was held that the test of proportionality given in Kazakhstan Kagazy is relevant at the costs management stage in high value disputes. It was also concluded that parties whose solicitors are charging rates significantly above the SCCO Guideline Hourly Rates and who had already incurred very substantial costs are likely to see their costs budget significantly reduced. The Court gave wider-ranging guidance as to the circumstances in which it would be appropriate to draw comparisons between the costs budgeted for by the parties in respect of each phase.
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What are the practical implications of this case?
This decision adds to the growing corpus of judicial guidance as to the approach which is to be adopted when approving costs budgets.
In particular, it is made clear that although the court cannot fix or approve hourly rates at the costs and case management conference (CCMC) stage, where budgets are prepared on the basis of very high hourly rates, this can result in budgeted costs being reduced.
The court concluded that meaningful comparisons can be made between the costs of the parties in certain phases. This should help to narrow the scope of debate at many costs and case management conferences (CCMCs).
Whilst this case is unusual inasmuch as the value of the claim far exceeds the £10m cap above which a costs management order will not normally be made, the guidance given is nevertheless of general application.
What was the background?
The litigation arises out of a claim that the defendants breached their contractual and fiduciary duties to the claimants and entered into an unlawful means conspiracy to divert business from the claimants and exploited, for their own benefit, software codes in which the claimants claim the copyright. The first defendant—Mr Tarver—is acting in person with the assistance of direct access Counsel. The other defendants are represented by one firm of solicitors. The claim is valued at up to £245m.
This judgment relates to decisions made at a CCMC. In advance of the CCMC the parties had exchanged costs budgets. The claimant’s budget indicated that around £6.3m had already been spent and that a further £8.9m was budgeted for. The represented defendants had incurred costs of £650,000 and proposed to spend a further £4.5m. Mr Tarver had incurred £890,000 and budgeted to spend a further £2.5m.
At the CCMC the court was required to set the claimant’s budget.
What did the court decide?
The court made three general observations.
- The first was that, although the claimants’ incurred and budgeted costs were very large, they were not necessarily unreasonable having regard to the amounts claimed in the proceedings. However, the comments made by Leggat J in Kazakhstan Kagazy plz v Zhunus  EWHC 404 (Comm) that the touchstone of proportionality was the amount which a party could reasonably be expected to spend, having regard to all the relevant circumstances remained relevant.
- The second was that, whilst it is not the court’s role to set hourly rates when approving a costs budget, the court can take into account the rates claimed when deciding whether to approve the budget.
- The third was that it was necessary to have regard to the incurred costs when setting any budgeted costs. The very substantial costs already incurred in this matter allowed the court to assume that the claimants had prepared their case and reviewed the available documents to the maximum extent they could reasonably be expected to do. Future costs had to be budgeted on that assumption.
When considering the individual phases of the budget, the court held that it was not possible to conclude that the work required of each party in respect of the disclosure phase should be roughly commensurate.
However, the court concluded it was possible to make meaningful comparisons as to the work required by the parties in relation to the witness statements, expert reports and trial phases. In these phases, the amounts sought by the claimant were reduced to the aggregate total of the amounts allowed for the defendants.
- Court: High Court
- Judge: Mr Michael Furness QC
- Date of judgment: 14 November 2017
Alex Bagnall is an Associate at Just Costs Solicitors and a member of LexisPSL’s Case Analysis Expert Panel. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.