Costs budgets: 3 considerations when deciding what is a contingent cost
Contingent costs are ones you, as the lawyer dealing with the case, consider may be required to be expended at some point in the proceedings. Well that at least was what I thought they were but a recent defamation case, Simpson v MGN  EWHC 126 (QB) seems to call that into question.
To put my views into context let me set out a brief synopsis of the facts. The claimant was seeking recovery of costs expended on applications for a preliminary issue on meaning. The claimant had provided for the costs of the preliminary issue hearing in its costs budget as a contingent cost. That to me sounds sensible.
At the time of dealing with the costs budgets the Master declined to direct a preliminary issue hearing. However, the order he gave expressly stated that
'For the avoidance of doubt, this direction does not preclude either party from issuing an application before a Judge for a ruling on meaning'.
Notwithstanding that this left the way open for the possibility that at some future date a preliminary issues hearing may take place, the Master did not consider the contingent costs for such an application when approving the costs budget. They were therefore not approved.
It then all went awry for the claimant. Although the preliminary issues hearing did take place and the claimant won, it failed to seek approval from the court for the revised costs budget to include the costs of the hearings and it failed to serve the defendant with the costs schedule for the purposes of the costs hearing. The result was that the claimant ended up with costs recovery of less than 50%. Ouch.
Whilst the rules are clear that the claimant should have sought approval for the costs of the hearings, part of me feels that in some way the claimant was hard done by having tried to do the right thing at the start and provide for them in the costs budget. For me, this case raises a number of practical issues when trying to work out whether to add something as a contingent cost in a costs budget:
1. What should contingent costs cover?
The fundamental premise of contingent costs is surely that they will not definitely be incurred but only that they may be incurred. If a court dealing with a costs budget considers it is not appropriate to have an application at that point in time, but that it may be appropriate later on, should the court not accept that it is appropriate to have the costs as contingent costs in the costs budget and consider whether to approve the estimates provided? Indeed, the MOJ Guidance notes on Precedent H expressly provide that the ‘contingent cost sections of this form should be used for anticipated costs which do not fall within the main categories set out in this form’ and that ‘examples might be the trial of preliminary issues’.
2. Is it not better to deal with contingent costs at the same time as the rest of the budget?
If the court approves or disapproves of contingent costs at the same time it deals with the costs in the rest of the costs budget, the contingent costs would be considered in the context of the costs estimated to be required for the entire proceedings; proportionality can then be taken into account, especially when considering a preliminary issues hearing which may circumvent much greater costs expenditure if successful. In addition, it would arguably lessen the court time involved in dealing with such costs. As seen in this case, the view of the court was that the claimant should have gone back to the court at a later date, with the same contingent cost it had put into its costs budget, and seek approval for those costs in front of a different Master or judge who would then have to consider those costs, presumably in the context of the costs as a whole under the budget on the basis that it must assess the proportionality of the costs.
3. Should practitioners avoid putting contingent costs for applications into a costs budget?
Instead could practitioners seek to rely on the provisions in CPR PD 3E, para 7.9 rather than seek to put forward contingent costs at the time of seeking approval of the costs budget? Paragraph 7.9 provides that the costs of interim applications not included in the costs budget should be treated as additional costs over and above those in the approved budget if it was reasonable for the party to have not included them. In hindsight, in this case, it would have been reasonable for the claimant not to have included such costs as the court did not consider such an application to be appropriate at the time of the costs budget. Applying CPR PD 3E, para 7.9 the claimant's costs associated with bringing the application at a later state would then have to be treated as recoverable, in addition to the costs in the costs budget, subject of course to the reasonableness of those costs. The claimant in this case would have been in a much better position.