The uneasy relationship between costs budgeting and the pre-April 2013 test of proportionality is evidenced by the costs management process in The Construction Industry Vetting Information Group Litigation  EWHC 3543 (QB). Jon Lord of Civil and Commercial Costs Lawyers Ltd discusses the implications of the case.
The Construction Industry Vetting Information Group Litigation
In this Group Litigation, Supperstone J, with the assistance of Master Leslie and Chief Master Gordon-Saker, was tasked with making a costs management order in relation to the common costs to be incurred. Four different firms of solicitors were involved on behalf of the Claimants and six for the Defendants.
Proceedings were issued before 1 April 2013, meaning that the post-Jackson proportionality test – that costs reasonably and necessarily incurred may still be disallowed on the standard basis if they are disproportionate– will not apply to any costs incurred and instead the ‘old’ test in Home Office v Lownds is applicable. The Lownds test means that if costs appear disproportionate they may still be allowed between parties if they were necessary and reasonable.
Supperstone J had little difficulty in concluding that costs on the Claimant side of £22m and costs on the Defendant side of £27m appeared disproportionate, notwithstanding this was complex litigation with a pleaded value of over £60m. Having decided that, the Court went on to consider what costs were necessary and a reasonable figure for each phase
After making revisions in relation to each of the budgets, the Court proceeded to approve figures for each phase of the budgets where they had not already been agreed.
Pre and post 1 April 2013 tests on costs budgets
Save for issues over what had and had not been agreed, one might conclude that this was a regular costs management hearing. However, when one set of litigants or another wins and presumably is awarded costs on the standard basis, what will be the status of the costs budgets as to the sums to be allowed at the detailed assessment?
The parties are agreed that CPR 3, Section II applies. Rule 3.18 states:
“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and
(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.
(Attention is drawn to rule 44.3(2)(a) and rule 44.3(5) which concern proportionality of costs)”
The post-April 2013 proportionality test sits well with costs management as a proportionate sum allowed for a phase at a costs management hearing will not be exceeded unless there is good reason to do so. The court will not always need to look at the work actually done at a detailed assessment to reduce excess expenditure to the budgeted sum.
The same, however, cannot be said for the pre-April 2013 test. At a detailed assessment, in relation to claims for sums in excess of the budgeted figures and applying the Lownds test, the Costs Judge is bound to go through work done in a particular phase and allow costs that were necessarily incurred and reasonable in amount. If the outcome of applying that test is that a greater sum than was considered proportionate at the costs management hearing is allowed then surely that is a good reason to depart from the budget; to disallow those costs would be to fail to give effect to the applicable test.
If that is the case, CPR 3.18 is rendered toothless because a good reason to depart from the budget is relatively easily satisfied if all that needs to be done is to demonstrate that the work was necessary and reasonable, even though the total sum may be considered to be disproportionate under the new test.
Jackson’s ideals watered down
Lord Justice Jackson’s ideal of his reforms being implemented as a ‘package’ is significantly watered down and the costs management process is in danger of being rendered otiose by the application of the old test of proportionality. In order to have proper effect, CPR 3.18 needs the new test of proportionality to work properly, hence the bracketed sentence at the end of the rule.