Court Comments on Incurred Costs

However, there remain some aspects of the budgeting regime which can cause confusion, particularly for lay clients to whom the whole process can seem a little incomprehensible. One of these areas is the issue of incurred costs, and what role the Court has to play in their management.  Although cost budgeting is intended to be undertaken early in the litigation timetable, even by the time of the first CCMC, the incurred costs in a construction claim can be quite considerable. Seeing these costs in black and white in the cost budgets can be somewhat sobering, and for clients it may seem that the other side’s (or even their own solicitors’) cost are very high for the stage of proceedings which have been reached.  The question is, therefore, can anything be done about it?

The question of incurred costs arises in both CPR 3.15 in respect of cost management orders and CPR 3.17 in respect of how the Court should have regard to cost budgets.  Pursuant to CPR 3.15 (2) the Court will, in a costs management order: (a) record the extent to which the budgeted costs are agreed between the parties; (b) in respect of the budgeted costs which are not agreed, record the court’s approval after making appropriate revisions; and (c) record the extent (if any) to which incurred costs are agreed.  In respect of incurred costs, under CPR 3.15(4) the Court (whether or not it makes a costs management order) “may record on the face of any case management order any comments it has about the incurred costs which are to be taken into account in any subsequent assessment proceedings”.

CPR 3.17 (3) contains provisions in similar terms, clarifying that the Court may not approve the incurred costs up to and including the date of a CCMC, but it may comment on those costs and “take those costs into account when considering the reasonableness and proportionality of all budgeted costs”.

When assessing costs (on the standard basis) when a costs management order has been made the Court will, amongst other considerations, “take into account any comments made pursuant to rule 3.15(4) or 3.17(3) and recorded on the face of the order” (CPR 18).  Thus, if a Court can be persuaded to comment on the incurred costs at the CCMC, then these comments will need to be taken into account when the final costs assessment is undertaken. Obtaining such comment from the Court would certainly be appealing to a party who feels that the other side’s incurred costs are outside the realms of what they would consider to be reasonable.

There is, however, relatively limited commentary in the White Book on these provisions (the main commentary is at CPR 3.18.4).  The point is made that any comment made at the CCMC stage is not binding on the assessing Court, and there is no requirement, for instance, for “good reason” to depart from them. In large part this is due to the Court on assessment having a much fuller picture than the Court faced simply with a Precedent H with limited commentary, as explained by Chief Master Marsh in Richard v BBC [2017] EWHC 1666 (Ch) at para [3] and [13].  The Chief Master went on to say:

“10. 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. The court will also wish to consider the utility of making a comment unless it is specific and well-founded.”

Richard v BBC was relied upon in Discovery Land v Axis [2021] EWHC 2146 (Comm) in which Peter MacDonald Eggers QC said:

“46. The emphasis of costs budgeting rests on the future costs which the parties are to incur. This is for good reason in that it allows the parties to make their decisions in respect of the conduct of the action in light of the costs budget approved by the court. It is unhelpful for the court to comment on incurred costs where it is not undertaking a formal assessment of costs, with the benefit of the information and evidence which would be available for that exercise. Therefore, as the parties accept, the court should comment on the parties’ incurred costs with some circumspection (Richard v BBC). However, there will be occasions where, even on the limited information and evidence before it, the court is not satisfied with the level of a party’s incurred costs, or the party’s explanation for those costs, even at the costs budgeting stage. This was the position in CIP v Galliford.”

In CIP v Galliford Try [2015] EWHC 481 (TCC) Coulson J (as he then was) was concerned with a cost budget of £9.2m, subsequently finding that a reasonable budget would be £4.28m, including both incurred and future estimated costs.  In GSK Project Management Ltd. v QPR Holdings Ltd. [2015] EWHC 2274 (TCC) Stuart-Smith J followed the approach in making findings as to the amounts he considered that the pre-action and statement of case phases should be limited to upon assessment.  Like CIP v Galliford Try, GSK v QPR was also a case in which the cost budget was out of proportion to the claim, and described by Stuart-Smith J as “grossly excessive, being overstated by almost 100% in relative terms and nearly £400,000 in absolute terms”.  In both these cases there was a significant departure in the incurred costs from what might be expected as being reasonably and proportionally incurred.

It seems, therefore, that for the Court to be persuaded to record a comment on incurred costs there will need to be something exceptional about the cost budget for it to do so. Concerns that costs are “substantial” or “too high” are unlikely to be enough for any comment from the Court, particularly if these are just put in general terms.  If there is a genuine concern that incurred costs are excessive then it will be necessary to put the other side to notice of the specific concerns in order that they have the opportunity to respond and so that the matter can be fully ventilated before the judge. It may be, however, that the most the Court will do is to note that the incurred costs are not agreed, and leave the baton to be taken up by the costs judge on assessment.