Our Catherine Moran, Senior Costs Lawyer, asks whether additional liabilities are to be taken into account for the purpose of Costs Budgeting.
Our Catherine Moran, Senior Costs Lawyer asks whether additional liabilities are to be taken into account for the purpose of Costs Budgeting after Various Claimants v MGN Limited  EWHC 1894 (Ch) Mann J.
In this case the Court considered the extent to which budgeting should encompass additional liabilities where a party has entered into a CFA with recoverable additional liabilities.
The Judgment details the outcome of a costs management hearing in a substantial group litigation where earlier, costs budgets had been agreed which did not cover the entire litigation to trial.
Further budgets had been exchanged to take the managed cases up to but not through, the trial stage. The Claimants had agreed the Defendant’s budgets but the Defendants disputed almost every item of the Claimants’ budgets. A key question of principle related to additional liabilities and whether these should be included in the Costs Budgeting process.
Additional Liabilities: Practical Issues
The Claimant argued that the proper approach is clear from the provisions of the CPR and the relevant Practice Direction as well as the terms of Precedent H. There are practical problems in seeking to provide for the additional liabilities at the costs budgeting stage given that Claimants are under no obligation to disclose the terms of the CFA or ATE Insurance until the claim has concluded.
The Defendant sought to argue that the approach should rely on the notion of proportionality and that the Court should adopt a procedure whereby it decides: the common costs budgets using a test of reasonableness; decides the reasonable level of base costs for each phase in each individual costs budget; and then stands back to consider a proportionate amount to be allowed overall for each individual costs budget, having regard to the share of common costs.
The Defendant argued the approved figures will then identify a reasonable and proportionate amount and that if there has been a reduction on the grounds of proportionality, the resulting figure will be a maximum sum that is proportionate – in which case, no additional liabilities can be recovered.
HELD: the determination of figures in the costs budgeting exercise shall not include any sum for the additional liabilities. The apparent change in the approach to proportionality on assessments does not mean there should be a change to the approach on the occasion of budgeting. The first page of the Precedent H clearly indicates that the estimate excludes VAT, success fees and ATE insurance premiums – which is a clear direction as to what is not to be included.
Good news for claimants
This is excellent news for Claimant Solicitors. Had the Court approved the Defendant’s approach this could have had disastrous consequences for Claimant Solicitors, with potentially no recovery of additional liabilities where proportionality is an issue.