Case No: Various as listed in the 2nd Group Register

Neutral Citation Number: [2016] EWHC 1894 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL

Date: 25/07/2016

Before :

MR JUSTICE MANN

- - - - - - - - - - - - - - - - - - - - -

Between :

	Various Claimants	Claimants	
	- and -		
	MGN Limited	Defendant	

- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -

Mr Simon Browne QC, Mr David Sherborne and Mr Jeremy Reed (instructed by Atkins Thomson as Lead Solicitors) for the Claimants
Mr Alexander Hutton QC and Mr George McDonald (instructed by RPC LLP) for the Defendant

Hearing date: Thursday 21st July 2016

- - - - - - - - - - - - - - - - - - - - -

Judgment
Mr Justice Mann : 

Introduction and the nature of the dispute with which this judgment deals
1.	This judgment gives my reasons for the decision that I pronounced on the morning of Thursday 21st July 2016.

2.	This is a costs management hearing in this managed litigation.  Earlier costs budgets have been agreed, but those budgets do not cover the entire litigation up to trial and further budgets have been exchanged to take the managed cases up to, but not through, the trial stage.  The claimants have agreed the defendants’ budgets.  The defendants have not agreed the claimants’ budgets and practically every item in those budgets is disputed.  Some of the disputes are particular to the items in question.  Others are more over-arching disputes on points which are akin to questions of principle.  This judgment deals with one of them, namely the extent to which budgeting should encompass additional liabilities (uplift and ATE insurance premiums) where, as here, a party (the claimants) has entered a conditional fee agreement (“CFA”) with its lawyers.  The cases with which this judgment is concerned are cases based on privacy and publication, and so are cases in which recovery of additional liabilities from the paying party is still possible.  

3.	Not everything about the costs budgeting is the subject of disagreement.  The parties have agreed that there should be separate budgets for common costs and for the costs relating solely to individual claims, and they have agreed how individual claims should be categorised for costs budgeting purposes.  Common costs are what their name suggests – costs which relate to activities which are carried out for the benefit of the claimants as a whole, as opposed to activities done solely in relation to individual claims.  They are one category of costs to which budgeting is to apply.  So far as individual costs are concerned, the parties have agreed on a system of template budgeting.  Rather than preparing budgets for each individual case (which would, on present figures, involve the preparation of more than 30 budgets, with more to come as further claims are brought), the parties have agreed to operate on the footing of three template budgets.  Each of the cases is to be treated as falling into one of three categories, depending on the number of articles on which the claim is based and/or the level of dispute between the parties judged by reference to the number of articles which are or are not agreed by the defendant as having a source in illicit information gathering.  The details of the split do not matter for the purposes of this judgment.

4.	There will, regrettably, have to be an item by item consideration of practically all the items in all the budgets in due course, which, judging by the levels of dispute, will be very time-consuming.  However, this judgment is not concerned with those disputes.  It is concerned with an important overarching point which is the extent to which additional liabilities should be covered by the costs budget.  The position of the claimants is that all additional liabilities are outside the scope of the costs budgeting exercise.  The exercise should relate only to base costs.  The position of the defendant is that the figures allowed in the costs budgeting exercise should cover additional liabilities (both uplift and ATE insurance premiums).

The parties’ arguments

5.	The argument and technique of the claimants can be relatively easily set out.  They say that the proper approach, which excludes a consideration of additional liabilities for costs budgeting purposes, is clear from the provisions of the CPR and the relevant Practice Direction (and especially the terms of Precedent H).  Furthermore, there are insuperable practical problems in seeking justly to provide for the additional liabilities at the costs budgeting stage because the claimants are under no obligation to disclose the terms of the CFAs (and in particular the uplift) before the end of a trial, or the terms of their ATE insurance (and in particular the premiums and the stages at which the premiums accrue).  Without that information one cannot sensibly introduce them into a costs budgeting calculation.  The only basis on which costs budgeting can be sensibly carried out is the basis on which it has always hitherto been carried out in CFA cases which is to apply it to base costs only. 

6.	The approach of the defendant is one which does not ostensibly require disclosure of the nature and amount of additional liabilities in a way which contravenes the present system, which does not require that disclosure.  Its focus is very much on notions of proportionality.  Mr Alexander Hutton QC, who appeared for the defendant, set out the correct approach in his skeleton argument in the following terms.  He says that the court should adopt the following procedure, which he described as being “akin to the approach on detailed assessment”:

“a.  Decide Common Costs budgets using a test of reasonableness;

b.  Decide the reasonable level of base costs for each phase in each Individual Template Costs budget (having regard to amount to about four Common Costs);

c.  Then stand back and consider a proportionate amount to be allowed overall for the individual Template Costs budgets (having regard to the share of Common Costs).  Any deductions as a result of the ‘standing back’ exercise are to be applied pro-rata across each phase;

d.  The approved figures will then identify a reasonable and proportionate amount.  If there has been a reduction on the grounds of proportionality (by the ‘standing back’ exercise) then the resulting figure will be the maximum sum which is proportionate: in those circumstances, it is contended, no additional liabilities can be recovered in addition to that maximum proportionate sum; and

e.  The only circumstances where additional liabilities could be recoverable in addition would be if the court considers that the amounts determined as reasonable were also proportionate (i.e. without any reductions at the standing-backstage).  In that scenario, the defendant suggests that proportionality would need to be reconsidered by a costs judge on assessment to include additional liabilities as the maximum proportionate sum may be greater than the base costs figure alone.”

7.	This approach is heavily based on what is submitted to be the proper application of proportionality to post-April 2013 cases (which all the present cases are).  From that time on the rules as to proportionality have changed.  The concept occupies a higher position now on an assessment, as is demonstrated by CPR 44.3(2) which provides

“(2)  Where the amount of costs is to be assessed on the standard basis, the court will –
(a) only allow costs which are proportionate to the matters in issue.  Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; …”

8.	This is said to have led to the approach of the costs judge (Master Gordon-Saker) in the post-action assessment in BNM v MGN Ltd (3rd June 2016) when he is said to have lumped in the additional liabilities payable under a CFA together with the base costs in then carrying out an overall assessment of proportionality, reducing all costs severely as a result.  In his judgment Master Gordon-Saker said:

“35.  When applying the new test of proportionality, the court need not consider the amount of any additional liability separately from the base costs.  In the event I have considered the after event insurance premium separately.”

9.	Thus it is said that additional liabilities are grouped together with base costs when applying the proportionality test.  Mr Hutton said that this means that an overall proportionality assessment needs to be carried out at the budgeting stage as well.  The overall figure thus generated will inevitably produce an overall figure which will limit the overall recovery, including additional liabilities.  Thus the budgeting exercise will include additional liabilities (or alternatively at least the ATE premiums, a bit of excision that I did not fully understand).  

10.	By way of reinforcement to this reliance on the view of the costs judge, the defendant seeks to rely on what was said by counsel for the claimants on a previous hearing in this managed litigation in which I had to consider the application of Article 10 of the European Convention on Human Rights to the recoverability of additional liabilities (the neutral citation of the judgment is [2016] EWHC 855 (Ch)).  In the course of argument on that application Mr Hugh Tomlinson QC for the claimants said:

“There is no ability to control those [ie the additional liabilities]  in advance but there now is, and this is a vital point of difference, an ability to assess the proportionality of those in a way that there was not under the regime that existed at that time [ie before 2013].  The real vice of the system was that you could not review the proportionality of the then system of ATE premiums and success fees.  That position has now changed, so the position is that the costs judge can, at the end of the costs assessment process, look at the proportionality of the whole sum payable by way of base costs, success fees and premium, and take into account all the circumstances, and those circumstances can include the Article 10 rights on the defendant, before deciding whether overall the sum is proportionate.  My Lord, that, we say, is actually a complete answer to the defendant’s points about lack of proportionality.  The costs judge can, on the facts of every case, decide whether the total sums payable, including the additional liabilities, are proportionate.”

11.	Mr Hutton submitted that the claimants are stuck with that analysis because they should not be allowed to blow hot and cold.  Having relied on that submission when it suited them to do so on the previous hearing, they should not be allowed to resile from it now.

12.	I will deal with that point at this point in this judgment.  Whatever the other merits of Mr Hutton’s submissions might be, I do not think that this point adds to them.  Statements of case by counsel in previous litigation cannot, of themselves, give rise to some form of estoppel, which is essentially what Mr Hutton is after.  There might be an estoppel if and insofar as those statements form part of the judgment in the preceding litigation, but then the force of the estoppel comes from the judgment, not from statements by counsel in open court.  Nor does the bare reference to the maxim about blowing hot and cold assist.  One cannot simply apply maxims in that naked way, and there is no reason in principle why the claimants cannot now make a different submission if (as was actually the case) the point was not adopted in the judgment.  If and insofar as the positions are different, then they will be right (or wrong) in one case or the other.

13.	In any event, it is not a necessary part of the claimants’ case on this application that the costs judge in BNM was wrong, although I understand that his decision is to be challenged on an appeal.  The claimants do not seek to re-argue the point at this hearing.  Their submission is that, even if it is right, that does not justify what the defendant seeks to have done in this case.

14.	The defendant accepts that under the provisions of the CPR the claimants are not obliged to disclose the amount of the success fee or the ATE premium.  The theory is that to do so would reveal something about the view taken by the CFA party of his or her prospects of success.  The technique encapsulated in the passage from Mr Hutton’s skeleton argument quoted above is intended to steer a course between the fact that the amount of the additional liabilities is not revealed at this stage on the one hand and the need to consider the fact that proportionality applies to the entirety of the costs on the other.  The approach is said to have the advantage that the court can exercise control at this stage over the proportionality of the total costs being incurred, which is said to be the underlying purpose of the reform of the proportionality test.  This enables the court to do so prospectively, and not just retrospectively, thereby fulfilling what are said to be the court’s costs management obligations.  It is also said to provide a degree of certainty as to the liability of costs for a paying party facing a claim for additional liabilities.

Conclusions

15.	I do not consider that the apparent change in the approach to proportionality on assessments (if there is one) means that there should be a change to the approach on the occasion of budgeting.  The reasons for this are based on both the provisions of the rules and the Practice Direction and on the practicalities.

16.	The provisions for costs budgeting are to be found in Part II of CPR 3.  The procedures are dealt with in Practice Direction 3E.  Paragraph 2(a) requires the court to have regard to the overriding objective and paragraph 6(a) provides:

“Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction.”

17.	The first page of that precedent contains a summary which is amplified in the following pages.  Below the summaries of costs under various headings there is included the following wording:

“This estimate excludes VAT (if applicable), success fees and ATE insurance premiums (if applicable), costs of detailed assessment, costs of any appeals, costs of enforcing any judgment and [complete as appropriate]”

18.	That seems to me to be a clear direction as to what is not to be included.  The omission of the relevant matters is emphasised by the underlining of the word “excludes”, which occurs in the original of precedent.  The guidance notes go on to indicate what should and should not be included.  None of them begin to suggest that anything should be included in respect of additional liabilities.  While it is true that this precedent is only a form, it is a form which is mandated by the Practice Direction and so its express contents as to what the form should not include has the force of the Practice Direction.  The fact that the form requires the litigant to set out the assumptions on which budgeted sums are said to be justified supports the conclusion that the additional liabilities are not to be included.  Under the CFA regime the relevant party does not have to disclose the terms of the CFA or the ATE premiums.  By the same token, the litigant should not have to disclose any “assumptions” about them.  Without those assumptions it is not possible to form any sensible judgment as to the reasonableness as justifiability of those sums, or indeed as to their proportionality.

19.	The defendant seeks to sidestep this point by almost ignoring the fact that there is a CFA with additional liabilities.  Those additional liabilities will not be taken into account in the budgeting process.  They cannot be.  The CFA party does not have to disclose sums likely to be payable, and the form expressly provides that they do not have to be included.  Accordingly, if the counterparty agrees the budget it is agreeing a budget which does not provide for the additional liabilities.  Without establishing a good reason to the contrary, the CFA party will be limited to the agreed budget (CPR 3.18), both in relation to the overall sum and in relation to its apportionment between the relevant phases.  Unless the incurred costs come in at less than the agreed budgeted sum in relation to any phase there will be no room in the budgeted sum for recovery of the additional liabilities.  That is capable of rendering the right of recovery of additional liabilities nugatory in many cases, or at best haphazardly dependent on over-statements of budgets in relation to base costs.  The possibility of establishing a good reason for an increase under CPR 3.18 was suggested as being a way out of the problem in an appropriate case, but that would be likely to have to be invoked in large numbers of cases in order to justify any substantial recovery of the additional liabilities.  In my view that is not a satisfactory answer, not least because of the uncertainty that that would engender.  

20.	The same applies if the court determines the budget.  Mr Hutton would have the court determine a budget based on base cost figures which a fortiori do not include the additional liabilities.  On Mr Hutton’s reasoning the court would have to do one of two things.  It would either have to fix a budget at or below the base costs figures in the budgets, in which case the same anomaly arises as arise when budgets are agreed.  Or, if it wished to acknowledge the possibility of the recovery of additional liability, it would have to fix a sum in excess of the Precedent H sums (provided it was satisfied as to proportionality) without any real idea of what sums might be due as additional liabilities (because the CFA party does not have to disclose the information).  Fixing a sum in excess of sums appearing in budgets seems to be contrary to the whole budgeting enterprise.  In practice the court would be being asked to fix a sum (limited by proportionality) which ignored the additional liabilities, but which would then be used to limit the assessed costs including those liabilities. 

21.	Then there is the question of allocating the additional liabilities into the categories provided by Precedent H.  The budgeting process involves such an allocation.  How is that to be done for additional liabilities at the budgeting phase?  There is no real answer to that question. 

22.	Mr Hutton, as I have said, relies heavily on what happened, and what was said, in BNM.  It must be remembered that that was a post-action assessment process.  At that point the costs judge knew what the additional liabilities were, and why they were said to be properly and reasonably incurred, and how they might be said to be proportionate.  He was dealing with known global figures when he assessed proportionality.  That is a different exercise from the budgeting phase.  Even the assessing costs judge does not assess proportionality regardless of the actual figures.  He or she has actual figures.  A costs budgeting judge has only partial figures.

23.	In short, the practicalities and effect of the exercise proposed by Mr Hutton point strongly against its being correct.  When allied with the apparent express purpose of Precedent H (mandated by the Practice Direction), it is clear to me that his approach cannot be right.  It may be that this gives rise to a form of logical inconsistency when one puts the budgeting process alongside the assessment process (assuming that BNM is correct in its approach) but that is inevitable effect of the different things required of the parties and the process at those two different stages.  

24.	For those reasons, therefore, I rule that the determination of figures in the costs budgeting exercise shall not include any sum for the additional liabilities.