Foods v Manton

This is a renewed application for permission to appeal following refusal on paper by the single Lord Justice. It concerns a costs management order made by HHJ Kaye QC in the Leeds Mercantile Court pursuant to the pilot scheme contained in Practice Direction 51G.

The dispute between the parties arose out of a contract made between the appellant, to whom I shall refer as the claimant, Troy Foods, and the respondent, to whom I shall refer as the defendant, Manton, in July 2011 for the sale of liquid egg products during the 12 months from August 2011 to July 2012. The claimant says that the price of the goods was fixed for the year, but that in February 2012 the defendant unilaterally increased its prices for liquid egg products, and that, being in urgent need of the goods in order to continue manufacturing various products, it had no alternative but to pay the higher price being demanded by the defendant. The defendant says that each order was to be treated as a separate contract for which a separate price was to be agreed.

In May 2012 the claimant started proceedings against the defendant claiming damages for breach of contract. After statements of case had been served, each side prepared a costs budget in the prescribed form as required by the Practice Direction. The claimant's original budget came to a total of £159,070; the defendant's budget came to £53,040.

On 9 November 2012 each side filed comments on the other's budget, and the matter came before Judge Kaye for the first time on 12 December. That hearing was adjourned and, in the light of various comments that had been made, on 14 December 2012 each side produced a revised budget. This time the claimant's budget was for £129,176 and the defendant's £59,380. The significant difference remaining between the two budgets reflected, at least in part, differing views on the part of the solicitors of the likely course of the proceedings and the need to provide for contingencies.

On 18 December, the matter came back before Judge Kaye on the adjourned costs management conference, at which time the judge noted that there were six principal areas of dispute, of which the most significant were counsel’s hourly rate and the costs of disclosure. In the end, however, the judge approved the whole of the defendant’s budget, but only part of the claimant’s budget. He did not approve the claimant’s budget for disclosure and preparation for the trial, but he did approve the elements relating to witness statements and counsel’s fees.

The grounds of appeal now pursued in the defendant’s skeleton argument are that the judge adopted the wrong approach and was too generous in approving the amounts allowed in the claimant’s budget for preparing witness statements and the hourly rate for counsel.

The primary submission made by the claimant is that when the court is asked to approve costs budgets, it should have regard to the principles that will be applied when costs are assessed on what can be expected to be the standard basis. That involves, among other things, resolving any doubts in favour of the paying party. In this case, it is said, the judge failed to have regard to that principle and, in effect, approved elements in the budget despite having doubts about whether the figures were reasonable.

The defendant’s concern is that, on a detailed assessment, costs judges are likely to treat the approval of a budget, or any relevant part of it, as ipso facto establishing that the costs incurred in respect of the matter generally, or that particular element of it, are reasonable if they fall within the approved budget. In Henry v News Group Newspapers [2013] EWCA Civ 19 at paragraph 16 I expressed the view that an approved budget was not to be taken as a licence to conduct litigation in an unnecessarily expensive way. It follows that I do not accept that costs judges should or will treat the court’s approval of a budget as demonstrating, without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply because they fall within the scope of the approved budget. Nonetheless, one of the principal aims of costs budgeting is to control the parties’ expenditure, and that will not be effective if judges do not apply the correct principles.

In relation to the amount allowed in the budget for counsel’s fees, the judge said:

The judge did not deal specifically with the costs of obtaining witness statements, but he did say that, looking at the matter in the round, the costs were not so grossly disproportionate or so out of line with the overriding principle as to cause him to put any greater cap on them or to express any greater concern than he had already voiced. It seems therefore that the judge proceeded on the basis that he would approve any figure for a particular element of the claim, provided it was not so unreasonable as to render it obviously excessive or, as he put it, "grossly disproportionate".

Although the court will not readily interfere with the judge’s decision in a matter of this kind, which essentially involves an exercise of judgment, I think it is arguable that in this case the judge did not apply the correct principles and, as a result, approved an over-generous budget in respect of some elements of costs. Costs budgeting is still in its relative infancy and new provisions of general application came into effect on 1 April 2013 in relation to claims started on or after that date. Moreover, in relation to such claims, proportionality will now assume greater importance in the assessment of costs than it has in the past.

I think it is important, therefore, to ensure that the correct principles upon which costs budgeting is to be carried out are established at an early stage, which reinforces my view that permission to appeal should be given in this case. In the light of the way in which the appellant puts its argument, the court may wish to comment further on the proper approach to be taken by costs judges on detailed assessment in a case in which the court has approved the receiving party’s budget, though that will be a matter for the court which hears the appeal in due course.