This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.
In the case of Capital for Enterprise Fund A LP and others v Bibby Financial Services Limited, the High Court considered two issues relating to approved costs budgets and interim payments on account of costs. That is, whether the trial judge has jurisdiction to give an indication that it would be appropriate to depart from an approved costs budget and whether the trial judge should order the paying party to make an interim payment and if so for what amount or percentage of the approved costs budget.
In the Capital case, the Claimant was unsuccessful at trial and was ordered to pay the Defendant's costs. The Defendant argued that the Judge, His Honour Judge Pelling QC, should give such an indication that he would have been willing to order an increase in the Defendant's budget. In addition, the Defendant argued that the Judge should order the Claimant to make an interim payment and that the amount ordered should be 90% of the approved costs budget plus additional costs incurred by the Defendant. The Claimant argued that the Judge should not give the indication sought by the Defendant and that he should not order an interim payment, but that if he did it should be for no more than 70% of the approved costs budget. The Judge did not give the indication sought by the Defendant and ordered the Claimant to make an interim payment of £165,000, which equated to 70% to 80% of the approved costs budget.
It was held it was doubtful that the trial judge has jurisdiction to indicate that it would be appropriate to depart from an approved costs budget.
In the case of Elvanite it was held that the Court does not have jurisdiction to amend an approved costs budget and that the only power to depart from an approved costs budget is that contained in Civil Procedure Rule 3.18, which states that “when assessing costs on the standard basis, the court will […] not depart from such approved or agreed budget unless satisfied that there is a good reason to do so”.
The Judge felt that “real caution” is required in this area because, in the absence of agreement of the parties to an indication being given, the giving of an indication would interfere with the decision making of the costs judge. The Judge stated that, although giving an indication might result in the commencement of detailed assessment proceedings that could have been avoided, that has to be balanced against the possibility that the paying party could either apply to vary its budget or to oppose any application to vary case management directions.
The Judge went on to say that even if he does have jurisdiction it should not be exercised in this case. He stated that if there is jurisdiction to indicate that it would be appropriate to depart from the approved costs budget, it is a jurisdiction that should be exercised only in exceptional circumstances because it interferes with the decision making of the costs judge, it undermines the costs management regime and in most cases there is an adequate remedy available, that is, to apply for a variation of the approved costs budget under Civil Procedure Rule 7.6.
The Interim Payment
The Judge held that the Court does have jurisdiction to order an interim payment as Civil Procedure Rule 44.2(8) states “Where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is a good reason not to do so”.
The Judge stated that in this case the starting point was 70% of the Defendant's approved costs budget because he had ordered that the Defendant should recover 70% of its costs of the claim. The Defendant argued that it was entitled to 90% of the approved costs budget following the case of Thomas Pink Limited v Victoria Secrets UK Limited, in which an interim payment of 90% of the approved costs budget was ordered. The Judge disagreed, stating that the only principle the Thomas Pink case establishes is that the courts will order larger interim payments in a case where there has been costs budgeting. The Judge held that ultimately all costs cases involve a fact specific exercise of discretion.
He went on to say that in all cases where the Court is considering an interim payment it is necessary to balance the need to ensure that any amount ordered does not exceed the amount ultimately assessed to be due against other factors including the fact that the receiving party has succeeded and that it will not receive the money it is entitled to until the assessment proceedings are concluded. The Judge stated that to order an interim payment of 90% of the approved budget the Court would have to have a high level of confidence that the receiving party would recover at least 90% of its budgeted costs on assessment.
- The case confirms that it is doubtful that a trial judge has jurisdiction to give an indication that it would be appropriate to depart from an approved costs budget. The trial judge should leave any decisions on the budget to the costs judge.
- Interim payments can be very high on budgeted matters. They can be up to 90% if the Court has the necessary level of confidence.
- Although the trial judge cannot make a formal direction on the budget, he can indicate confidence in the level of costs the party would recover by ordering a higher interim payment. A trial judge could award a lower amount if confidence was not high on the parties' budget.