COSTS MANAGEMENT AND PROPORTIONALITY IN ACTION

Issues of costs budgeting and proportionality were considered by Mr Justice Roth in Agents’ Mutual Limited -v- Gascoigne Halman [2016] CAT 21. It provides an interesting example of the judicial approach to proportionality and costs budgeting.

“Proportionality is fundamental to the standard basis of assessment. It is inherent in the concept of proportionality that even when costs were reasonably or necessarily incurred, they may be disproportionate”

KEY POINTS

  • The appropriate approach to cost budgeting is to consider the sums that are likely to be awarded on detailed assessment.
  • This required the court to consider the issue of proportionality.
  • Costs could be reasonably and necessarily occurred and still be disproportionate.

THE CASE

The case was proceeding in the Competition Appeal Tribunal and the court had ordered that costs management take place.

THE APPROACH OF THE COURT ON CAST MANAGEMENT

The judge reviewed the principles relating to costs budgeting in detail.

“4.              It follows, in my view, that in considering whether to approve the phases in a costs budget, the Tribunal should approach those costs as if an eventual assessment would be on the standard basis. That is reinforced by the fact that Precedent H now requires the solicitor to certify that the budget “is a fair and accurate statement of the incurred and estimated costs which it would be reasonable and proportionate for my client to incur in this litigation” [my emphasis]”

APPLYING THESE PRINCIPLES TO THE CURRENT CASE

  1. The nature of the present proceedings and the way in which costs management has arisen have particular features which impact on the way the regime will apply.
  2. First, these proceedings were not started in the CAT. This is a High Court action which began on 17 February 2016 with an application for interim relief in the Chancery Division. On 5 July 2016, by order of Sir Kenneth Parker (sitting as a High Court judge), specified competition issues were transferred to the CAT pursuant to the regulations made under sect 16 of the Enterprise Act 2002. That is over 7 months ago and the competition issues are coming on for an expedited trial in the CAT to be held over 12 days in February 2017. As a result, the costs management order to be made in the CAT relates only to that part of the proceedings and, moreover, it is being made at a considerably later stage in the proceedings than might otherwise be the case. Over half the time to trial since the commencement of proceedings has already elapsed. That is significant since power to approve or disapprove a costs budget under Part 3 relates only to future costs and not to costs already incurred (although the incurred costs may be taken into account when considering the reasonableness and proportionality of subsequent costs): see PD3E, para 7.4.
  3. Further, as regards the High Court element of the case, in his order of 5 July 2016 transferring the competition issues to the CAT, and by consent, Sir Kenneth Parker directed that costs budgeting would not apply. That of course concerns only the High Court aspects of the case: see my judgment of 7 October 2016, [2016] CAT 20. But the early stages of this case, reflected in the budgets, took place in the High Court and disclosure, which has largely been completed, covers the whole of the action and not just the competition issues (although I think it is fair to say that the competition issues are predominant).
  4. Secondly, this case is being heard along with a parallel case, i.e. a claim by the Claimant against Moginie James Ltd (“Moginie James”) which likeGascoigne Halman is an estate agent. Although the CAT’s order of 14 September 2016 directed costs budgeting also in that action, the Claimant and Moginie James have agreed each other’s costs budget so those budgets were not subject to argument before the CAT. The competition issues in the two actions significantly overlap. The Claimant has very properly allocated its costs as between its separate budgets filed for the two actions.Gascoigne Halman has agreed the Claimant’s costs budget in the present action. In the usual way, the Claimant has invited comparison with its own, substantially lower costs budget when challenging the figures in Gascoigne Halman ‘s costs budget. However, since Gascoigne Halman is mounting its own independent defence, in some respects one would expect Gascoigne Halman ‘s costs to be higher than that part of the Claimant’s costs allocated to the Gascoigne Halman case. Accordingly, on some aspects, in so far as comparison between the two budgets is helpful, I think it is appropriate to look also at the Claimant’s costs budget in the Moginie James case.
  5. Before turning to the detail of the budget, it is appropriate to make the following preliminary observations:
(a)     Costs management as regards Gascoigne Halman ‘s budget is not concerned with what Gascoigne Halman’s solicitors and counsel may actually charge their client but with what will be Gascoigne Halman ‘s recoverable costs should costs on the standard basis be awarded in its favour after trial of the competition issues in the CAT.
(b)    Proportionality is fundamental to the standard basis of assessment. It is inherent in the concept of proportionality that even when costs were reasonably or necessarily incurred, they may be disproportionate: see CPR rule 44.3 (2) (a).
(c)     Although comments were made about and comparing the hourly rates and number of hours set out in the budgets, a costs management order is not concerned with a determination of rates or hours. However, the details set out in Precedent H can be scrutinised to understand the constituent basis of the overall figures and in order to assist with the evaluation, but no further. See PD3, para 7.10.
(d)    I accept that these are complex proceedings in that they involve a specialist area of law and therefore involve higher costs. Both sides are using City of London solicitors and I do not regard that as disproportionate. I accept also that the issues are of great importance for both parties although, it seems to me, they are still more important for the Claimant than for Gascoigne Halman : the Claimant contends that its future in the online portal market may depend on the determination of the competition issues.
(e)     The fact that Gascoigne Halman has agreed the Claimant’s costs budget means that the latter budget is not subject to review by the CAT. Since the Claimant will therefore prima facie be able to recover on the basis of its budget if costs are awarded in its favour, even if I may consider that some of those costs are disproportionate it seems to me that it would not be fair to revise costs in Gascoigne Halman’s costs budget for the same phase of the action to a lesser amount, unless there was a material difference between the two sides in terms of the work involved.
  1. For the Claimant, it was submitted that as it carries the burden of proving its case, its costs can be expected to be higher than those of Gascoigne Halman. I regard that as a rather simplistic approach which in any event is not applicable in this case. This is a trial only of the competition issues and those issues were raised and are being advanced by Gascoigne Halman by way of defence and counter-claim. Thus, to a significant extent, on those issues it is Gascoigne Halman here which has the burden of proving the case. However, as Gascoigne Halman alleges a violation of the Chapter I prohibition in the Competition Act 1998 and the Claimant in response contends that if the impugned arrangements prima facie restricted competition then they meet the statutory criteria for exemption, the Claimant too carries the evidential burden of making a case. Accordingly, I see no disparity in this respect between the parties, save only as regards the mechanics of trial preparation for which it is the Claimant that in the usual way will have to prepare the bundles, etc.
The Gascoigne Halman costs budget
  1. I turn to the phases of the costs budget of Gascoigne Halman . For the reasons indicated above, I do not think it is appropriate to make any comment about the costs incurred for those phases that have been completed, including disclosure, save insofar as they inform the future phases of the case.
Witness Statements
  1. The total estimated under this head is £299,819. That is based on the assumption that Gascoigne Halman will have 6-7 witnesses and also the task of reviewing the Claimant’s 4 witness statements and the evidence of Moginie James in the related action. The Claimant’s budget under this head is £147,650 and it is perhaps relevant to note that its budget is £19,575 for witness statements in the Moginie James action.
  2. I recognise that preparation of witness statements is time-consuming and that in this case the costs for Gascoigne Halman are likely to exceed those of the Claimant because it has more witnesses. Nonetheless, I regard the total of close to £300,000 as unreasonable and disproportionate. The explanation may be that a significant share of the work in the legal team at Gascoigne Halman’s solicitors is being undertaken by two partners: between them, it is proposed that they will spend 150 hours on witness statements, whereas the associate on the case (who herself is being billed at £395 per hour) is expected to spend 215 hours. I think it is reasonable to expect that a much greater share of the work would be undertaken by more junior lawyers, subject only to review by the partners. Taking a broad view, I consider a reasonable and proportionate sum under this head is £200,000.
  3. As £53,194 have already been incurred, I would revise the budget for estimated future costs to £146,806. In adopting that approach, I recognise that there is the possibility that on a detailed assessment the recoverable amount in respect of costs already incurred might be reduced to below £53,194. But I have set out what I consider should be the total and how the budget for future costs is therefore derived, and in that eventuality this should provide a basis to depart from the costs budget under CPR rule 3.18(b). I note that this is the approach recommended by the editors of the White Book supplement, Costs & Funding following the Civil Justice Reforms: Questions & Answers (2nd edn.), para 4-55.
Expert Reports
  1. Each side has a single economic expert. Gascoigne Halman’s budget under this head is £317,133. Of that sum, £153,933 have already been incurred. However, those figures do not tell the full story. In the first place, the expert concerned has separately been paid £85,000 in connection with advice on the pleadings and is estimated to have fees of £35,000 for trial preparation and a further £35,300 for attendance at the trial. Secondly out of the total £317,133 stipulated for expert reports, some £66,000 is for solicitors’ fees and £18,000 for counsel’s fees.
  2. By way of comparison, the Claimant’s costs budget for expert reports amounts to £257,763, which includes the cost of expert assistance regarding the pleadings and in trial preparation. The only addition is for the expert’s attendance at trial, in the sum of £30,000. Included in the first figure are lawyers’ costs associated with the expert report at just under £83,000 for solicitors and £25,000 for counsel.
  3. I leave out the costs of the expert attending trial which are broadly similar for the two sides and seem to me reasonable. However, I regard the total budgeted cost for the Gascoigne Halman economic expert for all stages to trial at £348,000 as unreasonable and wholly disproportionate for what is involved in this case. This is not a case where the expert will have to engage in complex econometric analysis of a vast array of data to arrive at a counter-factual price. Mr Woolfe, appearing for Gascoigne Halman, argued strenuously that it would be wrong to make a comparison between the costs of the economist instructed for the Claimant and for Gascoigne Halman, on the basis that the Claimant’s economist has the benefit of much greater client assistance regarding the working of the online portal market. I do not accept that. This is not an extremely complex market, both economists are assumed to be coming to the matter fresh, and Gascoigne Halman, as an experienced estate agent which is also a member of a nationwide group, makes extensive use of online property portals and is indeed a member of the Claimant.
  4. Although Mr Maclean QC, appearing for the Claimant, was critical of the amount of solicitors’ time attributed to the expert’s report in the Gascoigne Halman costs budget, it seems to me that much the same criticism could be directed at the Claimant’s costs budget. There may be a good explanation, but it should not need emphasis that the expert’s report should be the product of the expert, expressing his or her own, independent opinion, and not the reflection of heavy input or edited by the lawyers. Some discussion with the lawyers is of course reasonable and the expert can be expected to assist the legal team in a critical review of the evidence of the other side’s expert, but the lawyers’ involvement should go no further. However, since the Claimant’s costs budget has been agreed, I think the fair approach is for me to accept that Gascoigne Halman expects to spend lawyers’ fees of some £84,000 in connection with expert’s reports. On the basis that Gascoigne Halman has already incurred substantial fees on its expert for assistance over the pleadings, which means that the expert has done significant preparatory work on the case, I shall revise the total for this phase to £240,000. Since £153,933 have been incurred, I will approve an estimated budget for future costs in the sum of £86,067.
PTR
  1. Gascoigne Halman’s estimate is £105,725. That comprises £37,425 in solicitors’ costs and £68,300 in counsel’s fees. By contrast, the Claimant’s budget for the PTR is £40,390, comprising £26,800 in solicitors’ costs and £12,500 in counsel’s fees. [1]
  2. The size of this disparity appears, at least in part, to be explained by a difference in approach. Gascoigne Halman has assumed a one day PTR with various substantive applications being made. The Claimant has assumed a half day PTR of the usual kind, and Mr Maclean explained that should a substantive application arise that had not been anticipated, that would fall outside this budget and could be claimed for in addition.
  3. In my view, the Claimant’s approach is correct. It is impossible to estimate at this stage whether and if so what scale of additional applications might be made at the PTR and it is therefore not appropriate to approve any budget for such a speculative eventuality: see PD3E, para 7.9. Accordingly, I cannot see any basis on which to approve a budget of over £105,000 for a PTR which, in the absence of such substantive applications, should not last more than half a day. Both the Claimant and Gascoigne Halman anticipate using senior and junior Counsel and I see no reason why there should be a divergence in the reasonable and proportionate cost for the PTR. I would therefore approve a budgeted cost for this phase revised to £40,000.
Trial Preparation
  1. Gascoigne Halman’s budget stipulates £98,175 for this phase. As I have mentioned, that includes £35,000 for its expert witness. The Claimant’s corresponding estimate is £122,975, which does not include any fees of its expert.
  2. I would expect the Claimant’s costs to be higher since it carries the burden of preparing the trial bundles. The trial will involve 9 court days, with 12 working days in total (allowing for a 3 day gap for the preparation and reading of closing submissions). Accordingly, it is a substantial, but not very large, trial.
  3. I think that the expert preparation costs are rather high, a reflection of the elevated level overall of the fees of the Gascoigne Halman’s expert. The solicitors’ costs appear to me within a reasonable band. The overall figure is nonetheless significant and contributes to the disproportionality of the total budget. I therefore make a modest reduction for this phase and revise the total to £80,000.
Trial
  1. Gascoigne Halman’s budget estimate is £842,195. In sharp contrast, the Claimant’s estimate is £483,420. The detailed breakdowns in the respective Precedents H reveal the explanation for this discrepancy. Gascoigne Halman’s solicitors’ costs for trial are almost £152,000, compared to the Claimant’s solicitors’ estimate of £88,320; moreover the fees for Gascoigne Halman’s senior and junior counsel amount to £642,520, compared to £365,000 for leading and junior counsel instructed by the Claimants. However, it is relevant to note that the Claimant’s solicitors have in addition budgeted £33,120 for the Moginie James trial, which is being heard at the same time and through which Gascoigne Halman’s solicitors will have to be present.
  2. Addressing first the solicitors’ costs, Gascoigne Halman expects two partners each to devote 85 hours to the trial and an associate to be spending 120 hours. The Claimant has one partner and an associate spending 96 hours each. I have no doubt that all the lawyers involved will be working very hard. Mr Woolfe, in answer to my question, said that it was not the intention that both partners at Gascoigne Halman’s solicitors would attend the whole of the trial. Nonetheless, assuming a court day with travelling time, attendance at trial over 9 days should not involve more than some 70 hours. Of course, there may well be significant work after court and on the non-court days in reviewing the closing submissions, but the submissions themselves will be drafted by counsel. It is through the attribution of 170 hours of partner time that this part of the Gascoigne Halman budget rises significantly. As regards counsel’s fees, the two QCs are of broadly equivalent seniority and the junior counsel instructed for the Claimant is in fact considerably more senior than junior counsel for Gascoigne Halman. It may be that the fees charged by counsel acting for Gascoigne Halman represent the market rate for their services but that does not make them reasonable or proportionate: see Group Seven Ltd v Ali Masir and ors [2016] EWHC 620 (Ch) at [54].
  3. It is not appropriate as part of the costs budgeting exercise to revise the individual figures for the various constituent elements. I must take a headline view for this phase, informed nonetheless by the observations I have made regarding those elements. I see no substantive reason why the costs of Gascoigne Halman should be greater than the costs of the Claimant, when assessed by the criterion of proportionality. I have regard to the Claimant’s trial costs shown in its costs budget agreed in the Moginie James action. Taking an overall view, I consider that the proportionate trial costs, given the length and complexity of trial, what is at stake for Gascoigne Halman and the specialism of the representation involved, should be £550,000 and I would approve a revised figure for the trial phase accordingly.
ADR/Settlement discussions
  1. The amount estimated under this head is £19,762 (of which £237 have already been incurred). Accordingly, it represents a very small part of the total picture. There was some confusion in the hearing as to what this element in fact represented since I was told that the unsuccessful mediation which had taken place was conducted on the basis that each side would bear its own costs. It appears that it is an allowance for potential “without prejudice” communications for an attempted settlement. However, this figure was not really contested on the part of the Claimant and I am prepared to approve the balance of £19,525 for that phase.
Investigation, Research and Review of third party material
  1. The Gascoigne Halman costs budget states that £15,661 have been incurred under this head and no future costs are estimated. Accordingly, it does not fall within the approval process of a costs management order.

Contingencies
  1. The Gascoigne Halman costs budget includes under this heading £174,830.08 as regards the costs of the security for costs application dealt with at hearings in July and September 2016. Those are stated as costs already incurred and so form no part of the budget approval process. In any event, Gascoigne Halman has made a distinct application regarding its costs of its security application and this will be therefore be dealt with separately.
Conclusion
  1. I will therefore approve a costs budget for Gascoigne Halman to be revised in accordance with this judgment for the above six phases, amounting in total to £922,635 for estimated future costs. The breakdown is appended to this judgment.
The Honourable Mr Justice Roth
President of the Competition Appeal Tribunal
Charles Dhanowa O.B.E., Q.C. (Hon)
Registrar
Date: 21 October 2016
Appendix
A
B
C
Phase
Gascoigne Halman’s incurred costs
Gascoigne Halman’s estimate of future costs
Approved future costs
Phase totals (Column A + Column C)
Witness statements
53,194
246,625
146,806
200,000
Expert reports
153,933
163,200
86,067
240,000
PTR
105,725
40,000
40,000
Trial preparation
98,175
80,000
80,000
Trial
842,195
550,000
550,000
ADR
237
19,525
19,762
19,762
TOTALS
207,364
1,475,445
922,635
1,129,762

COSTS BUDGETING AND PROPORTIONALITY: RELATED POSTS

 

 

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