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How To Revise A Costs Budget – Chief Master Marsh’s Guidance In Sharp V Blank

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Chief Master Marsh’s judgment in Sharp v Blank [2017] EWHC 3390 (Ch) addresses this issue in great detail and provides helpful guidance through the unclear rules and practice directions.

This judgment arose out the well-known Sharp v Blank litigation where shareholders are seeking damages of approximately £600 million following the acquisition of Halifax Bank of Scotland (HBOS) by Lloyds.  On 2 May 2017 a consent order was approved setting out the agreement reached between the parties where the Claimants’ costs budget was set at a total of £17,601,025.49 and the Defendants’ costs budget was set at £19,141,377.54.  For both parties the Precedent H showed costs ‘incurred’ up to 27 January 2017 and therefore by the time the budgets had been approved, parts of the costs estimated in the Precedent H had been incurred.

On 19 October 2017 the Defendant issued an application seeking the court’s approval of a revised costs budget on the basis that there had been significant developments in the litigation. The Defendants relied on seven examples of significant developments in the case that required their budget to be revised under paragraph 7.6 of PD3E.  The additional budgeted sums being sought totalled £1,210,215 and full details are not reported here but are set out in the judgment.

The Claimant opposed the application for three reasons. Lateness, as the application had been made too late; Oppression, as it was intended to be oppressive to the Claimants due to their precarious funding position; and lastly jurisdiction.  The last point had three strands; firstly that none of the matters relied on could be deemed significant developments; secondly the court could not approve any of the Defendants’ incurred costs prior to the hearing of their application; and lastly the court has no power to treat interim applications as significant developments.

The Chief Master decided to grant the application and revise the Defendants’ costs budget and dealt with the Claimant’s objections as follows:

1.  Lateness – The Defendants’ application was issued shortly after the trial had commenced, however the Defendants had first raised the need to revise budgets in a letter dated 21 July 2017 when they invited the Claimant to agree to new Precedent H costs budgets being exchanged. However the Claimants did not respond to this request until 22 September 2017 after receiving two chasing letters from the Defendants. In such circumstances the Master found it deeply unattractive for the Claimant to complain that the application had been made late and held that the Defendants had taken reasonable steps to ensure that their application was made in a timely fashion

2.  Oppression – There were two elements to the Claimant’s complaint. The first related to the extent of the documents served with the application and how that could have an oppressive effect on the Claimants due to their precarious funding position. The Master found the manner in which the Defendants had set out their case helpful and dismissed the Claimants’ complaint.The second complaint was that the making of an application to increase costs budgets was in itself oppressive as it disregards the fundamental inequality of the funding positions of the parties. The Master held that after a costs management order has been made, the revisions of costs budgets is not optional if there have been significant developments in the case to require revised budgets. Thus it was correct for the Defendants to make the application and not leave it until a detailed assessment for the parties to know their exposure to costs. Furthermore it was noted that it was the Claimant who had asked for the case to be subject to costs management and thus if they choose not to apply to revise their costs budget under PD 3E.7.6 it is they who have lost the chance to maintain a level playing field.

3.  Jurisdiction – 

(a)  Significant Developments and Interim Applications – The Master considered the approach to be taken when the court is asked to decide if there have been significant developments to revise a costs budget under PD 3E.7.6. It was held that when the court is considering whether there has been a significant development it should look at the totality of the related developments, including interim applications that may not be budgeted pursuant to PD 3E.7.9 as the consequences that may flow from such applications may be significant.

(b)  Incurred Costs – The costs management rules create a potential conflict between PD 3E.7.4 that states that the court may not approve costs incurred before the date of any costs management hearing and PD 3E.7.6 that requires each party to revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions. If the court cannot approve incurred costs, what should happen to the costs that have already been incurred due to the ‘significant developments’? Presumably those costs would have to go to detailed assessment as they would be outside the scope of the costs management process.

It cannot possibly be the intention to leave substantial sections of work incurred after the approved costs budget outside the costs management regime simply because they were incurred before the revised costs budget. To do so would leave such costs to fall into a ‘black hole’.

In his judgment Chief Master Marsh recognised that a literal reading of PD 3E.7.4 prevents the court from approving costs incurred before the date of the CCMC, but it is impossible to implement in that way as the parties are required to file and exchange their budgets not later than 21 days before the CCMC. Thus the exchanged costs budget will be at least 21 days out of date before the CCMC and costs included in the estimated columns will have inevitable be incurred by the time the court is asked to approve the costs budgets. As such the Chief Master commented that ‘some degree of retrospectivity is inevitable if the costs management regime is to be made to work’.

It was therefore the Chief Master’s judgment that costs incurred since the date of the last agreed/approved budget (or date set by the court) that relate to significant developments are, for the purpose of revision, placed in the estimated columns of the revised Precedent H. Thus the incurred costs in the revised Precedent H should appear the same as in the approved costs budget.

It has been extremely helpful for Chief Master Marsh to provide this detailed judgment as it gives clear guidance as to how to revise an approved costs budget, when the rules and practice directions are unclear. The key points of his decision to note are as follows:

  • There is a duty for the parties to revise their costs budgets when there have been significant developments in the case.
  • Significant developments should include the totality of the related developments, including interim applications despite PD 3E.7.9 not requiring such applications to be budgeted, as the consequences that may flow from such application may be a significant development.
  • Costs which have been incurred since the date of the last agreed or approved budget (or date set by the court) that relate to significant developments are, for the purpose of revision to be placed in the estimated columns of the revised Precedent H in one or more phase.

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