“The Sky at Night”, the budget version, starring Master McCloud

Apart from a strong contender for ‘opening line of a judgment of the year’, Master McCloud’s decision in Hadley v Przybylo [2023] EWHC 1392 (KB), is a rare example of costs budgeting giving rise to an interesting legal point. As the Judge put it [1]:

“On rare occasions, like the transit of Venus or a triple Jovian eclipse but far less predictably, costs budgeting ceases to be a cause of judicial ennui, and raises instead something of interest legally. This case determines one such specific issue in relation to the principles of costs budgeting under the Civil Procedure Rules.”

The issue concerned whether the inclusion of solicitor attendance time in a budget, for attending case management meetings with medical and other professionals in the course of management of the Claimant’s rehabilitation needs, and for meetings with financial and court of protection deputies said to be part of inputting into a Schedule of Loss were in principle costs which could  be included in a budget and whether, if so, it was appropriate to include those in the ‘Issues and Statements of Case’ phase of the budget on Form H.

The Judge accepted the Defendant’s contention, as a general principle, that ‘costs’ were legal costs which were incurred in the progression of litigation. They might be pre-action, for example, or they might be reasonably incurred but found in hindsight not to be useful, yet such costs could still be ‘progressive’ even if they ruled out some things which were then not pursued. But costs which were inherently non-progressive were not ‘costs’ properly claimable in a budget between the parties. The Judge held that it was not unusual in assessing a bill of costs to disallow items with the brief statement ‘non-progressive’, for example and if costs fell into that category, then they were not suitable for inclusion in a budget.

The relevant question to ask was “does an item of a specific type in a budget materially progress the case?” In principle, some phases in a budget could legitimately include engagement with case managers or deputies, such as for disclosure or witness statements and occasional letters. But the numerous attendances of the sort proposed by the Claimant did not progress the litigation and were not therefore ‘costs’ for the purposes of a budget.

Had the point arisen, Master McCloud would have held that the extent of the proposed attendance was not proportionate and reasonable and a lesser sum would have been budgeted. None of the current phases in a budget would be appropriate for these costs, but it would be necessary ad hoc to add a phase or phases to accommodate these items, were they to amount to ‘costs’.

Given the importance of the point, Master McCloud granted permission to appeal, via a leapfrog direct to the Court of Appeal.

There was also an interesting secondary point. The Judge ordered the parties to engage in ADR, using appropriately qualified professionals in relation, specifically, to the costs budgets, and prior to the court carrying out the budgeting exercise. The Claimant’s budget was for in excess of £1m. The Judge took the view that a simple obligation to discuss and seek to agree was an insufficient encouragement to parties to focus their minds on really working to resolve issues, where one often sees that (once the time and trouble of attending a costs management hearing has been incurred) the presence of costs professionals at court and immediately before so often narrows issues which could have been narrowed sooner.

By the time the matter returned to Court, after ADR had been directed, the parties had indeed engaged in ADR using qualified costs lawyers and all but one matter had been agreed on the budget. The Judge’s view was that this spoke for itself in terms of saving time and money. It also enabled an important point of principle to be identified and argued at the budgeting hearing, as considered in this article.

It will be interesting to see whether other King’s Bench Masters (or costs managing judges in other courts) follow the example of ordering ADR specific to the budgeting process. No doubt this will be reserved for the most complex and high value budgeting exercises. But this case shows that it can be cost effective and save court time to take this approach. Meanwhile, it will fall to the Court of Appeal to decide whether Master McCloud’s approach to the scope of ‘costs’ was correct in law or not. By the time we receive that decision, we can expect the pilot projects testing out amendments to the costs budgeting process, following the Civil Justice Council’s report on its recent call for evidence, to be in the pipeline as well. So, gazing into the future, we can expect changes to costs budgeting, whatever happens in this appeal, albeit more tinkering than ‘big bang’.

Article by Charles Bagot KC