Incurred costs are up for grabs

One of the criticisms of budgeting as a tool for controlling costs is that it only addresses costs going forward – not the time that has already been spent before the budget was drawn up.

Defendants have always seen this as an incentive for claimant lawyers to rack up as much cost as possible in the pre-budget stage.

The extent to which budget hearings should deal with incurred costs has always been a grey area – and so a Court of Appeal judgment this month, which deals directly with this issue, is very important.

In Sarpd Oil International Ltd v Addax Energy SA & Another [2016] EWCA Civ 120, Lord Justice Sales said that if parties have a problem with their opponents’ incurred costs, then the time to raise that is the first costs and case management hearing (CCMC). So clearly the CCMC can in fact deal with incurred costs.

What’s more, Sales LJ said that where a judge makes comments or observations on incurred costs at the first CCMC, there needs to be a good reason for the court to depart from that later on.

He said: ‘For example, if a court has commented that incurred costs in a costs budget appear to be reasonable and proportionate, it would usually require good reason to be shown why such costs should not be included in an award of costs on the standard basis at the end of the trial.

‘In such a case, the party who had put forward the costs budget would have been encouraged by the court to litigate on the understanding and with the legitimate expectation that such costs would be likely to be recovered if he were successful, and good reason would need to exist to justify defeating that expectation.

‘Therefore, depending on what is said by the court by way of comment, the practical effect of a comment on already incurred costs made by a court… may be similar to the effect of formal approval of the estimated costs element in a cost budget.

‘Parties coming to the first CCMC to debate their respective costs budgets therefore know that that is the appropriate occasion on which to contest the costs items in those budgets, both in relation to the incurred costs elements in their respective budgets and in relation to the estimated costs elements.’

It is useful to have clarity on what has been an uncertain aspect of costs budgeting. But it does beg the question, how much longer will CCMCs take, now that incurred costs are officially open to attack?

Expect even further delays in getting that hearing date.

Rachel Rothwell is editor of Litigation Funding magazine