Joanna Lemos & Ors v Church Bay Trust Company & Ors

Costs Judge Nagalingam: Background

1. Whether one accepts Mr Bacon KC’s summary (at paragraphs 9-12 of his skeleton argument), or Mr Patel KC’s summary (at paragraphs 18-19 of his skeleton argument), this was a complex and high value financial dispute with complicating familial aspects and decades of evidence to consider.

2. Whilst the underlying case facts are of relevance to the views expressed by the case managing judge as to reasonableness and proportionality, the focus of this judgment concerns the relationship between the rules governing costs budgeting, the orders made following two costs management hearings, and the subsequent detailed assessment of the receiving party Defendants’ costs. Interested Party

3. In so far as BCR Legal Assist Limited are an interested party, one cannot ignore the fact that the underlying dispute was between the named claimants and named defendants.

4. The First Claimant is not represented in this assessment because she has already reached an agreement with the Defendants as to her liability for costs.

5. The assessment proceeds against the 2 nd and 3 rd Claimants in their capacity as paying parties. The interested party is in effect the 2 nd and 3 rd Claimants’ ATE insurer. It is a matter for those two claimants how they wish to be represented, but ultimately it is the 2 nd and 3 rd Claimants who are primarily liable to the Defendants for costs.

6. Any indemnity provided by the ATE insurer upon the completion of the assessment is a secondary matter.

7. For the avoidance of doubt, it matters not whether the ATE insurer agreed the Defendants’ budget because they were not a party to the proceedings at the time and the order for costs lies against the 2 nd and 3 rd Claimants. The ATE insurer simply provides an indemnity thereafter. Preliminary points in issue

8. Broadly speaking, there are two issues in dispute. Namely: What is the effect of the order dated 11 October 2022 (sealed 20 October 2022) on the detailed assessment of the Defendants’ costs, and what is the effect of the judge’s comments as recorded in the order and judgment dated 30 January 2023.

9. Sensibly, it appears that pre-hearing indications of an intention to query if “the Interested Party [is] bound by any agreement of concession made by the Claimants as to the level of the Defendants’ costs” is no longer pursued. If I am wrong about that, I refer to my observations above and/or it is a matter for the detailed assessment – provided such an objection has already been raised in the points of dispute. The hearing and order dated 11/10/2022

10. On 11 October 2022, the parties appeared before ICC Jones for a costs management conference.

11. In advance of that hearing, the Claimants filed a Precedent H (dated 16 September 2022) in which they confirmed incurred time costs of £638,592.64 and disbursements of £68,116.95.

12. The Claimants also set out estimated (i.e. budgeted) time costs of £795,515 and disbursements of £424,830. This included just over £70k for disclosure (in addition to around £300k incurred) and over £720,000 in preparation for and attendance at a 9-day trial.

13. Thus, the Claimants sought approval or agreement in the total sum of £1,927,054.59 (exclusive of VAT and any applicable additional liabilities).

14. In response, the Defendants served a Precedent R (budget discussion report) which sought to reduce the budgeted element of the Claimants’ costs from a total of £1,220,345.00 to £788,355 (both figures exclusive of any claims for VAT or additional liabilities). That equates to a reduction of just over 35%.

15. The Defendants’ Precedent H (dated 20 September 2022) confirmed incurred time costs of £306,067.50 and disbursements of £77,259.69.

16. The Defendants’ also set out estimated (i.e. budgeted) time costs of £311,355 and disbursements of £549,000. This included just under 55k for disclosure (in addition to around £129k incurred) and around £569k in preparation for and attendance at a 10-day trial.

17. Thus, the Defendants sought approval or agreement of their budget in the total sum of £1,243,682.19 (exclusive of VAT and any applicable additional liabilities).

18. The Claimants’ Precedent R confirmed agreement with all of the Defendants’ budgeted costs, whilst making it clear that the incurred costs “remain subject to assessment”.

19. In so far as the Claimants’ skeleton argument in support of the 11 October 2022 hearing referenced the Defendants’ budget, comment was limited to “The Claimants do not have any specific comments on the Defendants’ budget”.

20. The Defendants’ skeleton argument however went into great detail in support of why the Claimants’ budget should be reduced.

21. A hearing proceeded before ICC Jones on 11 October 2022. The subsequent order, sealed on 20 October 2022, set out that: “1. Pursuant to CPR Rule 3.15, the court has made a costs management order as follows: a. The court has provisionally approved the Claimants’ budgeted costs subject to determination of the Further Issue as set out in the Schedule to this Order (“Schedule”); b. The Defendants’ budgeted costs as set out in their Precedent H costs budget dated 19 September 2022 are recorded as agreed by the Claimants but such recording is subject to determination of the Further Issue. c. The budgets for each phase, as provisionally approved by the Court or agreed in the terms of sub-paragraphs a. and b. above are set out in the Schedule.

2. Upon the determination of the Further Issue the Claimants’ budgeted costs in the amounts provisionally approved and the Defendants’ budgeted costs as agreed by the Claimants may be disapproved or revised downwards but not upwards if the Court considers it appropriate to so in the light of its consideration of the written reports to be filed pursuant to paragraph 3 below.

3. Within 28 days of the date of this Order, the parties shall exchange and file at court written reports (not to exceed four sides of A4 paper) (“Reports”) justifying for the purposes of the Court’s costs management powers, by reference to work already done and work to be done, the costs (both incurred and future) in their budgets both agreed and provisionally approved (taking into consideration any reductions either may consider appropriate, if any).

4. The reports in addition to being filed on Ce file shall be emailed to I.C.C. Jones’s clerk for his consideration for determination of the Further Issue if satisfied by the justification(s) or for further directions.

5. The Costs Management Conference is adjourned pending further directions.

6. Costs reserved.”

22. Whilst the order in question carries the heading “COSTS MANAGEMENT ORDER” and bears the words “Pursuant to CPR Rule 3.15, the court has made a costs management order”, it is important to note the following recital to that order: “AND UPON the Court raising issue (“the Further Issue”) with whether the budgets of the Claimants and of the Defendants are unreasonable and disproportionate and fail to be in accordance with the overriding objective with the result that the decision was made to record the extent to which budgeted costs have been agreed and to provisionally determine the issues raised by the Defendants in respect of the Claimants’ budget but with both the recording and the provisional determination being subject to determination of the Further Issue, and to adjourn the hearing for further directions concerning determination of the Further Issue”.

23. Whilst the notion of a provisionally approved/agreed costs budget may be unusual, ICC Jones made a case management direction. A casual observer might view that direction as akin to adjourning the CMC part heard pending the sight of further “Reports”. In reality, it was an invitation for both sides to review their respective Precedent R budget discussion reports as necessary, whilst also seeking to justify their own budgets, and as ICC Jones would later clarify this was not an adjournment. Reports pursuant to the 11/10/2022 order

24. The Claimants produced a detailed report dated 8 November 2022 which focused entirely on justifying their own Precedent H. No part of that report sought to revisit the Claimants’ earlier decision to agree the Defendants’ budget as drawn.

25. The Defendants also produced a detailed report with a focus on justifying their own costs, whilst briefly re-addressing the Claimants’ budget. The hearing dated 23/01/2023 and subsequent judgment/order dated 30/01/2023

26. Following a hearing on 23 January 2023, ICC Jones handed down a succinct judgment on 30 January 2023.

27. It does not assist to repeat that judgment in full, but of note is ICC Jones’ clear messaging that adjourning the costs management hearing “purely… for …information to be made available …would not further the overriding objective”. In doing so, ICC Jones confirmed that a costs management order was made on 11 October 2022, albeit it deemed on a ‘provisional’ basis.

28. The assumed complexities of the case are summarised by ICC Jones at paragraph 5 of his judgment, which in turn runs to 12 sub-paragraphs. Such factors as set out therein informed the judge as to whether to record any comments as to the costs budgets.

29. In thereafter addressing the issue of costs, ICC Jones acknowledged his role was not to assess the incurred costs, but that incurred costs may be borne in mind when making a costs management order.

30. Paragraphs 8 to 14 of the judgment are a dissection of the Claimants’ budget. However, it is not the Claimants' costs which now fall to be assessed.

31. At paragraph 15, ICC Jones comments in relation to the Defendants’ budget on terms that recognise defendants “carry the greater burden with regard to witness statements bearing in mind their witnesses are called because of personal knowledge.” and that “the defendants are adopting a more reasonable and proportionate approach to trial preparation and costs.” That observation reflected the nature of s.423 Insolvency Act claims.

32. However, those views are tempered by an expressed lack of understanding, based on the information available at the time, as to “why [Defendant] costs of over £1 million are considered reasonable and proportionate other than by comparison with the claimants’ costs.”

33. Thereafter, I consider paragraphs 16 to 19 of ICC Jones’ judgment are usefully quoted in full: “16. The sum in issue, some £8 million, is not insubstantial and the total sums budgeted could be justified in terms of proportionality based upon that valuation and upon the importance of the outcome to the defendants. However, that justification must also take into consideration the nature of the case and what is required to present the claim or defence at trial. This is clear not only from the general usage of the word proportionate but also from CPR Rule 44.4(3). Those are also factors to be considered when measuring reasonableness. My conclusion is that the budgets remain unjustified in terms of reasonableness and proportionality.

17. The more difficult issue, it seems to me, is what should be done bearing in mind the date of the trial and the need to reduce not increase costs. That is the last thing I am aiming to achieve. The underlying point is that neither side has had the opportunity to address me further, orally. Insofar as an oral hearing is required, there will be a need for dates to avoid and a time estimate. However, this will add further to the costs and, therefore, it is worth considering alternatives.

18. My suggestion for the parties’ consideration within the draft circulated judgment was that the best course may be to have a new order which further to the order last made by me records this decision (and that it is made without further oral argument as agreed). Namely that although the Defendants’ budget in respect of estimated costs is agreed in the sum of £850,355.00 and the provisional assessment of the Claimants’ budget in respect of estimated costs produced a figure of £893,455.00, the court does not consider on the information currently available that the budgets are reasonable and proportionate. Reference can be made to this judgment (in final form) for the court’s comments upon the budgets for reference in any subsequent assessment proceedings.

19. It was stressed that time would be set aside for a further hearing if required. The parties informed me that they accepted the suggestion and submitted a draft order for approval. It has been approved subject to the court’s amendments.”

34. One naturally then turns to the order made as a consequence. That order is dated 30 January 2023 (and bears a seal of the same date). It is headed “COSTS MANAGEMENT ORDER”.

35. The recitals to that order reference “the Costs Management Conference held on 11 October 2022”, the reading of “Costs Justification Reports of the Claimants and the Defendants dated 8 November 2022”, and “the parties agreeing that no further hearing is required in respect of costs management”.

36. One is then assisted by the precise wording of “CPR 3.15, Costs Management Orders” which addresses the court’s power to “(1) …manage the costs to be incurred”.

37. Clearly ICC Jones was concerned about the litigation being “conducted justly and at proportionate cost in accordance with the overriding objective”. The question thereafter was whether he exercised his discretion to make a costs management order under the power conferred by CPR 3.15(2).

38. Pursuant to CPR 3.15(2)(a) to (c), “By a costs management order the court will (a) record the extent to which the budgeted costs are agreed between the parties; (b) in respect of the budgeted costs which are not agreed, record the court’s approval after making appropriate revisions; (c) record the extent (if any) to which incurred costs are agreed.”

39. Thus, any court making a costs management order is required to record the event in the terms envisaged by CPR 3.15(2). In addition, CPR 3.15(4) confers a discretion on the case managing judge to “record on the face of any case management order any comments it has about the incurred costs which are to be taken into account in any subsequent assessment proceedings.”

40. The order dated 30 January 2023 states: “IT IS RECORDED THAT:

1. The Court does not consider on the information currently available that either the Claimants' or the Defendants' costs (including incurred costs) are reasonable and proportionate, for the reasons set out in the Judgment.

2. Subject to paragraph 1 above and as explained in the Judgment, the Court made a provisional assessment of the Claimants' estimated costs in the total figure of £893,455.00, as more particularly set out in the Schedule to the First Costs Management Order, a copy of which is appended to this order;

3. The Defendants’ budgeted costs in respect of estimated costs is agreed by the Claimants in the total sum of £860,355.00, as more particularly set out in the Schedule to the First Costs Management Order.”

41. In this regard, and in so far as the Defendants’ costs are concerned, the order both “record[s] the extent to which the budgeted costs are agreed between the parties” (as required by CPR 3.15(2)(a)), and records on its face comments the court had about the incurred costs “which are to be taken into account in any subsequent assessment proceedings.”

42. CPR 3.17(3)(b) also confers a discretion on the court to “record its comments on those costs and take those costs into account when considering the reasonableness and proportionality of all budgeted costs.” at the time of “making any case management decision” (CPR 3.17(1)). Analysis and Decision

43. Above, I summarised the issues to be determined at this hearing. For ease of reference they are “What is the effect of the order dated 11 October 2022 (sealed 20 October 2022) on the detailed assessment of the Defendants’ costs, and; What is the effect of the judge’s comments as recorded in the order and judgment dated 30 January 2023.”. The costs management order (CMO) dated 11/10/2022 (sealed 20/10/2022)

44. CPR 3.15(2) provides that “The court may at any time make a ‘costs management order’”. Two things flow from this.

45. Firstly, that the making of a CMO is a matter of discretion. Procedurally, electing not to make a CMO would indicate that the court is “satisfied that the litigation can be conducted justly and at proportionate cost in accordance with the overriding objective without such an order being made”. In any event, one cannot infer that a CMO has not been made. It either has or it has not.

46. Secondly, that the making of a CMO is not confined to one particular stage in the proceedings.

47. In any event, it seems to me that much of the Claimants’ argument appears to be predicated on the basis that the case managing judge has a discretion where a budget is agreed. However, at least procedurally, no such discretion exists.

48. CPR 3.15(2) is clear in that “Where costs budgets have been filed and exchanged the court will (emphasis added) make a costs management order”. It is absolutely clear that ICC Jones was not “satisfied that the litigation can be conducted justly and at proportionate cost in accordance with the overriding objective” without a CMO, or he would have said as such.

49. Absent an explicit dispensation with costs budgeting in this matter, I can see no inferred dispensation in the alternative at this stage (i.e. October 2022) or indeed at all.

50. Thereafter, CPR 3.15(2)(a) compels the court to “record the extent to which the budgeted costs are agreed between the parties”. That is precisely what ICC Jones did at paragraph 1b. of the 11 October 2022 order.

51. The question then is what effect does the words “but such recording is subject to determination of the Further Issue” have.

52. In so far as the Defendants’ costs are concerned, “the Further Issue” was defined as: “whether the budgets of the Claimants and of the Defendants are unreasonable and disproportionate and fail to be in accordance with the overriding objective”.

53. One then also has regard to the precise wording of paragraph 2 of the order dated 11 October 2022 which states: “Upon the determination of the Further Issue the Claimants’ budgeted costs in the amounts provisionally approved and the Defendants’ budgeted costs as agreed by the Claimants may be disapproved or revised downwards but not upwards if the Court considers it appropriate to so in the light of its consideration of the written reports to be filed pursuant to paragraph 3 below.”

54. In so far as the Defendants’ agreed budget is concerned, the question of “whether the budget …of the Defendant …[is] unreasonable and disproportionate and fail[s] to be in accordance with the overriding objective” could, in my view, only go to the court’s discretion to record comments pursuant to CPR 3.15(4) and 3.17(3)(b).

55. That is because whilst paragraph 2 of the order dated 11 October 2022 references “and the Defendants’ budgeted cost as agreed”, the reality is there is no procedural discretion to disapprove or revise agreed costs. That discretion is limited only to “budgeted costs which are not agreed” (see CPR 3.15(2)(b)).

56. That approach is affirmed by the decision in The Pan NOx Emissions Litigation [2024] EWHC 1728 (KB) at paragraph 21, where Constable J observed that “… The Court cannot approve or disapprove phase totals for budgeted costs which have been agreed; and nor can it substitute a different approved figure for an agreed phase total for budgeted costs. The limit of the Court’s facility, in the event that it disapproves of agreed phase totals, is to decline to make a costs management order.”

57. I acknowledge that I was taken to examples of where some courts have either looked for ways to interfere with agreed budgets, or sought to encourage parties to reconsider such agreements. However, I was taken to no binding authorities that convince me I ought to disregard the very clear wording of CPR 3.15(2)(a), and the fact that the CPR 3.15(2)(b) authority to revise a budget does not apply to agreed budgeted costs.

58. Accordingly, I find that the effect of the order dated 11 October 2022 was to make a costs management order which met the requirement of CPR 3.15(2)(a) to “record the extent to which the [Defendants’] budgeted costs are agreed between the parties” (see paragraph 1b. of the order).

59. Thereafter, given it was not in fact open to the court to disapprove or revise downwards the Defendants’ agreed budgeted costs, the remaining extent to which the 11 October 2022 order impacted the Defendants was “whether the budget …of the Defendants are unreasonable and disproportionate and fail to be in accordance with the overriding objective”, a question which in my view could only go to whether the judge wished to record comments.

60. That question was addressed at the hearing on 23 January 2023, leading to the judgment dated 30 January 2023. The costs management order (CMO) dated 30/01/2023

61. Whilst not explicitly stated, the hearing of 23 January 2023 was an exercise of the court’s case management powers under “CPR 3.17 - Court to have regard to budgets and to take account of costs” with respect to the Defendants’ budget.

62. ICC Jones had signalled concerns as to reasonableness and proportionality, and wished to consider recording comment, as per the discretion conferred by CPR 3.17(3)(b).

63. CPR 3.17(1) provides that “When making any case management decision, the court will have regard to any available budgets of the parties and will take into account the costs involved in each procedural step”, and applies whether or not the court has made a CMO (see CPR 3.17(2)).

64. The order dated 30 January 2023 twice references “the First Costs Management Order”, in particular at paragraph 3 of the “recorded” part of the order. In doing so, it reaffirms that a costs management order was made on 11 October 2022, at least in respect of recording that the Defendant’s budgeted costs were agreed.

65. Thereafter, the order dated 30 January 2023 meets all the procedural criteria for a costs management order. The only development was the decision of the court to record “any comments it has about the incurred costs” (as permitted by CPR 3.17(4)) and comments as to the “reasonableness and proportionality of all budgeted costs” (as permitted by CPR 3.17(3)(b)).

66. Whether one then takes the CMO dated 11 October 2022 or the CMO dated 30 January 2023, the Defendants are bound by the budgeted amounts agreed for each phase.

67. This does not automatically mean that the Defendants will recover the full amount of every budgeted phase in which the costs are under budget. Good reason arguments for downward departures from a budget may still be argued on assessment, provided they were raised in the points of dispute. Upward departures will not be permitted without good reason.

68. As to the Defendants’ incurred costs, they are to be assessed in the usual way. However, where “Assessing costs on the standard basis where a costs management order has been made”, CPR 3.18(3) requires the assessing court to “take into account any comments made pursuant to rule 3.17(3) and recorded on the face of the order.”

69. Accordingly, I am bound to take into account any comments recorded on the face of the order dated 30 January 2023 when assessing the Defendants’ costs in this matter.

70. In arriving at these decisions, I have seen no utility in reproducing respective Leading Counsel’s skeleton arguments and oral submissions in this judgment. All submissions, written and oral, have been taken into account.

71. I have disregarded the Claimants’ submission that defendant party budgets are routinely tactically agreed so that they compare more favourably to a claimant budget, versus how that comparison might appear versus a reduced defendant budget. That strikes me as an entirely speculative submission and unsurprisingly no evidence was offered in support.

72. In any event, if such a tactic were deployed in this matter I have seen no evidence from the Claimants in support. The signature to the Defendants’ budget states “This budget is a fair and accurate statement of incurred and estimated costs which it would be reasonable and proportionate for my client to incur in this litigation.”, and the Claimants agreed it. I see no reason why ICC Jones should not have taken that agreement at face value.

73. In so far as the Claimants speculate that the case managing judge “saw a tactical game being played” regarding agreement of the Defendants’ budget and “saw through that game”, I find that is again pure speculation. The case management decisions taken are coherently explained in ICC Jones’ January 2023 judgment and there is not even an inference of concern that nefarious tactics were at play.

74. Only the Claimants can categorically attest if they agreed the Defendants’ budget tactically or not.

75. The Claimants are correct where they say that costs judges don’t make orders for costs, but rather assess the costs recoverable as a consequence of such orders. However, costs judges often have to interpret orders and clearly that has become a feature of the preliminary issue raised in this matter.

76. Two costs management orders were made. Both recorded the Claimants’ agreement to the Defendants’ budget. The second costs management order simply added comments that are relevant to the assessment of costs, but have no bearing on how the bill should be drawn in terms of the cut-off date for incurred and budgeted costs. The second CMO is consistent with the first in terms of recording that the Defendants’ budgeted costs were agreed.

77. In terms of the Defendants’ costs, the costs management order dated 11 October 2022 binds this assessment and dictates how the bill of costs should be drawn. Points of dispute and points of reply are a consequence of a correctly drawn bill.

78. The costs management order dated 30 January 2023 binds this assessment in so far as I am required to take into account the comments of the case managing judge, whilst also reaffirming the recording of the fact that the Defendants’ budgeted costs had been agreed.

79. For the avoidance of any doubt, the case managing judge’s comments shall not be disregarded, nor are they binding. They shall be taken into account when assessing costs. Where reasonableness and proportionality are raised as issues in the detailed assessment, they will be determined in the assessment and taking into account comments recorded on the costs management orders.

80. In so far as the January 2023 judgment is concerned, I do not consider I am precluded from noting the content of the same when conducting a detailed assessment. CPR 3.18 sets out the comments I am to take into account. It does not limit me from considering judgments made during the life of the litigation. Next steps

81. This preliminary issue hearing was not the result of a standalone application but rather for the benefit of the parties in so far as it was indicated that resolution of points regarding the status of the October 2022 and January 2023 orders might assist inter partes negotiations.

82. At this stage, the parties may simply record that the costs of this step are “Costs reserved”. No separate order will accompany this judgment.

83. The detailed assessment will thereafter resume on 25 February 2026.