A High Court master has approved a £1.5m increase in the defendants’ budget during the trial in the Lloyds/HBOS litigation.
Chief Master Marsh also concluded that he could revise the budget even though by the time the application was made, the defendants had already spent a large proportion of the money.
The trial commenced in October 2017 and is ongoing, with approximately 5,800 claimants making allegations against five former directors of Lloyds TSB, and the bank itself, in relation to Lloyds’ acquisition of HBOS in January 2009 and their involvement in the government’s bank recapitalisation scheme. The total value of the claim is around £600m.
Last January, the claimants were granted a costs management order (CMO) to bring much greater clarity to their costs exposure.
The budgets were set at £17.6m for the claimants and £19.1m for the defendants. Both budgets were agreed without any budget phases being set by the court.
The defendants came back to court during the trial, which began in October, to increase their budget, citing seven “significant developments” that justified the move.
Master Marsh noted: “It is ironic that the party for whose benefit the costs management order was made is opposing any revision to the defendants’ budget, saying the issues must be left to a detailed assessment; and the party that did not wish a costs management order to be made is asking the court to exercise its powers to revise.
“The rationale for making the costs management order was to ensure the claimants were aware of their exposure to pay the defendants’ costs. If the court has the ability to revise the defendants’ budget, it might be thought that this would be desirable from the claimants’ perspective.”
He illustrated the size of the litigation with various statistics, such as that the trial bundle comprises some 400 lever arch files, that the defendants disclosed 38,000 documents, having initially harvested over 10.5m, there were nearly 3,500 pages of expert reports, and the parties written opening submissions for trial ran to more than 1,000 pages between them.
The chief master found four of the seven extra elements were significant developments that justified increasing the budget, the main one being an extra £1.2m arising from the trial estimate being extended from an initial 59 days (it was originally meant to conclude on 21 December) to 107 days. The trial is now due to conclude on 2 March.
He allowed a further £47,485 following the delivery of 984 further documents after an application for specific disclosure in June, and £225,000 to respond to an expert report served by the claimants the same month.
The three elements not approved amounted to around £240,000 and in relation to one of them, concerning extra questions sent by the claimants to the defendants’ experts, Master Marsh said: “It is not appropriate only to take work which has cost more than was originally anticipated and to say that there has been a significant development.
“There must be something more than merely a modest increase in the anticipated cost of the work to amount to a significant development.”
However, before reaching these specific decisions, Chief Master Marsh observed that the procedure for costs management “does not easily apply to cases of this substance and complexity”.
He was particularly troubled by the fact that, by the time the defendants made their application, they had already incurred a substantial part of the revised costs, leading to the question of whether they were actually incurred costs and so not subject to budgeting.
According to Tony Singla, the barrister at Brick Court Chambers who acted for the defendants on the application, the claimants argued that the court did not have jurisdiction to approve revisions to costs budgets retrospectively; rather, costs management was a wholly prospective exercise.
Writing on his chambers’ website, Mr Singla said: “In support of their application, the defendants contended that retrospective amendments to costs budgets are in fact permissible under the CPR and that the earlier decision of Warby J in Yeo v Times Newspapers Limited  EWHC 2132 (QB) is no longer good law in light of the amendments to the CPR.
“Chief Master Marsh acceded to the defendants’ application, holding that their interpretation of the CPR provisions as amended was correct having regard to the principles underlying the costs management regime and how the regime works in practice.
“He held that where an application to revise a costs budget is made, the date of the last agreed or approved budget is to be used as the ‘base reference point’ and any costs incurred thereafter on account of significant developments are to be placed in the ‘estimated costs’ column of the revised Precedent H and fall within the jurisdiction of the court.”