Judges should only allow a contingency in a costs budget “if it is foreseen as more likely than not to be required”, a High Court judge has ruled in striking out £50,000 worth of contingencies that one party had included for ‘strategy review and consultation’ and ‘possible further work’.
In a significant ruling which he said should offer guidance for the future, particularly in publication cases, Mr Justice Warby also suggested that costs management hearings should generally be done on paper.
His ruling came in a case and costs management conference in Yeo v Times Newspapers Ltd  EWHC 209 (QB), in which the Conservative MP Tim Yeo is suing The Sunday Times for libel.
Both sides’ budgets included contingencies, and the judge said to be such they “must involve work that does not fall within the main categories on Precedent H”.
Further, in order for work to qualify as a contingency “it must be possible to identify to the opposite party and the court what that work would be”, while there was also the “important issue” of how likely it needs to be that the work will be required.
Warby J continued: “In my judgment, work should be included as a contingency only if it is foreseen as more likely than not to be required. This seems to me a clear criterion that provides a practical solution, consistent with PD3E 7.4 and 7.9…
“If the improbable occurs, in the form of an unexpected interim application, the costs will be added to the budget pursuant to PD3E 7.9, unless the matter involves a ‘significant development’ within para 7.4 in which case, if time permits, a revised budget should be prepared and agreed or approved.”
In relation to Mr Yeo’s budget, he decided that the main sections allowed enough for ‘strategy review and consultation’. ‘Possible further work’ met none of the three criteria he had listed.
He also did not allow three of the four contingencies put in by the defendant – relating to potential applications – because “I do not consider any of those three eventualities as more likely than not”.
However, he did allow an £8,500 contingency for the costs associated with budgeting “on the basis that it does not exceed the cap of 3% of approved costs… and the costs of budgeting in this case will have been more significant than they ordinarily would be”.
Warby J said that rulings on the papers take up judicial resources, but save time and costs for the parties. Given the cap on the recoverable costs of budgeting, “it is to be hoped that as the system becomes a firmly established and well-understood feature of multi-track litigation parties will propose and agree to this method of dealing with costs management”.
In this case, an oral hearing was justified because of the points of more general importance that arose. “I do not consider that the detailed oral debate which took place over rates, hours, and proportionality would have justified a hearing.”
The judge also considered whether he needed to consider hourly rates and estimated hours when approving the budget. “It seems to me that whilst the question of whether the totals are reasonable and proportionate will always be the overall criterion, the court’s may need to consider rates and estimated hours. The approach will need to be tailored to the case before the court.”
In the context of publication cases, where costs “typically become disproportionate at an early stage, before the ordinary time for costs budgeting has arrived” and involve “rights and interests that cannot be measured simply in money”, Warby J said it was appropriate to have regard to the hours and rates, “as would be done upon a summary assessment of costs at the end of an interim hearing. That is not the same as conducting a detailed assessment”.
He also said there may be circumstances where it may be appropriate for budgeting in publication cases to come in earlier than usual given that they are rarely undefended and almost always assigned to the multi-track. He gave the example of a case where there is a wide disparity on the parties’ resources and “a need to control costs as a means of ensuring equality of arms”.
Warby J added that if a budget is required at an early stage, it need not be for the entire litigation, as per PD 3E 6.
He cut Mr Yeo’s budget from £560,000 to £370,000, including £50,000 for the disallowed contingencies, saying that in particular he considered the hourly rates of his solicitors, Carter-Ruck, to be too high by 20-25%, and in some instances excessive partner time had been provided for. He reduced the defendant’s budget from £416,000 to £347,000, with the disallowed contingencies accounting for £45,000 of the decrease.