In the Media

Litigants in person; oral evidence; and costs management

PUBLISHED May 14, 2013

Monday 13 May 2013 by Masood Ahmed

Sir Alan Ward in Wright v Michael Wright Supplies Ltd [2013] EWCA Civ 234, a case which concerned two litigants in person (LIPs), opened his judgment by warning the reader that 'this judgment will make depressing reading'. The case highlighted the difficulties increasingly encountered by the judiciary at all levels when dealing with LIPs.

The now retired Court of Appeal judge set out two problems which the present case revealed. The first concerned the task encountered by judges in trying to deal with the difficulties which LIPs can, understandably, create when putting forward their claims and defences. In this regard, the judge should not, his lordship stressed, have to 'micro-manage cases, coax and cajole the parties to focus on the issues that need to be resolved'. This can be disproportionately time-consuming. His lordship argued, quite rightly, that although the Legal Services Commission may save the cost of legal aid which is no longer available for this kind of litigation, the obvious result is that costs are increased in the courts.

The present case was a prime example of the adverse effects of the reforms, which are beginning to bite. In Sir Alan Ward's opinion, the appeal would never have occurred if the LIPs had been represented. He proceeded to express his concerns regarding the withdrawal of legal aid in extremely strong terms when he stated: 'We may have to accept that we live in austere times, but as I come to the end of 18 years' service in this court, I shall not refrain from expressing my conviction that justice will be ill served indeed by this emasculation of legal aid.'

The second problem concerned the comments of the Court of Appeal in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576. Sir Alan, who was a member of the court in Halsey, expressed the need for a possible review of Halsey in light of developments over the last 10 years in the field of alternative dispute resolution. His lordship expressed his reservations over Halsey by posing the following questions in his judgment: 'Was it wrong for us to have been persuaded by the silky eloquence of the eminence grise for the ECHR, Lord Lester of Herne Hill QC, to place reliance on Deweer v Belgium (1980) 2 EHRR 439?

See some extra-judicial observations of Sir Anthony Clarke, The Future of Civil Mediations, (2008) 74 arbitration 4 which suggests that we were wrong. Does Civil Procedure Rule 26.4(2)(b) allow the court of its own initiative at any time, not just at the time of allocation, to direct a stay for mediation to be attempted, with the warning of the costs consequences, which Halsey did spell out and which should be rigorously applied, for unreasonably refusing to agree to ADR? Is a stay really "an unacceptable obstruction" to the parties' right of access to the court if they have to wait a while before being allowed across the court's threshold?'

Wright - procedural impropriety

The claimant had formed the first defendant company and employed Mr Turner as a delivery driver. The claimant and Turner forged a close friendship and it was agreed that Turner would purchase the first defendant from the claimant. In order for Turner to purchase the first defendant it was agreed that the purchase price would be paid from the ongoing profits expected to be earned by the first defendant. It was also agreed that the claimant would remain actively involved in the first defendant as a consultant. The second defendant was formed which would purchase all of the shares in the first defendant which would be held by the claimant and Turner. However, the relationship between the claimant and Turner became sour and led to the claimant alleging, inter alia, that he had not been fully paid for his shares in the first defendant and that he had not been paid for his consultancy services.

Although both parties were LIPs, some assistance was provided to the judge at first instance by the first defendant's accountant, Mr Pritchard, who explained the complex financial issues of the dispute. There then followed a series of hearings and exchanges between the parties and the judge regarding the issues in dispute and the judge decided to dispense with a trial and provide a judgment by considering the documents. A draft judgment was circulated following which a further hearing was held. At that hearing, Turner raised the need to hold an oral hearing which, he contended, was especially required in light of the fact that the accountant's evidence was fundamental and would require the accountant to explain his report fully. Despite this and after a further hearing, the judge concluded that an oral hearing was not required and he handed down a short judgment. Turner appealed on grounds of procedural impropriety.

Sir Alan Ward noted the various difficulties which the judge faced. The accounting picture had become tangled, partly because of various loans which had been made within the corporate structure. The judge admitted that it was impossible for him to 'thread his way through' the documentation without explanation.

However, the judge did have the assistance of the accountant's evidence but this was not fully examined during further hearing between the judge and the parties. Despite Turner's insistence upon an oral hearing at which the accountant could be called to fully explain his evidence, the judge found contrary to what the accountant's evidence provided. Sir Alan Ward explained: 'Therein lies the unfortunate unfairness of the way this case was conducted. Mr Turner made plain that he wanted to call Mr Pritchard. He did not agree to a trial on the documents only. The judge made findings against the evidence Mr Turner wished to call. It was invaluable evidence for the judge to consider and was obviously and clearly highly relevant. It should not have been excluded.'

Sir Alan Ward stressed that it was a cardinal feature of civil procedure that trials are conducted on oral evidence where matters are in dispute. This was such a case and the judge should have acceded to the request to hear witnesses that Turner wished to call.

Costs management in the TCC - past and present

The recent case of Murray and another v Neil Dowlman Architecture Ltd [2013] EWHC 872 (TCC) raised an important question about the circumstances in which a costs budget, which has been approved by the court as part of a costs management order, can subsequently be revised or amended. The case came at a critical time, with the CPR radically amended to introduce costs budgeting and costs management for most types of civil litigation.

The rules

The Technology and Construction Court (TCC) is one of the courts in which, as a result of the Jackson reforms, costs management is being piloted. The relevant practice direction covering that pilot scheme is PD51G which states:

  • Filing of costs budgets
    3.1. Save where the court otherwise orders, as part of its preparation of the further case management conference (CMC), at the same time as filing its case management information sheet, each party shall file and exchange its costs budget substantially in the form set out in precedent HB annexed to this practice direction.
  • Purpose of costs management
    4.3. At any CMC or pre-trial review, the court will have regard to any costs budgets filed pursuant to this practice direction and will decide whether or not it is appropriate to make a costs management order.
    4.4. If the court decides to make a costs management order it will, after making any appropriate revisions, record its approval of a party's budget.
  • Revision of approved budget
    6. In a case where a costs management order has been made, at least seven days before any subsequent co
    sts management hearing, CMC or pre-trial review, and before trial, a party whose costs budget is no longer accurate must file and serve a budget revision showing what, if any, departures have occurred from that party's last approved budget, and the reasons for any increased budget. The court may approve or disapprove such departures from the previous budget.
  • Effect on subsequent assessment of costs
    8. When assessing costs on a standard basis, the court: (1) will have regard to the receiving party's last approved budget; and (2) will not depart from such approved budget unless satisfied that there is good reason to do so.


On 26 March 2012 the claimants' solicitors entered into a conditional fee agreement (CFA). The following day, the claimants obtained the benefit of after-the-event (ATE) insurance. The premium was to be the subject of staged payments. The claimants served form N251, giving notice to the defendant of both the CFA and the ATE insurance. Court proceedings began in the TCC.

Prior to the first CMC before Stuart-Smith J on 1 February 2013, the parties exchanged costs budgets. The claimants' costs budget was not in form HB, however, because the costs budget appeared to contain all the information required by form HB, and could therefore be said to be 'substantially' in the right form, the judge considered the budgets and made a costs management order. The claimants' costs budget was approved in the sum of £82,500.

On 8 March 2013, the defendant's solicitor pointed out to the claimants' solicitor that their approved costs budget did not say that it excluded a success fee and an ATE insurance premium. The defendant's solicitors argued that at trial or assessment their client will contend that the claimant should not be permitted to recover any sum (to include success fee and ATE premium) over and above the costs budget approved by the court on 1 February 2013. Following this, the claimants issued an application pursuant to CPR 3.9 for relief from sanctions. Hearing the application, Coulson J held that the claimants were entitled to amend their costs budget.

Relief from sanction

Coulson J noted that the claimants' application for relief from sanction was incorrect. Detailed assessment was to take place at some future date and there had not been a failure to notify the defendant of the claimants' funding arrangement, and therefore there had not been any breach of the CPR or process requirement. Rather, this was an application to revise and amend the claimants' costs budget. Coulson J observed: 'In the present case, what the claimant wants is akin to permission to revise the approved budget, or for it to be rectified, or at least clarified that the approved budget excludes the success fee and the ATE premiums, because these had been mistakenly omitted from the costs budget prepared for the CMC.'

Amending a costs budget

Coulson J observed that there was very little judicial guidance as to the matters that the court should take into account when considering amendments to an approved budget. The best guidance, Coulson J noted, could be taken from the case of Sylvia Henry v News Group Newspapers Ltd [2013] EWCA Civ 19. There, looking to the time when costs management orders will become commonplace after 1 April 2013, Moore-Bick LJ said at paragraph 28 of his judgment: 'In those circumstances, although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, I should expect it to place particular emphasis on the function of the budget as imposing a limit on recoverable costs.

'The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake.'

Should the court permit the claimants to amend their cost budget? The defendant argued that the claimants should not be permitted to amend their costs budget for two reasons. First, the costs budget that had been provided originally was inadequate because it made no reference to the success fee or the ATE insurance. It was therefore flawed from the outset, a point that arose in passing in Henry, but which it was unnecessary for the Court of Appeal to address in that case. The defendant contended that if a change was necessary to cure a fundamental inadequacy in the approved budget then that could not be a good reason for revision.

Second, it was submitted that a mistake should not be capable of being remedied by an increase in the approved budget. If that were the cure for every mistake then costs management would become irrelevant or meaningless, because all parties could seek to revise their approved budgets after the event on the basis that they had forgotten to include particular items originally.

Coulson J acknowledged the obvious force in the defendant's submissions. In an ordinary case, it would be difficult for a party to seek an order to amend a costs budget where it has failed to include items by mistake. However, there were factors which made this a special case. This was not a situation in which the defendant could be said to have been misled or confused by the information provided by the claimants. The defendant had known throughout about both the success fee and the ATE premiums.

The defendant cannot sensibly have thought its potential liability for those items had automatically disappeared simply because they were not in the budget provided by the claimants and approved by the court. Moreover, the defendant became aware within weeks of the CMC that the claimants were saying that a mistake had been made. Thus, there has been no misleading of, or prejudice to, the defendant in this case. But the absence of prejudice alone would not be sufficient to justify the revision of an approved budget. Coulson J stated: 'The whole basis of the recent amendments to the CPR is the emphasis on the need for parties to comply with the CPR, and the court orders made under it. It will, I think, no longer be possible in the ordinary case for parties to avoid the consequences of their own mistakes simply by saying that the other side has not suffered any prejudice as a result.'

The main justification for allowing the claimants to amend their costs budget arose from the particular wording of the costs budget forms themselves. Coulson J noted that form HB (the costs budget form which the claimants should have filled out for the CMC) contained a number of tick boxes for specific items of cost which, if ticked, are thereby excluded from the costs budget. Both success fees and ATE insurance premiums are listed as items that could be excluded from the budget by ticking the appropriate box. Coulson J held that the reason why form HB assumes that such items will regularly be excluded from costs budgets is because it is not always possible to identify their precise financial value at the time of the CMC. Accordingly, success fees and ATE insurance premiums are expressly dealt with differently in form HB to the ordinary run of costs, which cannot be excluded from the budget by ticking a box.

On that basis, therefore, Coulson J held that the claimants' mistake in this case could be categorised as a failure to tick the relevant box or, more accurately, failing to fill out the correct form and therefore not seeing that there was a box there to be ticked. Coulson J stated: 'I am uncomfortable with the notion that a claimant should be penalised (and there is no doubt that the claimant in the present case would be significantly penalised if the budget was not revised/rectified in the way sought) merely because of
a failure to tick a box.'

Coulson J's conclusion is confirmed by the fact that the form to be used for costs management purposes in the future is different from form HB. From 1 April 2013, the costs budget form is now called precedent H (and can be found at page 16 of the special supplement to the White Book 2013, which sets out all the civil justice reforms). Instead of containing a tick box, precedent H simply says: 'This estimate excludes VAT (if applicable), court fees, success fees and ATE insurance premiums (if applicable).'

The new costs budget form takes Coulson J's argument that these items may be excluded from a costs budget at the outset for good reason one stage further. It expressly excludes both the success fee and the ATE premium altogether. Therefore, if the claimants had completed their costs budgeting exercise in April 2013 rather than February, there would have been no mistake: there would have been no failure to exclude success fees and ATE insurance premiums, because such exclusion is now the default setting of the new version of the costs budget form itself.

Murray is a useful reminder of the new rules concerning costs budgets and serves to reinforce the obvious significance of understanding and following the rules as well as carefully completing the necessary form. Where a party has made a mistake or omission on the form and this has been communicated to the other side, then the courts will not sanction the defaulting party at a later stage. This conclusion is fair and furthers the overriding objective. Finally, as noted by Coulson J, exclusion of success fees and ATE is now the default setting of the new costs budget form.

Masood Ahmed is a law lecturer at the University of Leicester