Hacked off with Costs Budgeting?
In Various Claimants Including (1) John Leslie (2) Chantelle Houghton v MGN Limited  EWHC 1244 (Ch) Chief Master Marsh gave a detailed judgment concerning costs budgeting in 2 claims arising from phone hacking of the former Blue Peter presenter John Leslie and of former Big Brother housemate Chantelle Houghton. As well as considering costs budgeting in cases akin to those covered by Group Litigation Orders, a number of points of guidance can be taken from the judgment, in particular in respect of the amount of time involved in preparing witness statements and in trial preparation generally, including consideration of which fee-earner is right for any given task. Over-reliance on partner time was heavily criticised. Harsh words were also reserved for the “artificial budgeting construct” of the trial preparation phase.
Background and sums in issue
This cases fall within the 2nd wave of the Mirror Newspapers Hacking Litigation ("MNHL"). Whilst MNHL is not the subject of a Group Litigation Order under CPR 19.10 to 19.15, its structure is similar.
A previous court order set up a system for costs management by the application of Template Costs Budgets that were to follow, as far as possible, the layout of Precedent H. The template system applied to both Individual Costs and Common Costs as a way of avoiding the need for the court to undertake multiple costs management hearings in similar claims. The Leslie and Houghton claims were “Template C” case, i.e. cases in which there is at least one admission of the misuse of private information and the number of articles complained about exceeded 20. However, Leslie, Houghton and MGN had, as envisaged in the previous orders, applied for a "Bespoke Individual Budget" to be approved by the court in place of the applicable Template Budget in respect of each claim and agreed that there was a need for Individual Bespoke Budgets. MGN's Individual Bespoke Budgets were agreed, but there was only limited agreement about Mr Leslie's and Ms Houghton's budgets.
Mr Leslie’s claim for damages was said to have a value in excess of £500,000. His case was that material was obtained by unlawful means and used for the purposes of approximately 145 articles published by the defendant. Ms Houghton's claim was put at a lower value because the extent of the infringement of her rights by the use of unlawfully obtained material was said to have been used for 47 articles. The Individual Template Budget as it applies to Mr Leslie's case achieved a total figure of £534,660. The bespoke figure the court was asked to approve was approximately £1,250,000. In the case of Ms Houghton, the template costs figure was £435,646. The bespoke budget figure is £722,825. The claimant in each case pointed out the fact that the number of articles relied upon in each claim was considerably in excess of the template number for a category C case, particularly in the case of Mr Leslie.
Shortly before the Costs Budgeting hearing, the 2 claimants obtained permission to amend their claims to plead an allegation that the defendant, the Trinity Mirror Group Board and their legal department were (a) aware of the habitual and/or widespread use of unlawful information gathering activities at their newspapers by at least as early as 2002 and certainly by 2007 and (b) concealed that knowledge. The defendant had pleaded a lengthy response to the new allegation, denying both that the respective boards had such knowledge and the concealment.
The working assumption was that the Leslie and Houghton claims would need a 15 day trial.
The procedural framework, reasonableness and proportionality
The standard costs management regime is found in CPR 3.12 to 3.18 and PD3E. The regime for costs management in the MNHL was, however, a hybrid. Chief Master Marsh noted that there “was ample power within CPR 3.1(2)(m) to create a bespoke costs management structure where it is appropriate to do so: (Lloyds/ HBOS Litigation - Sharp v Blank  EWHC 3390 (Ch) at ). CPR 3.1(2)(m) is a fairly recent amendment to the CPR. However, it merely gives voice to wide case management powers that already existed under the High Court's inherent jurisdiction. The standard regime for costs management is not well-suited for multi-party/multi-claim litigation either within or outside a GLO. Generally speaking, a bespoke system of costs management is required if costs management is to be made to work in these types of claim.”
The Chief Master further noted that “There are features in the MNHL litigation that obviously do not fit with the standard costs management regime. Budgeting common costs, creating template budgets for both Individual and Common costs and permitting bespoke budgets are but a few examples of the bespoke nature of the regime that applies in the MNHL. It would be wrong, however, to see that regime as operating in a wholly parallel universe. It is better seen as an adaptation of the standard regime. The difficulty this creates, however, is that it is not clear to what extent the standard regime has been adopted and/or adapted when it comes to a detailed review of the rules and the Practice Direction. As I have already indicated, the basis of budgeting as set out in PD3E paragraphs 7.3 and 7.4 has been expressly adopted. As to the remaining provisions of the rules and the Practice Direction it is, as the parties accepted at the hearing, more a matter of the bespoke costs management regime 'looking to' the standard regime rather than being a new set of rules that can be derived from a re-drafting exercise. The standard regime is to be applied with the necessary changes. It is unnecessary, and probably unwise, to express any view about what those changes are.”
It was common ground that the core task for the court when looking at the budgets is explained in PD3E paragraph 7.3, namely:
- The court has no power to approve the costs of budget phases that have been agreed between the parties.
- Where budget phases are not agreed, the court will review them and approve the budget with appropriate revisions.
- The court's approval is to the total figure for the budget phases but the court may have regard to the constituent elements of each total figure.
- The court will not undertake a detailed assessment in advance.
- The court will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.
Chief Master Marsh emphasised “that the court is not required to have regard to the constituent elements of each budget phase (it may do so) and the court's task is to decide whether the total for each phase falls within a range of reasonable and proportionate costs. Both the words I have emphasised are found in the Practice Direction and they point clearly to the nature of the task the court is to carry out. It is not a calculation. Reasonableness may involve considering the calculations in the budgets; proportionality does not. The total budget phase may be reasonable when the arithmetic of Appendix H is looked at, but it may not be proportionate. And the court is not looking to establish what the budget figure should be objectively ascertained, but rather a figure that falls within the applicable range applying the reasonableness and proportionality tests alongside each other.”
As to proportionality, “The court must apply both the reasonableness and proportionality tests, but the former may yield to the latter. And, in practice, although PD3E, paragraph 7.3, requires the court to consider each budget phase separately, and therefore to consider the proportionality of each phase total, the task has to be undertaken with an initial overall review of proportionality by reference to the factors in CPR44.3(5):
"Costs incurred are proportionate if they bear a reasonable relationship to –
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(e) any wider factors involved in the proceedings, such as reputation or public importance."”
In considering the above factors, it was noted that the sums in issue were considered not to be large for High Court claims when taken in isolation. However the value of non-monetary relief (a public statement made by the defendants) would, understandably, be of “high value” to the claimants. The cases were of only median complexity for High Court cases but the "wider matters" made explicit in rule 44.3(5)(e) were both in play in these cases. First, the reputation of the claimants was involved. Secondly, and considered as more significant, the claims have considerable public importance, “not from the identification of the claimants as 'celebrities' but the importance of the press using its power and influence in a responsible manner”. Another 'wider factor' was the possibility that these two claims would be test cases affecting the outcome of other claims, not just those within the 2nd Wave but also the 3rd Wave. For the purposes of costs management, a prospect that was real, as opposed to being fanciful, sufficed.
When the proportionality factors were put together, the financial value of the claims proved to be relatively unimportant because of the wider factors. Whilst the budgets substantially exceed the sums in issue, that was not a reason to conclude that the overall budgeted sums and the totals per phase are disproportionate. For the purposes of costs management, it was necessary to take a broad view about the sums in issue as, inevitably, there will be a difference between the parties on that subject.
Chief Master Marsh did “not find it easy to apply a principled approach to proportionality in relation to these budgets. I can infer, for what it is worth, from the parties' agreement to having bespoke budgets that they consider larger amounts of costs than those in the template budgets will be reasonable and proportionate. It seems to me that the only principled way of applying the test in these cases is to have only very limited regard to the possibility that proportionality may produce a cap that will limit what would otherwise be a reasonable figure. This is what the parties have done in their submissions. To take any other approach in this bespoke litigation risks the court merely applying arbitrary limits because there is no financial reference point for proportionality. It seems to me that the wider factors I have summarised, in particular the public importance and test case factors, will have the effect that if the costs are reasonable they are proportionate. That conclusion chimes with the approach the parties have adopted and avoids the court wielding a concept of uncertain application.”
In respect of Rates, the defendant argued that the solicitors' charging rates that were approved for the 1st Wave and/or agreed for the 2nd Wave should be used, rather than higher rates. The claimants' said that the 1st Wave rates were now historic and date back to 2012 and the 2nd Wave rates were agreed in relation to earlier periods.
Chief Master Marsh held that “The court is budgeting prospectively for 2018 and beyond and it is right that the rates are adjusted. Beyond that, I am unwilling to be drawn into a debate about charging rates. It is not the role of the court dealing with costs management to set rates although, of course, the total for each budget phase is, in part, a function of the hourly rates that are applied. I need only say that I will have regard to the possibility that the Grade A rate for Taylor Hampton may be more than will be allowed on a detailed assessment. However, the allocation of work in the budget between different grades of fee earner and the total figure claimed for each phase are of greater importance.”
The aggregate volume of documents disclosed (so far) by the parties could be fitted within 15 lever arch files. This includes six lever arch files of additional disclosure relating to the board knowledge issue.
The Chief Master accepted that “Where the data is incomplete, it is necessary to interrogate the defendant's disclosure and I have seen examples of the sort of work that is involved”. He concluded that “Overall, however, this is not an unusually demanding or difficult disclosure exercise when compared to other High Court litigation. I can see no reason why these cases demand a greater input of partner time on disclosure than other cases of comparable complexity.”
The Chief Master further noted that “Mr Leslie has included the costs of preparing and pursuing an application for specific disclosure in his (recently revised) disclosure budget phase. This is wrong in principle because the costs of such an application may be the subject of an inter partes costs order. It will be stripped out from the disclosure phase and treated as a contingency. It appears from Mr Leslie's recent budget that the entire estimated sum of £85,000 relates to the proposed application for specific disclosure and can be taken out of account. I have to consider therefore whether a total estimate budget for the disclosure phase of £98,000 is within the range of reasonable costs taking account the amount of costs incurred. I consider that the figure for the budget phase must be reduced, but that the reduction can be relatively modest.”
Of particular significance to readers, it was noted that “Mr Leslie's budget shows very heavy reliance on partner time. This is not justified and the majority of the time reasonably spent on disclosure should be charged at the associate and paralegal rates. The involvement of counsel was estimated at a sum slightly in excess of £7,000 which does not call for comment.”
Overall, Mr Leslie's estimated costs for the budget phase from 17 January 2018 on disclosure were allowed at £75,000.
Mr Leslie's solicitors had already spent over 70 hours on witness statements by the date of the budget and estimated that a further 95 hours of partner time, 80 hours of associate time and 30 hours of time by a trainee would be spent. This estimate had to be considered alongside the assertion made by Taylor Hampton (Mr Leslie's solicitors) in a letter to RPC (for MGN) dated 23 August 2017 that the preparation of the witness statements was "well advanced". The budget made provision for counsels' input in drafting the statements and reviewing the defendant's statements of £22,500 (56 hours) in the case of the leading junior and £7,500 (37.5 hours) in respect of his junior. Accordingly, the total budget for witness statements was £125,000 which included £26,000 incurred costs.
Ms Houghton's budget revealed only a very small amount of incurred time. The further work was estimated to require 70 hours of partner time, 65 hours of input from assistants and 40 hours by trainees/paralegals (175 hours in total). £20,000 is included for senior junior counsel and £7,500 for his junior. The grand total for the phase was £85,000.
It was understandable that Mr Leslie's budget should be greater than Ms Houghton's because his evidence would relate to a much larger number of articles. It was also accepted that the task of producing a witness for the claimant in each case was a substantial task. However, the statements must be, as far as possible, the witness' recollection, such as it is, of the relevant events uninfluenced by the exigencies of the case. It is was, therefore “concerning to see an assumption in both cases that there is to be a conference with counsel to review the statements”.
Chief Master Marsh concluded that “As a matter of impression, the hours that are included in these budgets are grossly excessive and well above what is within a range of reasonable costs and a similar observation can be made about counsel's fees. The amount of the time that has been budgeted suggests strongly that the statements will have only a passing connection with the direct recollection of the witnesses. They will have become an artificial construct of the lawyers.”
The budget for the estimated costs of this phase were set at a total of £60,000 for Mr Leslie (having regard to the costs that have been incurred) and £50,000 for Ms Houghton.
The guidance notes on Precedent H provide a summary of the items that are to be included, and those to be excluded, from the trial preparation phase. The three main areas of work will usually be preparing the trial bundles, assembling and liaising with witnesses and holding a conference with counsel. The claimant in each of the cases under consideration would no doubt require careful attention both as a witness and because the trial process will need to be carefully explained. The notes expressly exclude from the phase the assembly and copying of the trial bundles because that is not fee earner work.
The Chief Master accepted “that within the general spirit of this phase there will be work that is difficult to pigeon hole. The immediate run up to a trial inevitably leads to a flurry of activity and the guidance notes include as an example of work that is within the phase "any final factual investigations" albeit this cannot include additional witness evidence. It can include, however, work done in analysing the evidence. And I can see there will inevitably be issues about the trial that will lead to correspondence between the parties.”
Turning to the figures in issue, Mr Leslie's figure for trial preparation was £150,000 and Ms Houghton's was £139,000. These were noted to be “very large sums indeed given that the phase excludes the PTR and the brief fees”.
Mr Leslie's budget was made up of 195 hours of partner time, 160 hours of associate time and 50 hours of time spent by a trainee. In Ms Houghton's budget the equivalent figures were 150 hours, 180 hours and 50 hours. They totalled in each case 405 hours and 380 hours. The Chief Master said that “I am satisfied that these amounts of time are a completely artificial budgeting construct and not a genuine estimate of time that will be spent on the limited tasks that fall within this phase. They are some distance from being within the range of reasonable costs”.
Further, the assumptions recorded in the budgets included time spent on collating the trial bundles, despite the fact that this work is expressly excluded from the phase (assembly and collating are synonymous).
Both budgets include provision for counsels' fees during the trial preparation phase - £9,500 in Mr Leslie's budget and £8,500 in Ms Houghton's budget. The Chief Master accepted that “there may be some need for advice before the brief is delivered but these figures are more than is reasonable. A conference for the trial should be included in the brief fee”.
The Chief Master approved a total of £70,000 for Mr Leslie and £70,000 for Ms Houghton, plus the court fees that are payable.
Both budgets provide for a partner and an associate/assistant to be present in court each day and allow 10 hours for each day. In addition, provision was made for 20 hours of paralegal/trainee time. The budgets total £110,400 for Mr Leslie's solicitors and £113,450 for Ms Houghton's. Whilst it was accepted that two fee earners need to be involved, it was not accepted that is was necessary for a partner and an associate to be involved for the whole trial period rather “A more reasonable and proportionate combination is a partner, or an associate, to attend with a junior fee earner, although it is reasonable for the partner to be present at key moments. It is also unnecessary for the representatives for both claimants to be in court for the entire trial. Ms Houghton's solicitors do not need to be in court when Mr Leslie and his witnesses are giving evidence and during closing submissions for Mr Leslie and vice versa. 10 hours per court day is a reasonable estimate.I will allow £50,000 in each budget for solicitor's time”.
There was strong objection by the defendant to the figures budgeted for counsels' fees. According to Chief Master Marsh it was “telling, however, that the fees are described as being those 'quoted by counsels' clerk'. No indication is given that an attempt was made to negotiate the fees. Mr McDonald suggested this may be because a conditional fee agreement is in place”.
The total budgeted for leading junior counsel, including the brief fee of £250,000, refreshers of £70,000 (£5,000 per day) and fees for taking the judgment and dealing with consequential issues of £10,000, was £330,000. Comparable figures for his junior were £75,000, £28,000 (£2,000 per day) and £3,750 giving a total of £106,750. In aggregate the total was £436,750 to be split equally between the two claims.
The Chief Master held that “These figures are far in excess of what is within a range of reasonable costs. I take account of the following points:
- It is not in dispute that these are 'two counsel' claims. However, Mr Sherborne has not taken silk and there is no good reason to budget his fees as if he had.
- Mr Sherborne's brief fee, broken down using an hourly rate of £400 per hour, involves him charging for an astonishing 625 hours of work in preparation for a 15 day trial. Allowing for a 10 hour day this amounts to 62 days of work (52 days if he were to charge for 12 hour days). It is difficult to conceive these are genuine periods.
- Curiously, Mr Santos has been budgeted to spend much less time on the brief than Mr Sherborne (375 hours).
- Daily refreshers of £5,000 for Mr Sherborne and £2,000 for Mr Santos are high.
I will allow fees of £190,000 for Mr Sherborne and £75,000 for Mr Santos, a total of £265,000. These figures include refreshers. Taken with the solicitors' costs (£100,000 in total), the total for the trial phase in each budget is £182,500 after allocating 50% of the brief fees to each case.”
The remainder of the judgment was taken up with how to apportion costs between common costs and individual costs generally and in respect of specific hearings and is worth considering if dealing with a Group Litigation Order or similar litigation.
Whilst judgments on costs budgeting may not be the most exciting topic, careful reading of cases such as that under consideration can provide useful guidance on those matters which are likely to “hack off” the Judge or Master and which, with more careful planning, can lead to better outcomes.
The key points to remember are that over-reliance on more senior fee-earners than reasonable, and any hint that figures are “artificially constructed” or suggestive of inappropriate work in particular phases are likely to invite particularly close scrutiny and adverse comment.
Article by: Robert McAllister