Sharp & Ors v Blank & Ors

Whether a costs management order is appropriate is not determined solely by comparing the overall costs budget with the sums in issue. Proportionality may also require consideration of the work involved and the cost of particular steps. Reasonableness and proportionality are distinct, although they may overlap in application. Under rule 3.15(2), the court must consider whether costs management is likely overall to save expense and enable the litigation to be conducted justly and at proportionate cost. A costs management order may therefore be justified where its cost is substantial but could provide materially greater certainty about costs exposure and produce potentially significant savings.

The claimants in the Lloyds/HBOS litigation applied for a costs management process after costs budgets had been filed and exchanged. The judge had previously directed the preparation of budgets but had not treated that direction as creating a presumption that a costs management order should follow.

The parties faced substantial costs exposure, including a risk that the claimants’ existing after-the-event insurance would not cover the defendants’ assessed costs. The central issue was whether the likely cost of costs management was justified by its potential benefits under rule 3.15(2) and the overriding objective.

1. Proportionality. The overall costs budget may be compared with the sums in issue, the complexity of the case and the other matters identified in rule 44.3(5). That comparison is not exhaustive. The court may also consider what the action requires and whether expenditure on particular steps is proportionate to the work involved. The approach was consistent with Kazakhstan Kagazy PLC v Zhunus [2015] EWHC 404 (Comm).
2. Reasonableness and proportionality. The concepts are distinct. Costs may be reasonable but disproportionate. The distinction is reflected in rules 44.4 and 44.5, and in the fact that proportionality applies only on the standard basis. The approach in CIP Properties v Galliford Try [2015] EWHC 481 (TCC) was accepted.
3. Rule 3.15(2). The question was whether the litigation could be conducted justly and at proportionate cost without a costs management order. This required an overall assessment under the overriding objective, including whether costs management would save expense or merely waste money.
4. Application. The likely cost of the process was approximately £250,000. It could nevertheless give the claimants substantially greater certainty about uninsured costs exposure, potentially involving savings of millions of pounds, and could benefit both sides in dealing with the costs risk. The disparity between the parties’ anticipated expenditure also warranted detailed review.
5. The claimants’ application succeeded. A costs management process was directed to be undertaken by the Chief Master.

Not stated in the judgment.