In the recent case of Orexim Trading Ltd v Mahavir Port and Terminal Private Ltd (Costs)  EWHC 2338 (Comm), Christopher Hancock QC (sitting as a judge of the High Court) made an order against the defendant for payment of costs on account in the event that the defendant failed to comply with an ‘unless order’. Orexim followed the approach of Mr Justice Coulson (as he then was) in Bruce MacInnes v Hans Thomas Gross  EWHC 127 (QB).
Facts and costs issue
The claimant had previously made an application to strike out the defendant’s defence. Although that application was not successful, Hancock decided that the appropriate course was to make an ‘unless order’ in respect of the damages claim and for the rest of the proceedings to be adjourned with liberty to restore if necessary. He then considered, inter alia, the issue of costs which had not been dealt with at the strike-out application hearing. The claimant sought an order that the defendant make a payment of £369,000 on account of the costs of the claim.
The claimant’s Precedent H was for approximately £1.1m, including pre-action costs of £48,537 and costs of £266,731 in respect of incurred costs at the time of the case management conference. Subject to minor reductions in the costs of expert reports, the Precedent H was approved. At the time of the hearing of the claimant’s application, the claimant had incurred costs of £410,004 and an additional £29,352 for the costs of the application.
The approach taken provides a novel and effective costs order which will, no doubt, have the effect of focusing the defaulting party’s mind on complying with procedural requirements
The approach to be taken
Hancock considered the appropriate approach to be taken when making an order for payment of costs on account in circumstances where there is an approved costs budget. In doing so, he cited and followed the approach of Coulson J (pictured above) in Bruce MacInnes.
In that case, Coulson J considered, inter alia, making an interim order on account of costs. The claimant argued that, when costs are assessed by the costs judge, that assessment should start from scratch and, in any event, the defendant had incurred considerably more than the figure in his approved costs budget. Coulson J placed emphasis on the significance of starting with the parties’ approved costs budget when assessing any interim payment on account of costs. As Coulson J explained: ‘In my view, the first defendant’s approved costs budget is the appropriate starting point for the calculation of any interim payment on account of costs. CPR 3.18 makes plain that, where there is an approved or agreed costs budget, when costs are assessed on a standard basis at the end of the case, “the court will… not depart from such approved or agreed budget unless satisfied that there is good reason to do so”. The significance of this rule cannot be understated. It means that, when costs are assessed, the costs judge will start with the figure in the approved costs budget. If there is no good reason to depart from that figure, he or she is likely to conclude the assessment at the same figure: see Silvia Henry v News Group Newspapers Ltd  EWHC Civ 19.’
Taking the approved costs budget figure, Coulson J made a reduction of 10% which he regarded as the maximum deduction that is appropriate in a case where there is an approved budget. Adopting the same approach, Hancock took as his starting point for the calculation of the interim payment the approved costs budget figure of £570,000. He then made a reduction of 10% (£57,000) which he regarded as the maximum deduction that is appropriate in a case where there was an approved costs budget. He then added £15,000 to reflect the interest on costs, which produced a final figure of £528,000.
There are several benefits to note from the approach taken in Bruce MacInnes and followed and applied in Orexim. It provides a novel and effective costs order which will, no doubt, have the effect of focusing the defaulting party’s mind on complying with procedural requirements while providing the necessary costs safety to the other party. Further, the approach provides a simple and clear framework within which the courts are able to effectively assess costs; and this in turn will continue to ensure that the courts take a consistent approach.
Finally, by starting the costs assessment with the parties’ approved costs budget, the court will have before it a figure for costs which have already received judicial attention and have been assessed as reasonable and proportionate. As Coulson J noted in Bruce MacInnes when commenting on the importance of commencing costs assessments with the parties’ costs budgets, ‘the days of the educated guesswork identified by Jacob J in Mars UK Ltd v Teknowledge Ltd  2 Costs LR 44 are now gone’.
Masood Ahmed is associate professor in law at the University of Leicester and a member of the Civil Procedure Rule Committee