The High Court has granted a costs management order in a high-value case where the costs amounted to a fraction of the damages, saying that was not the only measure of proportionality.
Mr Justice Nugee said a costs benefit analysis in Sharp v Blank and others  EWHC 141 (Ch) – a decision from January that has only just been published – meant that it was appropriate to make a costs management order (CMO), even though the defendants’ budgets were £24m, 7% of the £350m claim.
He had previously ordered the parties to prepare budgets so as to keep an eye on costs but told the parties that did not mean he was going to make a CMO.
Asked by the claimants to make one, he said that, while a test of proportionality was to look at the overall cost compared to the overall amounts in issue, it was not the only one.
Nugee J said: “One can look at proportionality not only in the way that some judges have done by reference to the overall cost of the proceedings compared to the overall amounts at stake and the complexity of the issues and the like, but also by looking at what is or ought to be involved in the action and saying whether the proposed spending of money of that level is proportionate to the work that was involved.”
He said the application for a CMO should not be determined by a “narrow textual construction” of rule 3.15(2), which requires a test of whether the litigation “can be conducted justly… in accordance with the overriding objective, without such an order being made”.
Nugee J continued: “This application should be determined on whether the making of a costs management order would be something that is likely overall to save expense and thereby enable the court to deal with the case more justly and more in accordance with the overriding objective or whether it would really be a waste of money and not achieve anything that was worth the money that had to be spent on it.”
The judge said both parties had indicated that, if unsuccessful, the claimants were at risk of having to pay “rather more” than the £14.75m they had in after-the-event insurance cover. If that came to pass, individual claimants will be exposed to the risk of having to contribute to the uninsured costs and the defendants would have to collect what could be relatively small sums from a very large number of individual claimants, as they were only severally liable proportionate to their shareholdings.
While the claimants wanted a CMO – as increasing the insurance cover would be costly, particularly if the premium was deferred – the defendants preferred increased security for costs from the funders.
The question, the judge said, was whether the CMO was worth the £250,000 or so that the process was likely to cost. Of the £24m, nearly £15m was still to be incurred. While the defendants accepted that not all of their costs would be recovered on assessment, recovering 70% or 80% would still leave the claimants exposed to at least £2.3m of uninsured costs.
Nugee J said: “It does seem to me that there is a real value to the claimants in those circumstances in having a much more accurate figure for the risk that they are facing.”
If they were capable of bringing the £15m figure down, “that would give them considerable comfort, given the provisions of CPR 3.18, which effectively put the onus on someone on a detailed assessment seeking to recover more than the amount in their precedent H budget, and more comfort than the current position where, although the budgets that have been exchanged can be taken into account under Practice Direction 44, paragraph 3, there is not usually a requirement for an explanation as to the difference unless the divergence is more than 20%”.
He continued: “In those circumstances, when I compare the costs that are involved in a costs management order of, as I have said, £250,000 or so with the potential savings which could run into millions of pounds, it does seem to me that… the cost benefit analysis makes this an appropriate case to have costs management.”