Newmark & Company Real Estate Inc & Anor v Newmark Property Consultants Limited

MRS. JUSTICE JOANNA SMITH:

1. I am now called upon at this PTR to deal with applications by each party to vary its Cost Budget.

2. In so far as the claimants' application to vary their Costs Budget is concerned, no objection is taken to the variations and so I need say no more about it. I will grant their application to vary, subject to satisfying myself that the additional sums sought by the claimants are both reasonable and proportionate.

3. In relation to the defendant's application to vary its Cost Budget the position is somewhat different. The variation application increases the defendant's budget by more than double the figure that was originally budgeted for the costs of the whole action; the additional figure that is now requested by way of variation runs to £759,000. That is an extraordinarily substantial amount of additional money which, if a variation is to be permitted, would have to be properly justified by reference to the relevant principles. For reasons to which I shall return, I do not consider for one moment that it can be so justified.

4. Turning to the relevant legal principles, I did not understand there to be any dispute between the parties as to those principles in general. They are set out in paragraphs 45-48 of the very helpful skeleton argument of Ms. Bowhill as follows: "45. The procedure for the revision of costs budgets is set out in CPR r.3.15A, which provides: '(1) A party ("the revising party") must revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions. (2) Any budgets revised in accordance with paragraph (1) must be submitted promptly by the revising party to the other parties for agreement, and subsequently to the court, in accordance with paragraphs (3) to (5). (3) The revising party must (a) serve particulars of the variation proposed on every other party, using the form prescribed by Practice Direction 3D; (b) confine the particulars to the additional costs occasioned by the significant development; and (c) certify, in the form prescribed by Practice Direction 3D, that the additional costs are not included in any previous budgeted costs or variation. (4) The revising party must submit the particulars of variation promptly to the court, together with the last approved or agreed budget, and with an explanation of the points of difference if they have not been agreed. (5) The court may approve, vary or disallow the proposed variations, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed, or may list a further costs management hearing. (6) Where the court makes an order for variation, it may vary the budget for costs related to that variation which have been incurred prior to the order for variation but after the costs management order.' (Emphasis added)

46. Thus, the threshold criteria for the exercise of the power contained in r.3.15A are (i) there has been a significant development in the litigation since the last approved or agreed budget, which warrants a revision; and (ii) the particulars of variation have been submitted promptly to the other party for agreement, and subsequently to the court. It is only if these two criteria are met that the court goes on to consider the exercise of the evaluative judgment as to whether the budget should in fact be varied: Persimmon Homes Ltd v Osborne Clark LLP [2021] EWHC 831 at [99]-[101].

47. In Persimmon Homes Ltd v Osborne Clark LLP Master Kaye stated (at [102]) that in relation to the exercise of discretion, the court must: '…have regard to the overriding objective and all the circumstances of the case including the need to deal with cases justly and at proportionate cost. This includes considering the prejudice to both the applicant if the budget is not varied and respondent if the budget is varied. The question of promptness and the nature of the significant development may come back into consideration more broadly as part of all the circumstances if the court comes to consider the overall exercise of discretion.'

48. Other relevant principles concerning the revision of costs budgets are: a. Where the significant development is said to be a change to an existing phase, it is necessary for the court to look closely at whether what is contended for is a significant development at all. In Persimmon Homes Ltd v Osborne Clark LLP Master Kaye stated (at [118]): 'In such a case the court would need to be confident that the proposed variation related only to the additional impact of what is contended to be a significant development rather than attempt to carry out a root and branch revision to the phases of the last approved budget. Whilst the court should not consider the costs at a granular level or micromanage the costs it must be able to say that it is not interfering with the discretionary exercise carried out by the Deputy Master who approved the last costs budget. It is for the party seeking the variation to provide sufficient information and evidence with their application to satisfy the court that the variation is not simply an attempt to address a miscalculation or an overspend or to claw back previously disallowed costs. They would have to be able to satisfy the court that the variation only related to the significant development and did not interfere with the exercise carried out by the Deputy Master.' (emphasis added) b. The decision to instruct leading counsel does not in and of itself amount to a 'significant development'. It is not enough for a party to regret, on reflection, not budgeting for instructing leading counsel. Nor is the test whether the seriousness of the case means it is suitable for leading counsel. The test is whether there is a significant development that warrants the instruction of leading counsel: Omya UK Ltd v Andrews Excavations Ltd [2021] EWHC 3824 (Comm) at [30] at [33]. c. Similarly, in Kimathi & ors v The Foreign and Commonwealth Office Parker Wall Solicitors [2018] EWHC 216 (QB) the court held that the party's decision to instruct new solicitors (because the previous solicitors became insolvent mid case and the work they had done was inadequate) did not amount to a 'significant development' in the litigation. Stewart J held (at [32]) that the defendant could not 'be required to pay extra costs for GT Law's insolvency, IC Law's intervention or the alleged inadequate work by GT Law, which is in any event disputed'. d. The fact that a costs budget as originally filed contains a mistake is not a reason for varying the budget. In Murray & Anr v Neil Dowlman Architecture Ltd [2013] EWHC 872 (TCC) Coulson J held at [17] and [19]: '17. … In my view, in an ordinary case, it will be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a costs budget, which is then approved by the court, should be subsequently revised or rectified… The courts will expect parties to undertake the costs budgeting exercise properly first time around, and will be slow to revise approved budgets merely because, after the event, it is said that particular items had been omitted or under-valued. I also agree that any other approach could make a nonsense of the whole costs management regime'. ... '19. ... I am not persuaded that the absence of prejudice alone would be sufficient (either in this case or more widely) to justify the revision of an approved budget. 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'. (emphasis added). See also John Michael Sharp v Sir Maurice Victor Blank & Ors [2017] EWHC 3390 (Ch) at [37]. "e. The fact that a variation will take that party's budget close to the other parties' budget is irrelevant. The question is whether the variations sought arise from, or are the result of, the significant development and not whether, on reflection, a party wishes they had budgeted more generously at the initial stage: Omya UK Ltd v Andrew Excavations Ltd at [19]."

5. The key issue that I must first decide is whether the variations sought by the defendant cross the threshold criteria, namely: first, do they arise from “a significant development” which warrants a revision to the budget and second, have the particulars of the proposed variation been submitted promptly. For present purposes I am dealing only with those two threshold questions, and I am not concerned with the question of the exercise of my discretion as to matters of reasonableness and proportionality, which arise only in so far as I determine that a proposed variation satisfies the threshold questions.

6. The defendant says that there are a number of significant developments on which it relies. These are as follows: i) the recent instruction of leading counsel; ii) errors in the previous budget; iii) the recent instruction of new solicitors with higher hourly rates; iv) that the trial estimate for trial has increased from 7 days to 12 days; v) that three of the claimants' witnesses will be giving evidence remotely; vi) the defendant's application issued on 10th September 2024 for various orders, including relief from sanctions and permission to serve further evidence and disclosure.

7. As to the fourth and fifth of these suggested significant developments, they are accepted by the claimants and relied upon for the purposes of the variations to their own Costs Budget. I will permit appropriate variations to the defendant’s budget to reflect these developments, in so far as those variations are warranted. Accordingly, for present purposes, I need say no more about them, save in connection with the other suggested significant developments that are relied upon by the defendant.

8. Turning then to the recent instruction of leading counsel, Mr Hobbs KC, the figure that has been included in the proposed budget arising by reason of that recent instruction is an eye-watering figure of some £399,000. That exceeds the total value of the defendant’s incurred and future costs as recorded in the last approved budget.

9. I agree with the submissions of Ms Bowhill that the instruction of leading counsel at this very late stage is not in itself a significant development, not least because the defendant has not identified a significant development in the litigation that warrants the instruction of leading counsel. Ms Messenger argues that the extension of the trial period from 7 days to 12 in itself warrants the instruction of leading counsel. With respect to Ms. Messenger, I disagree. An increase in the time estimate says nothing about the complexity or difficulty of the trial and the mere addition of six witnesses to a trial in which the claimants were already calling 15 witnesses, does not, in my view (without more), increase the complexity of the overall trial such that the instruction of leading counsel would be warranted.

10. Ms Messenger submitted that the complexity of the case had increased by reason of the service of evidence on the part of the claimants, which had taken the defendant by surprise. However I accept the submissions of Ms. Bowhill that this submission does not get off the ground in circumstances where it is clear from the pleadings that there was already a dispute in relation to the issues addressed in the claimants’ evidence, and that the specific issue that Ms Messenger identified was included in the list of issues for trial.

11. I was referred by Ms Messenger in this context to the case of Omya UK Ltd v Andrews Excavations Ltd , to which I have already referred, and in particular paragraphs 29 and 30: "29. I turn now to the effect of the significant development and the costs that the defendants are seeking. A very significant proportion of the costs increase which the defendants seek is as because they contend it is appropriate to instruct leading counsel as a result of the significant development. The defendants argue that the nature of the case has changed as a result of the disclosure, because it is now clear from the disclosure that the Environment Agency are going to be involved, both in the disclosure exercise and also because one of their employees may give evidence. They argue that the defendants are now at risk of the Environment Agency revisiting its decision not prosecute the defendants and effectively to close its file, which it appears it made in about July 2019, so they defendants now need to instruct leading counsel. They argue the seriousness of the case has altered. "30. I do not follow the logic of that argument. It may well be that, on reflection the defendants regret not budgeting for instructing leading counsel. The test is not whether I consider the seriousness of the case means it is suitable for leading counsel. It is whether the significant development warrants the instruction of leading counsel. In my judgment it does not."

12. In my judgment, these paragraphs do not assist Ms Messenger. The circumstances of the present case appear to me to fall squarely within the observations made by the learned judge. It may well be that, on reflection, the defendant in this case regrets not budgeting for instructing leading counsel. However, the test is not whether I consider the seriousness of the case means it is suitable for leading counsel, it is whether the significant development identified warrants the instruction of leading counsel. Whilst it is common ground that an increase in the length of the trial caused by the addition of further witnesses is a significant development which will inevitably have costs consequences, I have seen nothing to suggest that it is a significant development that in itself warrants the instruction of leading counsel.

13. It was suggested by Ms Bowhill during argument that the application in relation to leading counsel had not been made promptly and there appears to be a dispute between the parties about the significance, if any, that I should attach to the involvement of Mr. Hobbs KC in the provision of advice to the defendant in April 2024. Given my decision that the first threshold criterion has not been satisfied, I do not need to determine whether the application has been made promptly and I decline to do so.

14. Turning then to the variation that is said to be warranted by reason of errors in the previous budget. The errors that have been identified in the evidence served on behalf of the defendants in the form of Mr. Hoyle's statement are: i) the failure to provide within the original budget for witness familiarisation; ii) the failure to provide within the original budget for transcription; and iii) an error in the original budget in relation to junior counsel's brief fee. There is no explanation in Mr Hoyle’s evidence as to what that error consisted of.

15. It appeared to me that, during her submissions, Ms. Messenger realistically appreciated that the court was likely to find that the first two identified errors are not in principle significant developments, or do not arise from any significant development in the litigation. The costs of this work should have been identified at the outset and included in the original budget. Having regard to the authorities to which I have already referred, there is no scope for the court to accept that the full sums claimed for these “errors” should be included in a varied budget.

16. Ms Messenger submitted instead that, in so far as witness familiarisation was required for the defendant’s new witnesses and in so far as transcription was required for the additional 5 trial days, the defendant should be entitled to recover its additional costs incurred, a submission which did not appear to me really to be resisted by the claimants. Once it is accepted that the increase in length of the trial by reason of the addition of new witnesses (on both sides) is a significant development, then the additional costs incurred by reason of transcription for extra days and the need to carry out familiarisation for new witnesses should properly be included in a varied budget, subject to reasonableness and proportionality.

17. As for the question of whether there has been an error in junior counsel’s brief fee, Ms. Messenger informs me that in fact Mr. Hoyle's evidence, certified by a statement of truth, is itself in error, and that there was in fact no error in the brief fee as set forth in the original budget. She says that her original brief fee of £46,000 odd related to a 7 day trial and that the new proposed brief fee of £75,000 represents an increase to reflect the increase in length of the trial. By contrast, Mr Hoyle’s evidence appears to say that the original budget should always have included a figure of £75,000 for junior counsel’s brief fee.

18. After I gave this judgment orally at the hearing, it became clear that there was a dispute over what should be done about this, owing to the absence of any explanation as to why Mr Hoyle’s evidence was incorrect or any further evidence from him addressing the point. Further his error appeared also to have been carried over into the proposed varied budget.

19. In an attempt to deal pragmatically with this issue, I ordered that Mr Hoyle provide a witness statement addressing these points. Subject to that statement, however, I am prepared to accept what Ms Messenger says and specifically to accept that the increase in her brief fee arises directly by reason of the increase in the length of the trial such that the threshold requirement is overcome.

20. The next alleged significant development arises in connection with the defendant’s decision to change to solicitors with higher hourly rates. That is a choice that has been made by the defendant. The question is whether a significant development has occurred in the case that warrants the change. To my mind there has been no such significant development – the principles that apply to the new instruction of leading counsel are equally applicable here.

21. Mr. Hoyle's evidence concerns the handling of the case by the previous representative at Lane IP, which he says has caused the defendant to instruct new solicitors. However, it does not suggest that there is in fact anything about the litigation itself that has actually changed to warrant the instruction of new solicitors. The fact, as Ms. Bowhill points out, that Lane IP may have misunderstood the nature of the litigation, or mishandled the litigation, is not enough, and the claimants should certainly not have to pay for that.

22. During her submissions, Ms Messenger asserted that, in fact, the defendant’s new solicitors had been instructed because of a change in the nature of the trial, i.e. its increased length. However, this is not what Mr. Hoyle's evidence says. On the contrary, as I have said, his evidence is purely to the effect that effectively Lane IP were not doing their job properly and had to be replaced. Ms Messenger also made a rather surprising submission to the effect that Lane IP was not qualified to conduct High Court litigation. I ask rhetorically, together with Ms. Bowhill, what they were doing in the first place acting in these proceedings if they were not so qualified.

23. I accept the claimants’ submission that the change of solicitors is not a significant development and nor are the additional fees of such change (i.e. the increased hourly rates) warranted by any significant development in the litigation. While additional solicitor fees will be warranted in the varied budget to reflect the increased length in the trial and the addition of the new witnesses, such fees should only be included in the varied budget on the same hourly rate as was being charged by Lane IP.

24. The final alleged significant development concerns the defendant's recent application for disclosure (amongst other things). It is said by Ms Bowhill, I think with considerable justification, that the application to vary to add the costs of such an application to the budget has not been made promptly. The defendant has had the claimants' disclosure since last January and only now, at the beginning of September, with a trial in November, has it issued an application for further disclosure. The fact that previous solicitors took a different view as to the need for disclosure does not support the proposition that it has in fact been made promptly. There is no significant development in the litigation which has prompted the application other than the change in solicitors and counsel. In my judgment, therefore, the additional costs relating to that application do not meet the threshold test. - - - - - - - - - - -