4 October 2013Print This Post

High Court judge expressly declines to approve "disproportionate" costs budgets

High Court: contingent costs need to be spelt out

A High Court judge has expressly declined to approve the costs budget of both sides of a construction dispute on the grounds that they were “disproportionate and unreasonable”.

But Mr Justice Coulson said this does not mean the successful party will recover no costs at all.

Willis v MRJ Rundell & Associates Ltd & Anor [2013] EWHC 2923 (TCC) was run under the costs management pilot in the Technology and Construction Court and the judge predicted that “the outcome will not be uncommon under either PD 51G [for the pilot], or the new costs budget rules which came into force in April 2013”.

The case concerned a £1.6m professional negligence claim against a firm of construction professionals that was subsequently reduced to £1.1m. Both sides submitted budgets at the original case management conference (CMC) in December 2012 – £821,000 for the claimant and £616,000 for the defendant.

“I expressed the view on that occasion that, in the context of a claim worth £1.6m at most, those figures were high and appeared disproportionate,” the judge said. There was however, insufficient time to explore the detail and neither side chose to bring the matter back to court.

A mediation followed which led to the parties ignoring the timetable set by the judge at the CMC, and in July he adjourned the trial that had been planned for this month and also ordered a costs management hearing, which was held last week. The claimant’s budget had reached £897,000 and the defendant’s £703,000, although large sums had already been incurred, particularly by the claimant.

Coulson J said the costs in both budgets were disproportionate and unreasonable just on the basis “it will cost significantly more to fight this case than the claimant will ever recover”.

This was so even allowing for the extra costs that a professional negligence claim can generate in expert evidence and “for the non-quantifiable, but potentially serious, damage to the defendant's professional reputation that may be caused by a claim of this kind”.

Coulson J added: “It seems to me that one test of proportionality is whether the trial is likely to be an end in itself, or merely a lesser part of the process which the parties will use in order to put themselves in the strongest position to argue that, subsequently, the other side should pay all or most of their costs.

“When the costs on each side are much higher than the amount claimed/recovered, the latter is almost inevitable. I have no doubt that that will be the case here.”

The judge highlighted some specific elements of the budgets that were disproportionate and unreasonable, and questioned the £55,000 provision for contingent costs. “It seems to me that, whilst budgets of this sort can include contingent sums, it needs to be made very clear what those contingency sums are for and how they have been calculated.”

Though “in an ideal world, the court would be able to provide alternative figures”, Coulson J said he did not have any supporting material that would help him do that.

Therefore he expressly declined to approve either party’s budget but decided it was not productive to order a further hearing given that the parties are preparing for trial at the end of the year and it would only increase costs to do so. Further, new budgets would simply show higher figures for incurred costs. But he did tell the parties to keep their budgets up-to-date and provide them at the pre-trial review.

He concluded: “Of course, my adverse comments on the amounts of both parties’ costs budgets will become relevant at the end of the case when the issues as to the amount of any costs to be recovered by the successful party will have to be decided. In the light of the views expressed above, it must be likely that, at that stage, even the successful party will recover only some of its costs.

“However, I should add that, although I am aware that some have taken the view that the absence of an approved costs budget means that that party will recover no costs at all, I do not believe that such a draconian approach is in accordance with the letter or the spirit of the new costs rules or 51G PD.

“Just because an estimate of costs of £900,000 at this stage of the case appears disproportionate and unreasonable does not mean that a final recovery of, say, £450,000, by agreement or on assessment, would not be appropriate.”

By Neil Rose

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