High Court halves “grossly excessive” costs budget

Budgeting: sterile argument, says judge

Budgeting: sterile argument, says judge

The High Court has nearly halved a claimant’s costs budget after finding that it was so disproportionate to the sums at stake and complexity of the case that “something has clearly gone wrong”.

Mr Justice Stuart-Smith also said it was “hard to imagine anything more sterile than arguing about a grossly excessive costs estimate”.

He acknowledged that there has been disagreement about the extent of detailed argument that is appropriate when considering Precedent Hs.

“Experience in the TCC has shown that most costs budgeting reviews can and should be carried out quickly and with the application of a fairly broad brush. Only exceptionally will it be appropriate or necessary to go through a Precedent H with a fine tooth-comb, analysing the makeup of figures in detail.

“For reasons which will become apparent, however, this is an exceptional case which justifies a more detailed approach. The justification lies in the fact that the aggregate sum being put forward for approval is so disproportionate to the sums at stake or the length and complexity of the case that something has clearly gone wrong.

“The court’s interest in maintaining a robust and just approach to costs management requires an investigation into what has gone wrong for two reasons. First, to enable it to reach a figure which it is prepared to approve; and, second, so that the court’s determination to exercise a moderating influence on costs is made clear.”

He said the parties in GSK Project Management Ltd v QPR Holdings Ltd [2015] EWHC 2274 (TCC) – an £805,000 dispute over works done at the football club’s training ground – agreed that the approach adopted by Coulson J in March in CIP Properties was applicable. “I also agree, though Coulson J’s approach may better be seen as a guide rather than a straightjacket.”

The claimant submitted a budget for nearly £824,000, including £313,000 of incurred costs. The defendant’s cost budget was £456,000, but the judge said a straight comparison was not appropriate because of the widely differing hourly rates charged.

While the claimant’s solicitors, Manchester firm JMW, cited partner rates of £275-300, City firm Macfarlanes for the defendant was charging £575-600. The charge-out rates for associates were £175-200 for the claimant and £410-450 for the defendant. Macfarlanes charged out a trainee (£210) at almost the same rate as counsel was receiving (£250).

Stuart-Smith J said his starting point was that a case would have to be “wholly exceptional” to render such a budget proportional to what was at stake. But this case was straightforward, he said, and his initial reaction was that “good reason would need to be shown to justify more than about half that figure on proportionality grounds”.

He rejected a submission that the correct approach was to take the other party’s costs budget as a starting point, “because different parties to litigation have different roles and responsibilities which are likely to distort one party’s costs when compared with those of another…

“However, I do accept that the court should have regard to the other party’s costs budget because it may provide useful indicators about necessary resourcing of the litigation. And I bear in mind Coulson J’s observation that in the TCC the defendant needs to be on top of all the relevant material just as much as the claimant.”

Going through the budget item by item, Stuart-Smith J reduced it to £425,000, 52% of what had been claimed.

He was harsh on pre-action costs, saying the claimant had not justified 52 hours of partner time and 138 hours of associate time. He suggested that the firm could not have it both ways it had also incurred on issue/statement of case, including 96 partner hours, 429 associate hours and 163 hours of counsel.

“If a significant proportion of these [pre-issue] costs were incurred for good reason, then the claimant’s solicitors should have been well on top of the case by the time of issue. If, as the subsequent estimates for solicitors’ time suggest, little real progress was made, then 190 hours have not been reasonably or proportionately incurred.”

The judge was also particularly severe on witness statement costs, reducing them from £75,000 to £25,000 – “these hours are quite simply absurd for a straightforward case where the claimant intends to call two (or possibly three) witnesses” – and reduced the amount budgeted for settlement/ADR from £85,000 to £25,000.

He concluded that while the court may not approve costs already incurred, it may take them into account when considering the reasonableness and proportionality of all subsequent costs. But this rule did not make specific provision for the situation “where, as here, taking the incurred costs into account reveals a disproportionate level of expenditure with no consequential benefit being reflected in the estimate of future costs.

“I respectfully agree with Coulson J that there is no prohibition against saying what the court would have approved if presented with an estimate for future costs rather than the fait-accompli of incurred costs.”

In a post-script, he rejected the claimant’s justification for its level of costs on the basis that the litigation was “combative”.

Adopting Mr Justice Edwards-Stuart’s recent observations on the need to stop procedural squabbles, he added: “It is hard to imagine anything more sterile than arguing about a grossly excessive costs estimate. It does not go to the issues, it is wasteful of court and the parties’ time, and it offends against the obligation to keep costs to the reasonable minimum (both in the fact of the estimate and the need to whittle it down).”

Joy Kingsley, senior partner at JMW Solicitors, said: “Our task was to put before the court the costs that were necessary to pursue the claim. Our figures reflected the time and effort involved in what has already been a long-standing dispute which began in 2008.

“The court has wide discretion in terms of assessing any cost budget submitted. Mr Justice Stuart-Smith has chosen to exercise that discretion and we accept his decision.”

    Readers Comments

  • Jonathan Maas says:

    And absolutely no reference to disclosure and the budget/estimate put forward for that? How so? Surely that must be a large proportion of each party’s Precedent H (even though it is only a single line in the form itself)? See my upcoming article on the disclosure iceberg.

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