Warning that courts can still cut “reasonable” budgets

Denis-Smith: costs risk

Denis-Smith: costs risk

It is a mistake to think that putting forward a budget that looks acceptable overall means the court will not look at the individual phases and costs within them, litigators have been warned.

The decision in King & Anor v Thipthorp & Ors is “contrary to the intended approach of the court, which is to adopt a global approach when considering reasonableness”, one costs specialist said. 

The Technology and Construction Court ruling, which has yet to be reported, involved a construction dispute. According to John Denis-Smith, who acted for the successful party, the budgets were approved subject to alterations to individual items which were deemed unreasonable and disproportionate.

The dispute related to alleged defects in the building of a leisure centre and had been listed for a six-day trial with about 10 factual witnesses and eight expert witnesses. While the first and second defendants’ costs budget of £195,000 was accepted by the other parties, they took issue with the costs budgets proposed by the claimants and the third defendant of around £392,000 and £322,000 respectively.

Mr Denis-Smith said the court held that on one view, the correct approach was to look at the parties’ overall budgets and decide whether they were reasonable and proportionate without any further investigation. Considering proportionality, here the sums in issue were not large, particularly by TCC standards, the litigation was not complex but was typical of a defects claim, and there was a question of reputation involved.

“There was nothing to justify expenditure over and above what was the norm for a six-day trial of this type,” he reported. “However, the court had no indication of what a normal sum for such a trial would be. In those circumstances, it could not conclude simply by looking at the bottom-line figures that the claimants’ and third defendant’s budgets were unreasonable and disproportionate.”

Further, the court found that even if the overall budget figure was not unreasonable, it could still consider the objections raised in relation to individual items claimed in those budgets. Here some items did appear disproportionate and were reduced.

The court also made a costs order against the parties whose budgets were amended.

Mr Denis-Smith said the case showed “that a party whose cost budget cannot be justified in terms of hours and disbursements proposed may find that it has to pay the costs of the party which challenges the budget, as well as incurring its own irrecoverable costs of the challenge”.

In a blog on the case, Sue Fox, head of costs budgeting at Leeds law firm Clarion, said the decision ran “contrary to the intended approach of the court, which is to adopt a global approach when considering reasonableness. Furthermore the CPR is to be amended with regards to this global approach, confirming that hourly rates within budgets should not be set”.

This referred to changes to the costs practice direction approved by the Civil Procedure Rule Committee, but yet to be introduced, that will say: “The making of a costs management order under part 3.15 concerns the totals allowed for each phase of the budget. It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.”

Ms Fox said the case, and another amendment that will require parties to submit an agreed budget discussion report – setting out the agreed and disputed areas for each phase and a brief summary of the grounds of dispute – meant that negotiations around costs budgets “have never been so important”.

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