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Parties warned to stop treating costs budgeting "as a form of game"

Coulson J warns against parties adopting an unrealistic approach to costs budgeting and in particular with regards to Precedent R.

Findcharm Ltd v Churchill Group Ltd [2017] EWHC 1108 (TCC) (12 May 2017)

Key Points

  • Parties should be realistic in their approach to costs budgeting at both ends of the scale
  • Parties who put forward unrealistically low figures in the hope that the court's subsequent assessment will also be low leave themselves open to criticism of abusing the costs budgeting process.

Link to Judgment

This was a claim by the claimant, Findcharm Limited ("Findcharm"), who operates a restaurant within the Churchill Hotel in Portman Square. The hotel is owned/operated by the defendant ("Churchill"). In November 2014, there was a gas explosion at the hotel which closed the restaurant for about four months. Findcharm claimed against Churchill the costs arising out of that explosion. The claim was put at £820,000 plus interest.

The Judge characterised Churchill's defence as a "combination of bare denials and non-admissions of the kind that the Civil Procedure Rules was designed to sweep away.... it is, bluntly, an insurer's defence straight out of the 1970's. For example, despite the fact that the explosion happened in its hotel, Churchill does not even formally admit the cause of that explosion."

The matter proceeded to a Costs and Case Management Hearing on 12 May 2017. At the outset of the hearing Coulson J made the following observations:

"It is a fact of life for all judges who undertake Case Management Conferences, at whatever level, that they are obliged to spend more time on them than used to be the case, in order to deal with cost budgeting disputes. A number of steps have recently been taken to try and make the process more user-friendly and more efficient for the court. In particular, the introduction of Precedent R, which requires each party to comment on the cost budget of the other, has led to a great saving of time, because it has obliged the parties to adopt a realistic attitude to the budget of the other side, and has assisted in the identification of the real disputes between the parties on costs

"However, even now, some parties seem to treat cost budgeting as a form of game, in which they can seek to exploit the cost budgeting rules in the hope of obtaining a tactical advantage over the other side. In extreme cases, this can lead one side to offer very low figures in their Precedent R, in the hope that the court may be tempted to calculate its own amount, somewhere between the wildly different sets of figures put forward by the parties. Unhappily, this case is, in my view, an example of that approach."

 

Findcharm's budget amounted to £244,676.30. This figure assumed that no expert evidence would be necessary to deal with the cause of the explosion, because no positive defence on that issue had been pleaded by Churchill. It also assumed a single joint accountancy expert to address the loss of profit claim.

The case proceeded on the basis that no expert evidence on this topic would be required and that a single joint expert was appropriate. The Judge ruled that it was reasonable for Findcharm's cost budget to be based on those two assumptions.

Churchill's cost budget was in the sum of £79,371.23. Coulson J made the following specific observations concerning the budget:

"Even on Churchill's own case, it seems erroneous on its face. For example, it allows nothing at all for fire experts, even though at the CMC Churchill were arguing that causation was in issue and an expert was necessary. It also purports to estimate a sum of less than £7,000 for the preparation of a High Court trial. It is therefore, on any view, an unrealistically low budget. However, since Churchill have put it forward, Findcharm have (not unreasonably) agreed it. The sum of £79,371.23 is therefore the approved cost budget figure for Churchill.

"In that same vein, through their Precedent R, Churchill have offered just £46,900 in respect of the estimated costs to be incurred by Findcharm. When that is added to the costs that Findcharm have already incurred, that comes to less than £90,000 altogether."

In more general terms, the Judge continued:

"In my view, Churchill's Precedent R is of no utility. It is completely unrealistic. It is designed to put as low a figure as possible on every stage of the process, without justification, in the hope that the court's subsequent assessment will also be low. In my view, therefore, it is an abuse of the cost budgeting process. I make clear that none of this is intended to be a criticism of Ms Akyol, the solicitor at Kennedys who appears this morning, because she told me that both Churchill's cost budget, and its Precedent R, were prepared by Kennedys' costs department. It is, unfortunately, a criticism of them."

He went on to give some examples of the "lack of reality" in Churchill's Precedent R:

    1. Disclosure: Findcharm's estimate is just below £30,000. For a case with a large claim for loss of profit, that seems to me to be reasonable. Churchill's offer of £10,600 is unjustifiably low.
    2. Witness Statements: Findcharm's estimate is £40,235 for the preparation of three witness statements and the consideration of the two statements to be produced by Churchill. Again that seems to me to be reasonable. But Churchill offer just £5,300 for all that work. That is simply incredible in a case where, not only does the background and circumstances of the explosion need to be explained, but also where a large claim for loss of profits will need to be underpinned by detailed factual evidence. As Ms Akyol herself pointed out, that claim is based on factual assumptions that will need to be carefully analysed.
    3. Experts reports: Findcharm have allowed £28,648 for this item, which is not excessive, given the particularly high fees charged by forensic accountants. That figure is based on a single joint expert's report, which is what I have ordered. Churchill allow £16,000 odd for this, based on an expert's fee of £13,500. Ms Akyol conceded that this figure was not based on any estimate from a proposed expert. In my experience, it is wholly out of step with what an expert accountant would charge for this type of work.
    4. Trial preparation: Findcharm have allowed £69,765 for trial preparation. In view of the sums at stake, and the potential complexity of the damages claim, I consider that that is not unreasonable. The sum of £10,000 allowed for by Churchill reflects their own unrealistically low figure for this stage, and is again unjustifiable.

The Judge disregarded Churchill's Precedent R and allowed Findcharm's budget as claimed on grounds that it was both proportionate and reasonable.

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