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High Court declines to approve "disproportionate" costs budgets

HHJ Coulson declined to approve "disproportionate and unreasonable" budgets on both sides in a £1.6m professional negligence claim.

WILLIS V MRJ RUNDELL & ASSOCIATES LTD & ANOR [2013] EWHC 2923 (TCC)

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 CMC in December 2012. The claimant's budget was for £821,000 whilst the defendant's totalled £616,000.

HHJ Coulson expressed the view at that stage that in the context of a claim worth £1.6 million at most, those figures were high and appeared disproportionate. There was however, he said, insufficient time on that occasion for the detail of the costs budgets to be explored any further. Neither side chose to bring the matter back to court.

The parties engaged in mediation in June 2013 which led them to ignore the timetable set by the Judge at the CMC. At what would otherwise have been the Pre-Trial Review in July, he therefore had no option but to adjourn the trial.

Because of his original concerns about the cost budgets, and because of the adjournment and the consequential increase in costs, in July HHJ Coulson ordered that there should be a case management hearing devoted solely to costs management. This took place on 25 September 2013. By now, the combined costs budgets totalled around £1.6m. The Judge observed that...

"...it will cost significantly more to fight this case than the claimant will ever recover. On that basis alone, it seems to me that the costs in the costs budgets are both disproportionate and unreasonable...

"In reaching that conclusion, I accept that a professional negligence claim of this kind can involve costs that other commercial disputes may not. For example, in a professional negligence case, expert evidence will almost always be necessary to demonstrate that a professional fell below the standard required. Furthermore, there also needs to be an allowance, in any consideration of the proportionality of costs, for the non-quantifiable, but potentially serious, damage to the defendant's professional reputation that may be caused by a claim of this kind.

"But even making due allowance for both these factors, I do not regard the budget costs figures in this case as proportionate or reasonable, particularly given the relatively limited nature of the disputes between the parties...  

 "...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. For those reasons, therefore, I conclude that the costs shown in the costs budgets are disproportionate and unreasonable."

The Judge went on to highlight specific elements of the budgets....

Costs Already Incurred

In relation to specific items of cost which have already been incurred, I note that the claimant is said to have incurred over £300,000 before the first CMC in December 2012. There is nothing in the material before me to suggest that such a large spend was proportionate or reasonable. There is no breakdown of that figure, but it seems to me, given the relatively straightforward disputes in this case, that it is much too high. That is reinforced by the fact that there was no pre-action mediation.

 Another item of cost, which has also been now incurred, relates to disclosure. The claimant's figure is put at over £100,000. Again I find that such a figure is disproportionate and unreasonable. In a case where the overvaluation/overpayment dispute centres on an alleged absence of documents, and where there are defects said to have been found post-contract rather than during the building works, extensive disclosure is not warranted. That view is borne out, I think, by the witness statements which I have studied, and which are very light in their references to contemporaneous documents. I should add that this criticism of the claimant's costs incurred on disclosure applies a fortiori to the defendant's figure for the disclosure exercise, which is in the even higher sum of £131,000.

'Incurred/Estimated'

Some items within the claimant's budget are said to be both incurred and estimated, without it being clear which is which, and without any breakdown of either. I do not consider that to be satisfactory. To allow a proper analysis, in order for the court to make a costs management order, the costs which have been incurred (and which therefore cannot be the subject of an order) must be separated out from those which are estimated (which can be the subject of an order).

Expert's Costs

The claimant's experts' fees, which are one of those items said to be both incurred or estimated, without there being a proper breakdown, are put at £100,000 before any account is taken of their involvement at the trial. Again, that seems to me to be disproportionate and unreasonable. Whilst some expert assistance will be required, for the reasons previously noted, I think that it is unlikely to be extensive. I would have expected to see a figure something like half the amount actually included in the costs budget. Unhappily, my recent experience is that the amount of the experts' fees in cases like this is often out of all proportion to the assistance provided.  

Contingent Costs

The claimant's budget includes a large lump sum (£54,590), which is not further broken down, 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. For example, it may be appropriate to put in, as a contingency sum, the estimated additional costs of written submissions, if the original budget assumed that oral submissions would be made at the end of the trial. Another example would be a contingency sum for any application for security for costs.

It is not appropriate, as appears to have happened here, to put in a single lump sum by way of a contingency figure and leave it at that. Although common in the building industry, the inclusion of such a sum promotes less rather than more certainty, and is therefore not in accordance with the recent rule changes to the CPR. In the underlying material, some explanation has been given as to why this figure has increased (because it is said that some money has been spent on items which were not envisaged). I consider that such items ought to be included in the relevant line items as a cost incurred. For example, it is said that there is an additional cost because of the need to amend the pleadings. That ought to be shown as an additional cost under the relevant line item within the costs budget.

Settlement Costs

Another lump sum in the budget is for settlement costs (£70,400). Again it seems to me that this ought to be broken down by reference to its component parts: it is impossible to see how such a large sum has been arrived at. Although it is said that the claimant's budget costs in relation to settlement have increased to £70,400, it is also not clear how and why that increase have come about. It cannot be explained by the mediation in June, because it was always envisaged that there would be mediation at the outset of these proceedings. Again, therefore, this figure appears disproportionate and unreasonable.

He expressly declined to approve either party’s budget, nor to direct that revised budgets be prepared, concluding....

"I am concerned that there is much work that the parties need to be getting on with in order to be ready for the trial at the end of the year, and I am anxious not to increase the costs burden any further. In addition, of course, any new budgets would show increasingly higher figures for costs incurred, and lower figures for estimated costs, making any costs management order less and less effective. I will therefore require the parties to keep their costs budgets up to date, and to provide them to the court at the PTR, but I do not think it is productive to order a further hearing simply to consider further costs budgets.

"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.

"I appreciate that this is an unsatisfactory result. The whole point of costs management is for the court to make orders so as to assist the parties to keep costs to a reasonable level. But in the circumstances of this case, I hope as I have explained, it is not possible for there to be any other outcome. I am, however, very grateful to both Mr Selby and Mr Wygas for their assistance."

This case was run under the costs management pilot in the Technology and Construction Court but 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”.

This judgment highlights the importance of being able to fully defend your budget by reference to the constituent elements of each phase.
Our budget planner was designed from the ground up with this at the forefront of our thinking.

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