"In deciding to make an order for costs on account (of estimated costs) in this sum, I disregard Ms Bodnar's submissions as to partner hourly rates in relation to those estimated costs. The purpose of the principle articulated by Coulson J in MacInnes was to allow for a consistent approach where budgeted costs had been approved, thereby avoiding the need to engage in detailed argument about what may or may not be disallowed for good reason on detailed assessment." 
A useful case for receiving parties and a reinforcement of the court's desire for a consistency of approach and reluctance to engage in any form of shadow detailed assessment when seeking to determine an application for payment of costs on account.
This was a decision on the amount of payment to be made by Sarens to CBUK on account of costs pursuant to CPR 44.2(8) following judgment in favour of CBUK.
CBUK had incurred in the region of £140,000, but took as its starting point the figure of £128,124.54, being the total figure in its agreed costs budget. From that figure, it first deducted costs that it said were never in fact incurred (amounting to £24,010) to leave £104,114.54. It then added the costs of two applications in December 2017 ("the December Applications") which Sarens accepted in principle it had to pay, in the sums of £6,866 and £13,409.50 respectively. This exercise produced a total figure of £124,390.04 ("the Adjusted Figure").
CBUK contended that it was entitled to a payment on account of costs from Sarens of 90% of the Adjusted Figure, amounting to £111,951.04.
Sarens opposed a payment on account of costs at the level sought by CBUK, contending, in short, that it was not justified on the authorities and that there was every reason to think that the Adjusted Figure would be reduced on a detailed assessment. They argued that they should not be required to pay more than £74,634.02 on account, being 60% of the total adjusted amount of £124,390.04, or as approximately 80% of the realistic highest starting point for CBUK's costs taking into account two main criticisms:
(i) this figure included £6,428.54 for costs incurred by Bond Dickinson, a firm of solicitors which acted for CBUK in the adjudication but not in these proceedings; and
(ii) this figure included a further sum of £7,307 for pre-action costs in circumstances where there was no pre-action correspondence and a substantial sum had been incurred on the issues/statements of case phase, notwithstanding that CBUK had always maintained that the case was straight-forward.
CBUK relied on the decision of Coulson J in MacInnes v Gross  EWHC 127 (QB), at paragraphs -, which they said should be applied as an over-arching principle when dealing with an application for a payment of costs on account in a case where there was an agreed or approved costs budget. In that case the defendant had succeeded at trial and its approved costs budget amounted to £570,000, although its total costs were said to be very much higher than that. Coulson J said this at -:
"25…In my view, the first defendant's approved costs budget is the appropriate starting point for the calculation of any interim payment on account of costs. CPR 3.18 makes plain that, where there is an approved or agreed costs budget, when costs are assessed on a standard basis at the end of the case, "the court will…not depart from such approved or agreed budget unless satisfied that there is good reason to do so". The significance of this rule cannot be understated. It means that, when costs are assessed, the costs judge will start with the figure in the approved costs budget. If there is no good reason to depart from that figure, he or she is likely to conclude the assessment at the same figure: see Silvia Henry v News Group Newspapers Ltd  EWCA Civ 19.
26. One of the main benefits to be gained from the increased work for the parties (and the court) in undertaking the detailed costs management exercise at the outset of the case is the fact that, at its conclusion, there will be a large amount of certainty as to what the likely costs recovery will be. One consequence is that, for the purposes of calculating the interim payment on account of costs, the starting point will almost always be the payee's approved costs budget. Another consequence is that the court assessing the interim payment can ignore the fact that, as here, there may have been significant expenditure on costs by the payee above the budget figure: any increase is a matter for the costs judge and the relatively onerous burden of recovering more than the budget figure is on the payee: see Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd (No 2)  EWHC 1643 (TCC).
27. So when making an interim payment on account of costs in a case with an approved costs budget, the days of the educated guesswork identified by Jacob J in Mars UK Limited v TeKnowledge Limited  2 Costs LR 44 are now gone. Instead the court can be confident that there is a figure for costs which, because it has already been approved, is both reasonable and proportionate."
Accordingly, in MacInnes v Gross Coulson J took as his starting point the approved costs budget figure of £570,000 and made a reduction of 10% which he said he regarded as "the maximum deduction that is appropriate in a case where there is an approved costs budget". CBUK sought to persuade the court to adopt the same approach, submitting that the dicta of Coulson J in MacInnes v Gross had subsequently been approved by the Court of Appeal in Harrison v University Hospitals Coventry & Warwickshire NHS Trust  1 WLR 4456. In that case Davis LJ found that:
CBUK referred to the fact that when dealing with the first issue, Davis LJ had expressly agreed with certain observations made by Coulson J in paragraph 25 of his judgment in MacInnes v Gross :
"…in the context of considering an interim payment on account of costs, Coulson J in terms said that the significance of CPR r. 3.18 "cannot be understated" and meant that, where costs are assessed, the costs judge "will start with the figure in the approved costs budget". He roundly rejected the argument of the paying party that detailed assessment will "start from scratch". I agree with those observations of Coulson J".
Sarens argued that in MacInnes v Gross, Coulson J was only dealing with budgeted (or estimated) costs (which had been specifically approved) and was not dealing with costs which had already been incurred as at the date of that approval and that he cannot have intended to impose a general rule of payment of 90% of the approved budgeted costs (including incurred costs) on account in every case; such a rule, they argued, would fail to appreciate the clear distinction between the approach adopted by the court on detailed assessment to incurred costs and the approach adopted to estimated costs.
It was further submitted on behalf of Sarens that the approval by the Court of Appeal in Harrison of paragraph 25 of Coulson J's judgment in MacInnes v Gross was concerned only with his approach insofar as it related to budgeted/estimated costs and that in dealing with the second issue as to incurred costs Davis LJ had made it clear that incurred costs are not "approved" by a costs management order:
"46. …On the contrary the focus of a judge making a CMO is on estimating the costs reasonably and proportionately to be incurred in the future: as the opening words of CPR r 3.15(1) make clear. In undertaking this exercise the court may have regard to costs stated already to have been incurred: and that may in turn impact on its assessment of what may be reasonable or proportionate for the future. But paragraph 7.4 of Practice Direction 3E is quite specific: as part of the costs management process the court may not approve costs incurred before the date of the budget costs management conference. What it can do is record in the CMO its comments (if any) on such costs: which are then to be taken into account when considering reasonableness and proportionality: a direction now enshrined in the amended CPR r 3.15(4) and CPR r 3.18(c) with effect from 1 April 2017.
47. It follows in my view, that incurred costs are not as such within the ambit of CPR r 3.18 (in its unamended form) at all. Accordingly, such incurred costs are to be the subject of detailed assessment in the usual way, without any added requirement of "good reason" for departure from the approved budget ".
Having agreed with Sarens that Coulson J in MacInnes v Gross was concerned only with his approach insofar as it related to budgeted/estimated costs, Deputy Judge Joanna Smith QC continued:
15. Reading the judgment of Coulson J in light of the decision in Harrison, it seems to me that Ms Bodnar [for Sarens] is also right in her submission that Coulson J cannot have intended to put in place a general rule of 90% payment on account in respect of sums that are not to be treated as approved in the costs budget.
16. Mr Lixenberg [for CBUK] drew my attention to a passage at 44.2.12 of Volume 1 of the White Book 2018 at page 1360 as follows:
"In cases where the court has made a costs management order under r. 3.15, the receiving party's budget, insofar as it has been agreed between the parties or approved by the court, may be a sensible starting position for determining the 'reasonable sum' to be paid on account under r. 44.2(8). That is because, on detailed assessment, the court will not depart from an agreed or approved budget unless satisfied that there is good reason to do so (r.3.18(b))(see Thomas Pink Ltd v Victoria's Secret UK Ltd  EWHC 3258 (Ch), 31 July 2014, unrep. (Birss J), where payment on account ordered in sum amounting to 90 per cent of the claimant's approved budget)".
20. I of course accept both the desirability of consistency of approach and the undesirability of the court engaging in any form of shadow detailed assessment when seeking to determine an application for payment of costs on account. It is well established that the court should guard against the risk of being drawn in to costly and time-consuming satellite litigation on this subject. I also accept that insofar as the costs budget can properly be regarded as "approved" it is appropriate to take the approved figure (which will be the estimated/budgeted costs) as the starting point when seeking to determine an appropriate payment on account in respect of those costs and the maximum deduction in such a case should be 10%; that is what I understand Coulson J to have decided in MacInnes.
21. However, I do not accept that this is necessarily the approach that the court should adopt to incurred costs, which are, by definition, not approved costs, a point on which Coulson J's judgment did not focus. As to these, it seems to me that (consistent with the approach taken in cases where there is no approved costs budget) the court must determine in every case, a reasonable sum by reference to an estimate which will be dependent upon the circumstances, including the fact that there has as yet been no detailed assessment and thus there remains an element of uncertainty, the extent of which may differ widely from case to case, as to what will be allowed on detailed assessment (see the notes at 4.2.12 of Volume 1 of the White Book 2018). Accordingly, in my judgment, a reasonable sum in respect of incurred costs will often be one that is an estimate of the likely level of recovery subject to an appropriate margin to allow for error.
The Consequence of my Decision
22. The consequence of my decision on this over-arching point, seems to me to be that CBUK is entitled to recover 90% of its estimated/budgeted costs (following the decision in MacInnes v Gross) and that I must then seek to determine a reasonable sum in respect of incurred costs. In addition, it seems to me that I must also determine a reasonable sum in respect of the costs incurred on the December Applications, which do not form part of the estimated costs and cannot on any view be said to fall within CBUK's agreed costs budget.
Costs On Account in relation to Estimated Costs in the Agreed budget
23. Of the Adjusted Figure, CBUK's total estimated costs amount to £56,255, 90% of which is £50,629.50. In deciding to make an order for costs on account (of estimated costs) in this sum, I disregard Ms Bodnar's submissions as to partner hourly rates in relation to those estimated costs. The purpose of the principle articulated by Coulson J in MacInnes was to allow for a consistent approach where budgeted costs had been approved, thereby avoiding the need to engage in detailed argument about what may or may not be disallowed for good reason on detailed assessment. As I understand it, the maximum deduction of 10% envisaged by Coulson J is designed to take account of the possibility that there may be deductions for good reason, and I have applied that deduction.
Costs on Account in relation to Incurred Costs and the Costs of the December Applications
26. Ms Bodnar makes the same point on partner hourly rates in relation to incurred costs as set out in the agreed Budget and in relation to the costs incurred on the December Applications. In particular, she says that Burness Paull LLP is a Scottish firm with offices in Aberdeen, Edinburgh and Glasgow and that the partner rate of £360 per hour (in excess of even the guideline hourly rate for partners in Central London firms) is disproportionate. She contrasts this rate with the partner rate charged by her own solicitors, Freeths LLP, of £249 per hour and she contends that Sarens will have a good prospect on detailed assessment of achieving a reduction on Burness Paull LLP's partner rates to a similar figure.
27. Mr Lixenberg argues that it is impossible for the court to conclude that there is anything objectionable about the rates. He points out that the guideline rates do not extend to Scotland and he draws my attention to a passage at 47.14.8 of Volume 1 of the White Book 2018, to the effect that the costs officer's general knowledge and experience of local conditions and circumstances remains the only firm basis for reliable and consistent assessment and that the guideline figures are not supposed to replace that experience and knowledge. He also relies on a decision of HHJ Mackie QC in Amadeus IT Group SA v Lycamobile UK Limited  EWHC 677 (Comm) at  to the effect that "the guideline rates do not apply much in this court".
28. I have a great deal of sympathy with Mr Lixenberg's arguments, but it seems to me that without carrying out a detailed analysis of the type that the court is discouraged from undertaking (and indeed is not adequately equipped to undertake) on an application of this sort, I cannot rule out the possibility that Burness Paull LLP's partner hourly rate may be reduced on detailed assessment.
29. As to incurred costs at the pre-action stage, I am told by Ms Bodnar that there is no basis for any claim for costs in relation to Bond Dickinson's fees and that there was no pre-action work which could properly have incurred fees. These are not issues on which I can sensibly form a view. CBUK's costs budget is verified (as required) by a statement of truth and, as Mr Lixenberg rightly points out, I am not in a position to determine that pre-action fees either were not, or should not reasonably have been, incurred.
30. It seems to me that all I can sensibly do at this stage is record that there is an argument that Sarens is entitled to a reduction in relation to Pre-Action costs.
31. Doing the best I can in the exercise of my discretion to arrive at a reasonable sum (with sufficient margin for error) on account of incurred costs and the costs of the December Applications (and also bearing in mind that it is suggested by Sarens that there may be other reductions for incurred costs and in respect of the costs of the December Applications), I intend to apply a 30% reduction. By my reckoning, total incurred costs amount to £47,859.54 while the costs of the December Applications amount to £20,275.50, together £68,135.04. Reducing this figure by 30% leaves £47,694.53.
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