Your Costs Budget exceeds the value of the claim and is significantly higher than the Defendant’s. What do you do? Sean Linley, Costs Consultant, reports.
Two of the most common arguments raised by Defendants against a Claimant’s costs budget are as follows:
- The Costs Budget exceeds the value of the claim;
- The Claimant’s Costs Budget exceeds that of the Defendant.
There are often genuine reasons and explanations for the differences, however, surely some weight must be attributed to the above issues? After all, wouldn’t these issues be encapsulated by the proportionality test?
In the case of Bloomberg LP v Sandberg (a Firm) and Others  1 Costs LO 1 the Court gave consideration of these very issues.
The claim related to the recovery against three defendants in relation to advice given to the claimant by the defendants as to the extent of necessary remedial works and/or adequacy of the cladding and the cladding’s fixing of a property in London.
The Claimant’s unapproved Costs Budget gave a total spend of £2,288,286.59 against a claim valued slightly in excess of £2m. We will come to the final approved figure later.
The Court did accept that whilst the Defendants’ Costs Budgets may be useful indicators for the resources required in the litigation it would not take into account either the “rates nor hours of the first defendant’s costs budget.” It was accepted by the Court that there were good commercial reasons why solicitors acting for an Insurer would charge less in respect of both time and rates.
It was therefore the Court’s task to consider proportionality not just in terms of the time claimed but also by the total sum which the Claimant hoped to recover in respect of each phase.
The Court raised concerns in relation to three key areas:
- Incurred Costs
The Claimant’s incurred costs totalled over £985,000.00 against the Third Defendant’s costs of just over £300,000.00. The Court stated that “even allowing for there being a greater burden on any Claimant, it [was] difficult to understand how such a sum was incurred” and went on to state:
“That the costs are so high is an indication to me that the claimant and its solicitors are conducting this case in a way which is disproportionate to is value or importance.”
Adopting the approach set out by HH Judge Seymour QC in Redfern v Corby Borough Council it was determined that the only way to take into account the costs incurred was to approve the estimated costs at a lower amount then they would otherwise have been allowed at (the Court not having the power to interfere with incurred costs).
The first lesson is to remember that proportionality must be in mind from the date of the first instruction. Costs cannot be left until the CCMC. If you do not plan your costs from the start then be prepared to be criticised later and for it to impact upon the estimated costs you will be allowed to recover.
- Disclosing information about costs may come back to haunt you
Secondly, the Claimant prepared a Case Management Information Sheet (‘CMIS’) in October 2014. In that document, it was estimated that £650,000.00 had been incurred to date and provided an estimated of overall costs of £1,400,000.00. This contrasted with the Precedent H dated 18 December 2015 which gave incurred costs of £986,277.08 and overall costs of £2,288,286.59.
The Claimant contended that the figures in the CMIS were estimates only, that additional costs had been incurred since the CMIS and in the production of the detailed budget there was a closer analysis of the work that would be required.
The Court was not satisfied by any of these reasons and was particularly critical of what it described as the ‘scale of increases’ and that this called ‘into question the reliability of both records of the work done and the analysis of the work to be done’.
The second lesson is to always ensure that you are completely satisfied that the costs information you disclose is always as correct as possible. If it isn’t it can come back to haunt you. It is best to be proactive in such a scenario. If you want an early indication of costs, then instruct your costs professional early. Such a task needn’t incur further expense and would instead feature as the part preparation of the Costs Budget. Lawyers will already be aware that the costs of preparing the Costs Budget is limited to 1% of the approved Precedent H (or £1,000.00 whichever is greater) and so there should be no fear in this regard. This is ultimately beneficial as it ensures all the time spent is captured from the start avoiding the undermining of any subsequent estimates provided.
- Reliance on Counsel
The third and final issue raised by the Court was to the use of Counsel. The Court advised that the ‘Precedent H [was] indicative of over-involvement of Counsel,’ specifically referring to the incurred pre-action fees of £45,000.00 of an example of this. It was further stated that ‘the fees claimed in respect of Counsel during the preparatory phases [was] high’ and this suggested ‘that the approach taken to this case by the claimants or their solicitors [was] disproportionate to its value and / or importance’.
The Court chose to follow the approach adopted in Kazakhstan Kagazy plc v Zhunas and did so specifically to Counsel’s Fees. Reference was made to the judgment of Legatt J where he stated:
“The touchstone is not the amount of costs which it was in a party’s best interests to incur but the lowest amount which it could reasonably have been expected to spent in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances.”
This is the harsh reality of proportionality post-Jackson. The third lesson is in reality a re-hash of the takeaway from points 1 and 2. The Court can and will take into account incurred costs and proportionality must be borne in mind from the outset.
The Court’s position was right in not adopting a simple side by side comparison of the Costs Budget and provided more weight to the Claimant’s Costs Budget on its own merit.
Speaking in the judgment it was stated that:
“If the claimant is content to pay the fees set out in Precedent H, that is a matter for their commercial judgment. However, unless those fees are reasonable and proportionate, tested objectively, the claimant should not expect to recover them from any other party to the litigation.”
With this in mind the Court approved the Claimant’s costs budget in the sum of £1,162,000.00, a reduction of over 50% and approximately 50% of the claim value.
The warning is there and plain to see, costs management should begin when instructed and continue until the claim is concluded.
Solicitors should see Costs Budgeting as an opportunity. If proportionality is dealt with early on then lawyers have a model to follow. As long as costs are managed then it leads to a compelling argument whereby if costs are within budget it follows that they must be globally proportionate.
Certainly Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB) which demonstrated the importance of the Costs Budget upon the Detailed Assessment Process where Mrs Justice Carr DBE stated that:
“The court will not – the words are mandatory – depart from the budget, absent good reason. On a detailed assessment on a standard basis, the costs judge is bound by the agreed or approved costs budget, unless there is good reason to depart from it.”
In addition the Court of Appeal will be looking at this very issue in May 2017. Nonetheless, the time to act is now and the message is clear, ignore costs management at your peril.
For further information and support on any of these matters, please contact Sean Linley, Costs Consultant at PIC or call us now on 03458 72 76 78.