The TCC’s latest judgment on cost estimates shows once again that it is leading the way in keeping legal costs down. In GSK Project Management Ltd v QPR Holdings Ltd, Stuart-Smith J found it:

“…hard to imagine anything more sterile than arguing about a grossly excessive cost estimate.”

It is possible that he hadn’t imagined a blog about a grossly excessive cost estimate!

If the subject matter is sterile, Stuart-Smith J’s comments about the claimant’s costs budget were anything but. His judgment should be required reading for lawyers everywhere. Having worked through a budget which was “so disproportionate to the sums at stake or the length and complexity of the case that something has clearly gone wrong”, and described the estimated hours as “quite simply absurd” and “astonishing”, he ordered GSK to pay QPR’s costs and directed GSK’s solicitors to inform their client of the terms of his judgment.

GSK Project Management Ltd (in liquidation) v QPR Holdings Ltd

The case itself was a relatively straightforward final account dispute that arose out of a contract to carry out works at Queens Park Rangers’ stadium, Loftus Road. GBK sought around £800,000 in unpaid invoices, while QPR counterclaimed for defective works. So far, so ordinary.

Things got interesting when the claimant produced its costs budget, showing estimated fees of around £800,000 and incurred costs of over £300,000. With the defendant estimating its fees at around £450,000, the budgeted cost of concluding the dispute far exceeded the amount at stake. Small wonder that GSK’s budget was contested and, ultimately, cut in half.

The judgment is the latest in a series of decisions which show that the TCC is taking a leading role in managing litigants’ legal costs.

Background to cost budgeting

The Jackson reforms were aimed at improving the efficiency of and reducing the costs of legal proceedings. One of the key outcomes was the introduction of costs budgets. This requires litigants to set out the time and cost (both incurred and estimated) of litigation at an early stage in proceedings. If a party’s budget is approved and it goes on to win the case, it will usually be unable to recover any costs that exceed the budget. You can see the logic. Courts are given the chance to examine and manage the costs before they get too high, and parties are forced to give early, detailed consideration to costs which incentivises them to settle outside court.

The TCC costs management pilot scheme ran from October 2011 to March 2013, and the TCC has remained at the forefront on this issue since costs budgets were rolled out for all multi-track cases in April 2013. A series of TCC decisions have provided guidance on the court’s approach to costs budgets. For example, in:

  • CIP Properties v Galliford Try, Coulson J found that the court had “unfettered” discretion to order that costs budgets be provided, even for claims above £10 million.
  • CIP Properties v Galliford Try (costs no. 2), Coulson J then took an axe to the claimant’s cost budget, and set figures for each phase of the litigation, despite the fact that some of the phases had already finished and even where the incurred costs were higher than his own figure.
  • Gotch and another v Enelco, Edwards-Stuart J had stern words for practitioners everywhere, as he stressed the importance of keeping costs proportionate and warned that “it is no longer acceptable for solicitors to carry on a war of attrition by correspondence”.

Lessons

Change can be frightening. When costs budgets were first introduced, solicitors might have worried about judges scrutinising their fees. Common concerns included that some firms’ hourly rates would be seen as too high, or that people who had trained at the bar might not appreciate the amount of work that certain parts of litigation can take (witness statements and disclosure in particular).

At first glance, the above decisions might suggest that these fears were well founded. But what struck me in reading the judgment in GSK v QPR is that, despite the judge’s criticisms, that isn’t the case:

  • While we should always be cautious about passing comment on costs incurred in matters we are not involved in (and therefore are not party to all the reasons why costs might be high but reasonable), it is hard to look at the estimated hours in GSK’s budget without drawing breath. 750 hours of lawyers’ time to prepare a 12-page particulars of claim? 224 hours for solicitors to prepare for a four-day trial? When you look at the time that was actually allowed (about 300 hours for the former, and 90 for the latter), it doesn’t seem unreasonable.
  • Even though QPR’s lawyers were charging roughly double the rates of GSK’s, QPR’s budget came out at around half the total. Not only does this suggest that the court will set a costs budget with enough scope for more expensive lawyers, it also underlines that there may be false economy in instructing a firm with lower hourly rates.
  • The judge began with the principle that “only exceptionally will it be appropriate or necessary to go through a [costs budget] with a fine-tooth comb”. As long as we think about estimates carefully and sensibly, it shouldn’t be too hard to come up with a budget that is proportionate.

Perhaps the most disappointing part of the judgment was that the court approved in full GSK’s budget for disclosure, which was estimated at around £30,000. Disclosure, often one of the most expensive items in litigation, was barely discussed in GSK. To answer the question of whether those Martian QCs can really understand the work of we Venusian solicitors, you will have to look elsewhere.

Conclusion

So, perhaps we can all sleep easy. While this case reinforces that the courts will not look kindly on grossly excessive costs, parties should be able to avoid the judge’s rod in most cases by keeping their fees proportionate to the case in hand. Indeed, the most surprising thing about the whole affair might just be that the club that famously signed Jose Bosingwa managed to come out of it looking costs-conscious…