The court has criticised the claimant’s costs budget in a construction claim as “unreliable, disproportionate and unreasonable” and has set new budget figures indicating the maximum the claimant should recover in relation to each stage of the litigation, taking into account both past and future costs: CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd & Ors [2015] EWHC 481 (TCC).

The decision is particularly interesting for the court’s approach to costs budgeting where it takes the view that the costs already incurred by a party are far too high. Costs budgeting is essentially a prospective exercise. Under the relevant practice direction, the court cannot approve costs incurred before the date of a budget but can record its comments on them and take them into account when considering the reasonableness and proportionality of the subsequent costs.

Here the court gets round this issue by setting what are, in effect, composite budget figures, made up of: (a) the figures which, in the court’s view, would be recoverable on assessment in respect of incurred costs for each phase of the litigation; and (b) the approved budget figures in respect of estimated costs for each phase. To the extent the claimant actually recovers more on assessment than the figures estimated in (a), the budgeted figures in (b) will fall to be reduced pound for pound.

A striking feature of this case is that the total budget figure set by the court is £4.28 million for both past and future expenditure, which is less than the costs the claimant has already incurred. The decision is also of interest in suggesting that:

  • the complexity of a case may, in some cases, be more important than its value in determining whether costs are disproportionate; and
  • a party may be criticised for seeking to include overly widespread assumptions and contingencies, if the court considers that this is an attempt to undermine the budgeting exercise and give the party room to manoeuvre at a later stage.

Background

The claimant property developer brought proceedings against the defendant contractor for the cost of putting right alleged defects in the works. The contractor issued third party proceedings against the architects and certain of their sub-contractors. The total claim was put at £18 million, though that figure was hotly contested.

Although the quantum of the claim meant that the case fell outside the mandatory costs budgeting regime, the court held that it had a broad discretion to order budgeting in such cases (see post) and exercised that discretion in this case.

The claimant’s costs budget stated incurred costs of approximately £4.2 million and estimated future costs of some £5 million. In addition the claimant had incurred further sums on preliminary issues that were not included in the budget, which meant its total costs were nearly £9.5 million. This was in contrast to the figures stated in the claimant’s Case Management Information Sheet filed a year earlier, which put incurred costs at £1.5 million and total costs at £3.4 million.

It was also in contrast to the defendant’s figures of just under £1.5 million for incurred costs and £3 million for future costs, making a total of around £4.5 million. Each of the additional parties’ total costs were significantly less.

Decision

The court (Coulson J) was highly critical of the claimant’s costs budget, describing it as unreliable, disproportionate and unreasonable. The court set new budget figures for each stage of the litigation, as described in more detail below.

Unreliable

The claimant’s budget was found to be wholly unreliable for a number of reasons, including:

  1. The huge increase in both incurred and estimated costs since the claimant’s Case Management Information Sheet was lodged, and the absence of any explanation as to how and why the figures had increased. Coulson J was highly critical of the claimant’s “unwarranted accusation” that the court should not have any great regard to the costs budgets put forward by the defendant and the additional parties because they had “an incentive” to advance low figures. In truth, he said, the party who was most vulnerable to such an accusation was the claimant, who put forward a low figure when arguing that it should not produce any costs budgets at all, but once the court ruled against the claimant on that point, its incurred costs “mysteriously increased”. The absence of any explanation for these increases made the court suspicious of the figures now put forward by the claimant.
  2. The increase in the claimant’s costs relating to preliminary issues which had later been abandoned by the defendant – costs that were not included in the claimant’s budget. Once the defendant was ordered to pay the claimant’s costs, the claimant asserted that its costs relating to the preliminary issues were over £500,000 compared to its original estimate of £150,000. The unjustified and unexplained increase, and the exclusion of those figures from the costs budget, were further reasons to doubt the reliability of the budget.
  3. The schedule of assumptions and contingency, which contained 65 separate assumptions and alleged contingencies relating to the claimant’s costs budget. Coulson J commented that there were so many assumptions, and they were so widespread in nature and effect, that they alone rendered the budget wholly uncertain and therefore unreliable. He described this as “a wholly illegitimate exercise in avoiding the certainty and clarity that comes from costs management orders” which was designed to undermine the whole basis of such orders.

Disproportionate

The claimant’s costs were found to be “plainly disproportionate” to both the complexity and value of the claim.

  1. In Coulson J’s view, this was not a particularly complex claim. He described it as a “relatively standard TCC defects case” where the issues of both liability and quantum would almost certainly turn on the expert evidence. There would be no need for extensive witness statements or a lengthy chronological bundle. Further, the party with the most work to do going forward was the defendant, because it was not only defending itself against the claims but also, to the extent necessary, seeking to pass them on to the additional parties. The defendant’s costs came to a total of almost £4.5 million which the judge said was at the upper end of costs which could be said to be proportionate to this sort of claim. The claimant’s figure of around £9 million was therefore wholly disproportionate to the complexity of the case.
  2. The claim was said to be worth £18 million, though the defendant and the additional parties alleged that the claim was grossly exaggerated. Coulson J said it was not possible for the court to form a concluded view at this stage as to the true value of the claim, but he considered it most unlikely the claimant would recover the full sum claimed. In any event, although value was a factor in calculating proportionality, in a case of this type, it was not as important as complexity. Coulson J commented: “After all, it might cost £300,000 or £30 million to rectify drainage defects, but the expert evidence necessary to prove those defects (and the reasonableness of any remedial scheme) will be broadly the same.” Even taking a value of £12 million for the claim, it would be disproportionate for the claimant’s costs to be assessed at 75% of that value.

Unreasonable 

The court rejected each of the reasons the claimant had put forward to seek to justify its costs being more than twice the defendant’s. Having done so, the court was left with a set of claimant’s costs which were out of all proportion to those of any other party, with no proper reasons put forward to justify the differences. On the face of it, Coulson J commented, the claimant’s costs were unreasonable on that basis alone.

However, Coulson J went on to comment in detail on the incurred and budgeted costs for each of the nine phases of the case, plus contingencies, identifying for each phase a figure which he considered was the most that could be said to be reasonable for that phase. That gave a total of £4.28 million.

The appropriate order

The court considered and rejected various options which had been identified by the parties:

  • Ordering the claimant to prepare a new budget: This would simply add to the costs, and since the real difficulty was the huge volume of costs already incurred, that problem would not change in any new budget.
  • Declining to approve the claimant’s costs budget (as he had in Willis v MRJ Rundell & Associates Limited & anor [2013] EWHC 2923 (TCC), considered here): This would mean that the arguments that had already been canvassed would remain unresolved, and would have to be considered and decided later.
  • Setting the budget for future costs at nil, so that the claimant could not recover more than it had already spent: This meant the claimant might be doubly penalised, in that the defendant could seek to reduce the amount allowed for incurred costs on assessment and the claimant would be unable to recover further costs as a result of the nil budget.

Coulson J concluded that the appropriate way forward was to set costs budget figures on a phase by phase basis, but not just looking at the prospective costs. Such a budget, when added to incurred costs, would result in an overall figure far in excess of what he considered to be reasonable and proportionate.

Instead, the court set budget figures for each phase made up of:

  1. the figures it considered to be recoverable on assessment in respect of incurred costs, and
  2. the approved budget figures in respect of the estimated costs.

The budgeted costs would fall to be reduced, pound for pound, to the extent that the amounts actually recovered on assessment in respect of costs incurred were higher than the figures the court had indicated.