The High Court has declined to make a costs management order, saying that both parties’ budgets were disproportionate and unreasonable but the court had no material on which to come up with sensible alternative figures: Willis v MRJ Rundell & Associates Limited & anor [2013] EWHC 2923 (TCC). Although the judge (Coulson J) could have ordered the parties to return at an adjourned hearing with revised budgets, he decided against this on the basis that the parties were busy preparing for trial and he did not want to “increase the costs burden any further”. He noted that his adverse comments on the budget figures would become relevant when the successful party’s costs came to be assessed at the end of the case. A number of points of interest come out of this decision:

  • Although each case will turn on its facts, the judge’s comments suggest that parties’ costs budgets are likely to be considered disproportionate and unreasonable where they are, in aggregate, significantly more than the maximum value of the claim. Here the budgets totalled £1.6 million compared to a claim of £1.1 million.
  • The decision illustrates the court’s difficulties where it believes the budgets are too high but neither party has made specific criticisms of its opponent’s budget (most obviously because both parties’ budgets are similar). In such circumstances the court has little to go on in coming up with alternative figures.
  • Where sums are included for contingent costs, it must be clear what they are for and how they have been calculated, for example a contingency for a potential security for costs application. This gives rise to obvious issues where a party does not wish to show its hand.

Coulson J is the judge leading the current review as to whether the existing exceptions to the costs budgeting regime should be removed (see here). He has also given a number of previous decisions which take a strict approach to revisions to and/or departures from budgets (see here and here).

Background

The underlying action was a professional negligence claim against a construction firm. The case proceeded under the pilot costs management scheme which applied to cases in the Technology and Construction Court (TCC) before 1 April 2013. Under the pilot scheme rules, the court may make a “costs management order” approving the costs budget of any party, after the court has made any appropriate revisions. Importantly, when assessing costs at the end of the case, the court will not depart from a party’s last agreed or approved budget unless satisfied that there is good reason to do so. Similar procedures have now been implemented more widely as part of the Jackson reforms (see here for more information).

The total value of the claim originally pleaded in this case was about £1.6 million but by the time of the relevant costs management hearing (which took place some nine months after the initial case management conference and following an unsuccessful mediation) the claim was put at a maximum of about £1.1 million. The claimant’s costs budget was for almost £900,000 plus VAT; the defendant’s was about £700,000.

Decision

The judge declined to make a costs management order. He noted that the total budgeted costs were about £1.6 million compared to the claim’s maximum value of £1.1 million, commenting:

“In other words, 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.”

He accepted that a professional negligence claim can involve additional costs, including because expert evidence will almost always be necessary and because considerations of proportionality need to include an allowance for possible damage to the defendant’s professional reputation. Even allowing for these factors, however, the judge thought the budgets were too high, particularly given the relatively limited nature of the disputes between the parties.

The judge was critical of various aspects of the claimant’s budget including:

  • The fact that some items were said to be both incurred and estimated, without it being clear which was which. This was not satisfactory; incurred costs (which cannot be the subject of an order) must be separated out from those which are estimated.
  • The inclusion of a large lump sum (£54,590) for contingent costs, which was not further broken down. Although it was acceptable to include contingent sums, it must be clear what those sums were for and how they had been calculated.
  • Experts’ fees of £100,000 excluding involvement at trial, which the judge said appeared disproportionate and unreasonable since the experts’ assistance was unlikely to be extensive. Commenting that he would have expected to see a figure around half that amount, he said: “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.”

The judge said that, in an ideal world, the court would be able to provide alternative figures where the estimates were too high, and to make a costs management order on that basis. Here however, since the parties had not made specific criticisms of their opponents’ budgets, the court had nothing to rely on in coming up with alternative figures. He did not consider it appropriate for the court to impose its own figures without notice and without supporting material.

He recognised that he could order the parties to return at an adjourned hearing with new budgets, but said he was concerned that the parties had a lot of work to do to be ready for the trial at the end of the year, and he was “anxious not to increase the costs burden any further”. He therefore declined to make a costs management order, and merely required the parties to keep their costs budgets up to date and to provide them to the court at the pre-trial review. He noted that his adverse comments on the amounts of both parties’ budgets would become relevant at the end of the case when the costs to be recovered by the successful party would have to be decided.

He added: “…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 [the pilot practice direction]. 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.”