In CIP Properties v Galliford Try, Mr Justice Coulson considered a claimant’s costs budget which had increased from £3.4 million to £9.2 million in a "relatively straightforward" building defects claim turning largely on expert evidence.
The claimant claimed damages of £18 million. That was hotly contested by the defendant and Part 20 defendants (of whom there were four). Coulson J observed that the main elements of the claim totalled £8 million.
The claimant’s costs budget had increased following the initial costs budget and now stood at £4.22 million incurred costs and estimated future costs of £5.05 million. Only disclosure had taken place in between. The claimant gave no explanation for the increase and Coulson J formed a “dim view” of the new costs budget which he considered to be “wholly unreliable”. He was “driven to conclude that [it]… had been deliberately manipulated”.
The claimant’s Birmingham solicitors claimed grade A partner rates at £370 per hour although the guideline rate is only £217 per hour. Coulson J considered the rate claimed to be unreasonable but he did not state what he considered to be a reasonable rate.
The judge also held the claimant’s cost estimate of £9.2 million was disproportionate to the value and complexity of the claim. He clearly felt the claimant’s damages were likely to be significantly less than the £18 million claimed.
The defendant’s costs budget was £4.4 million although that included the costs of the claims against the four Part 20 defendants.
Coulson J considered the following options:
- Ordering the claimant to submit a new budget
- Declining to approve the claimant’s costs budget
- Setting new budget figures
- Refusing to allow any further costs to be incurred by the claimant
The judge considered that only the third option - setting new budget figures - was workable. The first - ordering the claimant to submit a new budget - would simply add to the already high costs. The second - declining to approve the claimant’s costs budget - would leave the claimant’s costs to be determined at a detailed assessment (if necessary) and would leave the claimant’s advisors to “spend what they like”. The final option - refusing to allow any further costs to be incurred by the claimant - could leave the claimant “doubly penalised” by being unable to recover any future costs and with its incurred costs significantly reduced (evidently considered a real likelihood).
Against this background, Coulson J reduced the claimant’s budget to £4.28 million and the defendant’s budget to £4.22 million, a relatively modest reduction of just under £260,000.
The most interesting feature is the judge’s comment that “… the estimated [future] costs fall to be reduced, £ for £, to the extent that the amounts actually recovered on assessment in respect of costs incurred are higher…” than those indicated in the revised budget. So if the claimant recovered more than the budget for incurred costs, that increase is to be set off against estimated costs.
There are some practical lessons to be derived from this decision. In particular:
- The absence of any explanation for a very significant increase in costs was a major concern in this case; such increases need an explanation.
- Another significant concern was the claimant’s schedule of assumptions running to “over six closely typed pages” and which the judge considered excluded a large amount of work which was likely to be carried out thereby leaving the way open for a further significant increase in the claimant’s costs budget – probably another tactical misjudgement by the claimant in this case.
There is however a more fundamental problem. CPR Part 3.15(1) permits the court to manage the costs “to be incurred by any party” and the practice direction, 3DPD.2 at 2.4, makes it clear that “… the court may not approve costs incurred before the date of any budget.” The costs budgeting process is intended to be prospective and not retrospective.
However, where the claimant’s incurred costs were £4.22 million and the budget was limited to £4.28 million and in the light of Coulson J’s comments, it is reasonably clear he was managing pre-budget costs. The principle may have to be sorted out by an appellate court.
There are also wider concerns. One of two things must happen if this approach is to be sustained. Either the overall costs payable by litigants to their lawyers falls in line with the ‘price controls’ imposed by costs budgeting –the outcome intended by the Jackson reformers. If this happens, who will become a relatively poorly rewarded contentious lawyer when the market allows significantly higher rates to be charged by non-contentious lawyers?
Alternatively, there will be a significant reduction in the costs recoverable from a losing opponent from the current rule of thumb of 80 per cent of incurred/indemnity costs. That may make litigation more difficult to settle if only a relatively small proportion of a claimant’s costs (less than 50 per cent in this case) can be recovered from the loser and the balance has to be funded from the claimant’s damages.
One problem with the Jackson reforms is that they simply do not address this rather fundamental issue.