[2017] EWHC 1108 (TCC)

Cost budgeting has become an important part of litigation. Essentially parties put forward their estimate of the likely costs of the proceedings and these estimates are considered and approved (or not) by the court. The approved figures stand as a yardstick for the parties’ ultimate cost recovery if they are successful at trial. Following a hearing, the court will not depart from a costs budget during detailed assessment unless there is good reason to do so.

Parties are expected to put forward a cost budget discussion report (known as Precedent R) which in theory is intended to identify real areas of dispute and so narrow the focus of any issues that need to be raised before the court. In this case, Mr Justice Coulson expressly cautioned against those who:

“treat cost budgeting as a form of game, in which they can seek to exploit the cost budgeting rules in the hope of obtaining a tactical advantage over the other side”.

The claim here was for £820,000 plus interest. The bulk of the claim was for loss of profits following the closure of a hotel as a result of a gas explosion. The Judge described Churchill’s defence as basic, being a combination of bare denials and non-admissions. It was “an insurer’s defence straight out of the 1970’s”.

Findcharm’s budget was £244,676.30 (not including costs already incurred). Findcharm’s budget, in the usual way, made a number of assumptions to explain how the budget had been prepared. For example, Findcharm had assumed that no expert evidence was necessary on one key issue, namely the cause of the explosion, because no positive defence had been pleaded, and that when it came to quantum, there would be a single joint accountancy expert. When it came to witness evidence, the Judge noted the need to explain the background to and circumstances of the explosion, together with detailed factual evidence of how the claim for loss of profits was made up. Churchill’s cost budget was for £79,371.23, a sum described by the Judge as:

“completely unrealistic. It is designed to put as low a figure as possible on every stage of the process, without justification, in the hope that the court’s subsequent assessment will also be low. In my view, therefore, it is an abuse of the cost budgeting process.”

The Judge approved Findcharm’s budget figures as being reasonable but also noted that Findcharm had not unreasonably accepted the Churchill estimate. As a consequence Churchill were bound by the figure (which of course was significantly less than that of Findcharm) that they themselves had put forward.