Where costs are incurred as a result of a negligent mistake, either by way of mitigation or in carrying out incomplete work, those costs will be recoverable as damages. Whether all costs incurred should be recoverable has been a contentious issue.

This issue was tested in the recent case of Redbus LMDS v Jeffrey Green Russell (Redbus v JGR), in which we represented the defendant on the instructions of their insurers, Zurich Professional Limited. One would think as a matter of logic that costs incurred and paid should be recovered without assessment. That certainly is the view of McGregor on Damages (McGregor) which states:

“…forays attempting to change wellestablished doctrine and to overturn authorities stretching back in a solid line to Hammond v Bussey in 1888 are to be resisted.

The obvious common sense of this approach is brought into question when the level of costs appears to be extraordinarily high.

In Redbus v JGR, the claimant (Redbus) obtained a default costs certificate in the sum of £189,000 (the default costs). These costs were, by concession, agreed as Redbus’ standard basis costs. Redbus had in fact paid legal costs of £283,192 (the solicitor and client costs). Damages were sought by reference to this substantially higher sum.

Evidence disclosed a number of reasons for the substantial difference between the default costs and the solicitor and client costs, the most substantial being that two partners attended the trial, a litigation partner, who had conduct of the litigation, and the client partner, who presumably managed the expectations of the client.

There is relevant case law. British Racing Drivers Club (BDRC) v Hextall Erskine & Co determined that where costs are claimed as damages the appropriate machinery for their quantification is an assessment on the standard basis. BRDC v Hextall Erskine & Co prompted vigorous criticism from McGregor:

To speak … of the distinction between costs incurred in proceedings between the same parties and costs incurred in proceedings with third parties as anomalous is misconceived and flies in the face of over a century of authorities.

Ferris J in Yudt v Leonard Ross & Craig, possibly mindful of the criticism of McGregor, felt “constrained” to follow BRDC v Hextall Erskine & Co, awarding costs assessed on the standard basis as damages. Subsequent to this decision the issue was considered by Evans-Lombe J in Mahme Trust v Lloyds TSB (Mahme). He came to the same conclusion, but stated that he did so “with enthusiasm”. In LMDS Limited v Jeffrey Green Russell HHJ Behrens, who was sitting as a judge of the High Court, quoted the following extract of Evans-Lombe J in Mahme:

It seems to me that where the costs of litigation are sought to be recovered as damages the appropriate method of assessment is the amount which would be awarded on assessment by a cost judge on the standard basis. I see no reason why a claimant should recover as damages costs referable to every step that he took in the proceedings in question however unreasonable…

HHJ Behrens, after reviewing the evidence and finding that substantial amounts of the claimed costs were unreasonable, expressed his “respectful agreement” with Evans-Lombe J and awarded damages by reference to the default costs.

There is as yet no appeal authority on this issue, but in the light of the growing body of first instance decisions, irrespective of the views of McGregor, it is likely that costs awarded as damages will be subject to assessment on the standard basis.