Mr Justice Coulson (Head of the Technology & Construction Court) has issued a stern warning to parties to legal proceedings not to use the recently introduced Cost Budget Discussion Report process as a tactical game.
"… some parties seem to treat cost budgeting as some form of game, in which they can seek to achieve tactical advantage over the other side. In extreme cases, this can lead one side to offer very low figures in their Precedent R, in the hope that the court may be tempted to calculate its own amount, somewhere between the wildly difference sets of figures put forward by the parties. Unhappily, this case is, in my view, an example of that approach".
Costs Management Procedure
As part of the court's costs management powers, all parties (except litigants in person) have to file and exchange costs budgets setting out their estimated costs for each phase in the proceedings Invariably, the courts are having to spend more time on costs management. The Cost Budget Discussion Report (i.e. Precedent R) was recently introduced as a way to make the budgeting process more efficient and user friendly. It requires a party that disagrees with an opponent's costs budget to set out the estimated costs that it agrees or disagrees with, the reason for the disagreement and put forward its own offer for each phase of the costs. The intention of the process is to identify the areas of real dispute between the parties so that the court can focus on these. However, there have been instances where some parties have offered deliberately low figures in the hope that the court will simply adjust the opponent's budget to a middle ground between the two sets of figures, as appears to have been the case in Findcharm Ltd v Churchill Group Ltd .
The Claimant operates the Michelin starred Locanda Locatelli restaurant located in the Hyatt Regency Hotel in Portland Square, London. The Defendant owns the hotel. In November 2014 there was a gas explosion within the hotel which saw it closed for four months. The Claimant brought a claim against the Defendant for losses sustained during the period that the restaurant was closed, estimated at £820,000. The largest element of the loss was for business interruption and loss of profit.
The parties exchanged costs budgets, with the Claimant's revised budget totalling approximately £245,000 compared with the Defendant's total of circa £79,000. The Claimant agreed the Defendant's budget but the Defendant objected to the Claimant's budget in its Precedent R, and made an offer of around £47,000 in respect of the Claimant's estimated costs, just 20% of the Claimant's estimated costs.
Coulson J commented that the Defendant's costs budget of £79,000 was "on any view, an unrealistically low budget. However, since Churchill have put it forward, Findcharm have (not unreasonably) agreed it."
He criticised the Defendant's Precedent R and said it was unjustifiably low and completely unrealistic. He made a number of negative observations on the Defendant's Precedent R, commenting that some of the offers made were "silly". For example, the Defendant had made an offer of £5,300 against the Claimant's estimate of around £40,000 in respect of the Claimant's costs for the witness statement phase. The Judge found the Defendant's offer to be "quite simply incredible" in a case where 5 witnesses were expected, as the Defendant's offer translated to just over £1,000 per witness.
The Judge stressed that Precedent R obliges a party to adopt a realistic attitude in order to assist the court with the identification of real disputes. He observed that the Defendant's Precedent R was designed to put as low a figure as possible on every stage of the process in the hope that the court will choose a middle ground between the two figures. He held that the Defendant's Precedent R was of no use and even an abuse of process. He therefore disregarded the Precedent R and, having determined that the Claimant's costs budget was reasonable and proportionate, approved it in full without any deduction.
This case illustrates the importance of ensuring that any objection or offer that a party makes in its Precedent R is properly reasoned and justifiable. The courts will not tolerate parties using the costs budgeting process as a tactic to lowball their opponents by offering unreasonably low offers in the hope that the courts will settle for a middle ground. Precedent R was introduced to assist the court in costs management and to save time. There is therefore a critical need to ensure the process is properly followed.
This is part of a wider trend we are seeing across many of our cases, especially in the TCC. Parties must act reasonably to assist the court or face serious consequences.
DAC Beachcroft is acting for the Claimant in the case.