Costs budgeting – Costs management order – Practice Direction 51G – Parties to construction dispute seeking court’s approval of their costs budgets by costs management order – Whether costs set out in budget reasonable and proportionate – Whether appropriate to approve costs budgets in alternative sum – Cost management order refused
The claimant brought proceedings against the defendants for damages in connection with building works carried out to her property. In those proceedings, she sought to recover the cost of rectifying defects and the amount of alleged overpayments made to the second defendant contractor. On the issue of overpayments, the claimant alleged that additional costs had been incurred by reason of the unsuitable form of contract used, that certain elements of the contractor’s claim had not been justified or supported by reference to invoices and that the approach to valuation employed by the first defendant, a firm of construction professionals, had resulted in significant overpayment. The dispute between the claimant and the second defendant was resolved and the claim proceeded against the first defendant only. The amount of the claim was £1.1m.
The parties engaged in mediation, as had been envisaged at a case management hearing in December 2012, and meanwhile neglected to comply with the timetable laid down by case management directions given at that hearing. As a result, the trial originally scheduled for October 2013 was adjourned at a pre-trial review in July of that year. A case management hearing was scheduled solely on the issue of costs budgeting, with a view to the court approving the parties’ revised costs budgets by a costs management order under Practice Direction 51G.
At that hearing, the claimant presented a costs budget of nearly £900,000, while that of the defendant was more than £700,000; the total predicted costs therefore considerably exceeded the value of the claim. The claimant’s budget included: (i) references to costs already incurred, including £300,000 prior to the December 2012 case management conference and £100,000 in respect of disclosure; (ii) expert’s fees said to be incurred or estimated in the sum of £100,000, before account was taken of any involvement at the trial; and (iii) a lump sum for “contingent costs” and another for settlement costs.
Held: The court declined to make a costs management order.
Although the costs budgeting regime was still in its infancy, and the court should not unduly penalise litigants or their solicitors merely because some of the particular aspects of costs budgeting were unfamiliar or counter-intuitive, it was important that all litigants and their solicitors should get to grips and comply with the new regime as soon as possible. The costs in the parties’ costs budgets were disproportionate and unreasonable since they significantly exceeded the amount that the claimant would ever recover in the proceedings. In reaching that conclusion, the court recognised that a professional negligence case of the kind in issue could involve costs that other commercial disputes might not, including the need for expert evidence to demonstrate that a professional fell below the required standard. It also recognised that an allowance should be made for the non-quantifiable, but potentially very serious, damage to the defendants’ professional reputation that could be caused by such a claim. However, even making due allowance for those factors, the budget costs figures presented by the parties were not proportionate or reasonable, particularly given the relatively limited nature of the disputes between the parties.
One test of proportionality was whether the trial was likely to be an end in itself or would simply be used by the parties to put themselves in the strongest case to argue that the other side should pay all or most of their costs. The latter was almost inevitable where, as in the instant case, the costs were much higher than the amount claimed or recovered.
Addressing the individual elements of the claimant’s costs budget: (i) costs already incurred could not be the subject of a costs management order but could be the subject of comment. On that issue, the costs incurred by the claimant prior to the December 2012 case management hearing were too high, given the relatively straightforward dispute in the case. Further, the sum attributed to disclosure was disproportionate and unreasonable where the overpayment dispute centred on an absence of documents and defects discovered post-contract, rather than during the building works, and extensive disclosure was therefore not warranted; (ii) it was unsatisfactory to list items as either incurred or estimated without specifying which was the case and without giving any breakdown of either. To allow a proper analysis, and enable the court to make a costs management order, the costs that had been incurred, which therefore could not be the subject of an order, had to be separated out from those that were estimated, which could be the subject of an order. In particular, the claimant had given no proper breakdown of the amount of expert’s fees before trial and that figure was disproportionate and unreasonable given that extensive expert assistance was unlikely to be required; and (iii) it was inappropriate to include large lump sums for contingent costs and settlement costs without giving any further breakdown of how those costs were calculated.
It was impossible to make any sensible assessment of the appropriate figures for costs in circumstances where the parties had made no criticism of each other’s budgets in specific, as opposed to general, terms and no alternative figures had been presented on which the court could base a reduced, but approved, costs budget. The court therefore had nothing that it could rely on to come up with reasonably accurate alternative figures. It was not appropriate for it to impose its own figures without notice and without any supporting material. In those circumstances, since neither party’s costs budget was proportionate or reasonable, the court declined to make any costs management order.
Per curiam: The court’s adverse comments on the amount of the parties’ costs budgets would become relevant at the end of the case when the amount of costs recoverable by the successful party came to be decided. The better view that that the absence of an approved costs budget would not produce the draconian result that the successful party recovered no costs at all. The fact that the estimate of costs at the present stage of the case appeared disproportionate and unreasonable did not mean that a final recovery in a lesser sum, by agreement or on assessment, would be inappropriate.
Jonathan Selby (instructed by Olswang LLP) appeared for the claimant; Luke Wygas (instructed by CMS Cameron McKenna LLP) appeared for the defendant.
Sally Dobson, barrister
