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In the case of Cleveland Bridge UK Ltd v Sarens (UK) Ltd  EWHC 827 (TCC), the Technology and Construction Court (TCC) has confirmed that where a successful party's costs have been subject to costs management, any order for a payment on account of costs will be made based on 90% of the budgeted amount plus an estimated recoverable amount for incurred or unbudgeted application costs. Written by Lucy Baldwin, Senior Costs Lawyer at Paragon Costs Solutions.
This case is relevant where a successful party is seeking an order for a payment on account of costs in any case where they have a costs management order. The real question which was answered here was whether the 90% payment on account advocated by Coulson LJ in MacInnes v Gross  EWHC 127 (QB), related to all of the costs claimed within the budget, or just the budgeted costs.
The judgment makes clear that courts should be awarding 90% of budgeted costs only. In relation to any costs which fall outside of this, such as the incurred costs or the costs of any unbudgeted application, a payment on account should be based on an estimate of what may be recovered on detailed assessment, allowing for a reasonable margin of error.
Following the judgment in this matter, Sarens were ordered to pay Cleveland Bridge UK‘s (CBUK) costs of the action. Sarens did not object to the ordering of a payment on account of costs pursuant to CPR 44.2(8) but there was an issue as to how much should be paid on account.
CBUK had incurred around £140,000 in costs, of which £128,124.50 was the amount of the agreed budget. CBUK deducted from this amount any costs which had not been incurred, and added the costs of two applications which Sarens accepted that they were liable for. The adjusted amount was £124,390.04. CBUK submitted that they were entitled to a payment on account of 90% of the adjusted amount.
Sarens contended that there was good reason to suppose that the adjusted figure would be reduced at detailed assessment and that they should therefore not be ordered to pay any more than 60% of the adjusted amount, or 80% of the likely costs which CBUK could recover.
The primary disputes as to the level of CBUK's costs were hourly rates and that the incurred costs would be significantly reduced as they included costs which would be unrecoverable in principle. These reductions would bring the total recoverable costs down to £94,540.90; which Sarens contended was the highest starting point for the recovery of CBUK's costs.
The court considered the case of MacInnes v Gross , where Coulson J expressed the view that the approved costs budget was the starting point when calculating a payment on account of costs. Coulson LJ awarded a payment on account representing 90% of the approved costs budget. Reference was also made to Thomas Pink Ltd v Victoria's Secret UK Ltd  EWHC 3258 (Ch), where 90% of the Claimant's total costs budget was awarded on account.
The court in this case agreed with the defendant’s contention that the 90% award should be made in relation to the budgeted, and not total, costs in the costs budget. As to incurred costs, it was found that the court should determine a reasonable amount to be paid on account, by reference to what may be allowed on detailed assessment. This amount should be an estimate of likely recoverable costs subject to an appropriate margin of error.
Accordingly, an appropriate payment on account of costs in this case would comprise 90% of the budgeted costs, plus a reasonable sum in respect of the incurred costs and the costs of the unbudgeted applications. 90% of the adjusted budgeted figure was £50,629.50.
No further reduction was made to account for the possibility that there may be a reduction to budgeted costs if the hourly rate was ultimately reduced, as the 10% reduction proposed by Coulson LJ was intended to account for any reductions as a result of good reason.
As to the incurred costs, the court did not consider that it was the appropriate time to consider the hourly rates or the pre-action costs and made a broad brush reduction of 30%.
The payment on account was awarded in the sum of £98,000 and no order was made as to the costs of the hearing itself.
Lucy Baldwin is a Senior Costs Lawyer at Paragon Costs Solutions, and a member of LexisPSL’s Case Analysis Expert Panel. Suitable candidates are welcome to apply to become members of the panel. Please contact firstname.lastname@example.org.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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