Attacking costs budgets and costs recovery

feeThe recent decision in the High Court, King v Thipthorp (Unreported, 11 February 2016) casts light on how parties can attack costs budgets. John Denis-Smith from 39 Essex Chambers examines the decision and considers what lessons can be learned.

THE DECISION

The dispute, heard in the Technology and Construction Court, concerned alleged defects in the building of a leisure centre. It had been listed for a six-day trial with about 10 factual witnesses and eight expert witnesses. The Claimant’s proposed costs budget amounted to £392,000. The costs budget of the Third Defendant (a professional consultant) was £322,000. The costs budget of the First and Second Defendants (the Contractor and its Director) was in the sum of £195,000 and accepted by the other parties. The First and Second Defendants challenged the other budgets.

The Court (Mr Recorder Stephen Furst QC) made reductions to both the Claimants’ and Third Defendants’ budgets. How did he do this?

The Court considered that on one view, it need only look at the parties’ overall budgets and decide whether they were reasonable and proportionate without any further investigation. In this case, the Court could not say that the proposed budgets must, overall, be excessive, in the context of a six-day trial of this type, not least because the Court had no indication of what a normal sum for such a trial would be.

However, this was not the end of the matter. The Court held that it could still consider the objections raised in relation to individual items claimed in those budgets. In this case, there were sums which had been budgeted for which appeared disproportionate and accordingly ought to be altered. These costs include in particular proposed disbursements on Counsel as well as proposed times for solicitor attendance at future hearings and trial.

This approach is consistent with the approach in an earlier case, Yeo v Times Newspapers Ltd [2015] EWHC 209 (QB); [2015] 1 W.L.R. 3031. Warby J. pointed out at [65]-[66] that Precedent H permits the court to review hourly rates and estimated hours by requiring these to be stated on the form and held that, whilst the question of whether the totals are reasonable and proportionate will always be the overall criterion, the Court may need to consider rates and estimated hours.

LESSONS TO BE LEARNED

Three particular facts can be identified from the decision in King v Thipthorp.

First,  costs budgets which appear overall not to be excessive can still be reduced in relation to given items. The decision corrects the misleading impression that might be taken from the suggestion in another case, GSK Project Management Ltd (In Liquidation) v QPR Holdings Ltd [2015] EWHC 2274 (TCC); [2015] B.L.R. 715 at [9] per Stuart-Smith J.) that, in most cases, budgeting reviews can and should be carried out quickly and with the application of a fairly broad brush and that only exceptionally will it be appropriate or necessary to go through a Precedent H with a fine tooth-comb, analysing the makeup of figures in detail. That view may well often be correct but it would be wrong to assume that this means rates should never be considered. Approval of a costs budget is, after all, of given Phases and that suggests some consideration of the elements in the phase is required.

Second, targeted challenges on matters such as disbursements on Counsel’s fees or to excessive figures for hours to be spent are more likely to succeed. If the overall figure of a costs budget is not necessarily excessive, a challenge to given phases must be reasoned. However, it may be a mistake to assume that hourly rates are themselves immune. The fact that PD 3E para 7.10, in effect from 6 April 2016, will make clear that the “underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget” and that “it is not the role of the Court to fix or approve the hourly rates” does not mean that the Court is unable to reject the overall figure in a phase on the basis that the rates are too high, which does not require the Court to fix the rates themselves. In another case, CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 481 (TCC); [2015] B.L.R. 285, the Court did take the view that some of the hourly rates advanced were disproportionate since they significantly exceeded the Guideline rates (see [55]-[56] per Coulson J.).

Third, the costs of challenge can be recovered by the party objecting to those items. When a Costs Management Order is made, save in exceptional circumstances, the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved budget and all other recoverable costs of the budgeting and costs management process other than initial completion of Precedent H shall not exceed 2% of the approved budget (PD 3E para 2.2).  However, this will not necessarily impose a cap on the recoverable costs of a challenge. Therefore, while a party challenging a costs budget is under as much of a requirement for proportionality as in any other case, the effect of a challenge can be a “double whammy” for the party whose costs budgets prove to be excessive.

 

Filed Under: Costs Budgeting

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