Costs budgeting insights: Recent case guidance

As many practitioners will know, how one deals with even simple issues such as hourly rates on budgeting hearings varies from court to court (and even judge to judge).

Nicholas Bacon QC and George McDonald of 4 New Square consider the much needed insight into costs budgeting in practice from the four recent cases of

  • CIP Properties (AIPT) Limited v Galliford Try Infrastructure Limited [2015] EWHC 481 (TCC)
  • Excelerate Technology Ltd v Lindsey Cumberbatch and Red Foot [2015] EWHC 204 (QB)
  • Steven James Redfern v Corby Borough Council [2014] EWHC 4526 (QB)
  • Yeo v Times Newspapers Limited [2015] EWHC 209 (QB).

The following guidance (it should be stated no higher than that!) can be gleaned from those cases:

  • Judges are entitled to fix upon a provisional figure which would have been reasonable and proportionate for the entire costs of the action and then work backwards from there taking into account the incurred costs and considering the amount left over (Redfern).

This decision will be very helpful for parties challenging budgets, as it gives the court a ready method to make significant reductions even where many of the costs have been incurred.

  • If a court determines that the incurred costs already exceed the reasonable and proportionate amount for the entire proceedings, and the budget was unreliable, it has various options open to it. In CIP Properties, the court decided the only workable option was to set budget figures for each of the stages, and the amount approved for estimated costs to be adjusted depending on the amount allowed for the incurred costs on an assessment.

This decision could render the rules relating to incurred costs practically redundant- the approach adopted by the court was equivalent (or almost equivalent) to fixing the incurred costs.

  • The court may not consider applications for varying costs budgets once the cost had been incurred (and no contingencies had provided for such an increase). However, the court could “record” a note upon the reasonableness and proportionality of such additional incurred costs for the purposes of any detailed assessment (see Excelerate).

However, quite how such a “record” will be applied by a costs judge on a detailed assessment remains to be seen! If you are the party seeking to obtain such a “record”, you should think long and hard about what the judge is likely to do. Do the potentially substantial benefits of obtaining such a “record” outweigh the risk of the court dismissing such an application? Would you have better prospects pursuing a similar argument before a costs judge on the assessment?

  • Costs assessed on the indemnity basis are not subject to the restrictions of a costs budget, but that the budget may in practical terms be a starting point or guide for the costs judge (Excelerate, helping to further clarify the approach to indemnity costs given earlier confusion).
  • Appeal courts need to be entirely confident that the lower court had erred seriously in principle in relation to the assessment of the budget (or part of it), before it would be appropriate for the court to intervene and potentially substitute a new figure for the budget (Redfern).
  • Whilst the question of whether the total budgets are reasonable and proportionate will always be the overall criterion, the court may need to consider rates and estimated hours. The approach will need to be tailored to the case before the court. In a case involving costs that run to six or even seven figures in total it is appropriate to have regard not only to the factors listed in CPR r.44.3(5) but also to the hours and rates, as would be done upon a summary assessment of costs at the end of an interim hearing. That is not the same as conducting a detailed assessment (Yeo).
  • The court can determine whether hourly rates are reasonable and whether there has been appropriate delegation (CIP Properties). However, it is notable that no hourly rate was actually specified. Indeed, the court should not use budgeting to “fix” the hourly rates which would be trespassing into a detail assessment (although some courts are still inclined to do so).
  • In respect of contingencies: (a) they must involve work that does not fall within the main categories on Precedent H; (b) in order for work to qualify as a contingency it must be possible to identify to the opposite party and the court what that work would be; (c) work should only be included as a contingency if it is foreseen as more likely than not to be required. If work that falls outside one of the main categories is not thought probable, it can reasonably and should be excluded from the budget (Yeo).

Parties might want to seize upon the “probability” test, both at the approval of budgets stage and if it is said a contingency should have been included but was missed. We fear that this could lead to considerable debate.

In CIP Properties no sum was allowed for further CMCs “because they may not be necessary”. It is unclear how this sits with the “probability” test for contingencies in Yeo.

  • The court can take into account the reliability of the budget when determining the amount to be allowed (CIP Properties), although no guidance was given as to how the lack of reliability should be taken into account.

These cases raise as many questions as they provide answers. Unfortunately this is far from the last word on the thorny subject of cost budgeting in practice.

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