The Court is clearly very conscious of the time being spent on costs management (as we all are) and is actively taking steps, including rule changes, to try and make the process more user-friendly and efficient.
In SARPD Oil -v- Addax Energy the Court of Appeal held that the first CCMC was the appropriate occasion to raise issue with the budgets. This faced criticism because of the additional time that would end up being spent at the CCMC whereby mini detailed assessments were trying to be avoided. This was reversed in the amended budgeting rules from 6th April 2017 to only affect estimated costs.
Other steps include the pilot running for six months in the Chancery Division, in Leeds, to enable parties to limit the extent of costs budgeting in any particular case with the intention of saving precious Court resources, with hopes this will be adopted more widely.
On 12th May 2017, up the road from our London office in the Rolls Building, Coulson J handed down judgment after a CCMC and elaborated on the practice of budget negotiations. Most importantly of all “the critical need to ensure that the Precedent R process is carefully and properly adhered to”.
Coulson J highlighted these time concerns in the index case:
“It is a fact of life for all Judges… they are obliged to spend more time on them (CCMCs) than used to be the case” and the introduction of Precedent R “has led to a great saving of time, because it has obliged the parties to adopt a realistic attitude to the budget of the other side”.
However “some parties seem to treat cost budgeting as a form of game, in which they can seek to exploit the cost budgeting rules in the hope of obtaining a tactical advantage over the other side.”
Findcharm operates a restaurant within the Churchill Hotel in Portman Square which is owned/operated by Churchill. A gas explosion closed the hotel for four months and the claim was in relation to the costs arising from the explosion. A sum of £820,000 plus interest was pleaded with the majority of the claim relating to business interruption/loss of profit.
Findcharm put forward a detailed pleaded claim whereas “Churchill’s defence could not be more basic” including no formal admission on the case of the explosion despite this occurring in their hotel.
The budget of Findcharm was revised downwards to a sum of £244,676.30 during exchanges between the parties prior to the CCMC. Churchill’s budget was in the sum of £79,371.23 which was (found not to be unreasonably) agreed by Findcharm and subsequently approved by the Court.
Coulson J considered Churchill’s Precedent R at the conference and held it was of “no utility. It is completely unrealistic. It is designed to put as low a figure as possible on every stage of the process, without justification, in the hope that the Court’s subsequent assessment will also be low”.
“In my view, therefore, it is an abuse of the cost budgeting process.”
After the Justice completed his evaluation of the “lack of reality” in the position taken “I am obliged to disregard Churchill’s Precedent R” and the budget of Findcharm was concluded to be both reasonable and proportionate and allowed in full as claimed.
Churchill appeared to have purposefully ignored the complexities of the litigation such as the large claim for loss of profit and allowing “nothing at all for fire experts, even though at the CMC Churchill were arguing that causation was in issue and an expert was necessary”.
However criticism was directed at the costs department acting for Churchill where the Solicitor took no responsibility for dealing with the budget and subsequent negotiations. The lack of communication should be a concern for those instructing.
Unfortunately this seems to be quite a common tactic being employed by Defendants whereby liability has or is very likely to be conceded, so efforts on costs management turn towards limiting the budget of the Claimant to reduce any costs liability as much as possible before the conclusion of the case.
Of course efforts as a result of the current decision going to the Court of Appeal in Harrison and Merrix on binding agreed/approved budgets and what constitutes “good reason” to depart under CPR 3.18.
With respect to Budget preparation and completing the Precedent R I strongly recommend:
• Solicitor and Draftsman should work closely together to ensure a respectable and proportionate position is being taken on the issues within the budgets beginning at the preparation stage.
• That the background and circumstances of the matter are fully understood and reflected in the offers agreed and put forward on the individual phases in the Precedent R and approach taken in your own Precedent H.
• Make sure efforts are made to obtain realistic estimates on Counsel and Expert fees to include in the budget and by way of comparison with the proposed fees claimed by the other side.
• This may include openly stating that the other side have either over or underestimated particular phases of the budgets and setting out proper justification in submissions if necessary.
• Providing a detailed breakdown of incurred costs where challenged to substantiate the time in support of any comments the Court could record in the costs management order.
• Prepare a composite summary of the budgets for ease of reference for the Court.
• Assist the Court in line with the overriding objective to limit the amount of time and resources being spent at any CCMC by narrowing the issues as much as possible before the hearing.
Finally, there are currently so many implications if the budgeting process is not done correctly from the start that, now more than ever, it is extremely important that you are working alongside competent costs specialists in order to avoid any future problems at the Detailed Assessment stage.
For the full judgment on BAILLI please follow this link.
Written by Kyle Shore - Costs Draftsman
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