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Incurring scrutiny

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The courts continue to have a swingeing and varying approach to costs budgeting, with some courts applying a quick broad brush approach, and others performing something akin to a detailed assessment.

It is understandable – and quite right – that the courts should adopt different approaches to the varying types of cases that come before them, and it is refreshing when a judge is willing to adopt a pragmatic and sensible approach to the costs budgeting regime.

Solicitors need to be aware that the court will, in the right circumstances, scrutinise incurred costs when deciding whether a costs budget is reasonable and proportionate. This is despite the fact that the court cannot assess incurred costs. In the case of GSK Project Management Limited (in liquidation) v QPR Holding Limited [205] EWHC 2274 (TCC), Mr Justice Stuart-Smith approached the assessment of the costs budgets in precisely that way. The claim involved a disputed unpaid debt of £805,675. The judge commented that the case was not complex. Both parties filed costs budgets – with the claimant’s budget totalling £824,000, and the defendant’s budget totalling a much more modest
£455,000.

The claimant’s costs exceeded the claim in dispute, and this flagrant disregard to proportionality was not surprisingly criticised by the court.  It is the accepted practice that the budgeting process should not be a detailed assessment, but in this instance the court decided that the budget needed detailed interrogation, since the claimant had exceeded the sum in dispute.

Interestingly, the court decided that it was vital for the incurred costs to be analysed given the disproportionate nature of the overall costs being claimed. In what it must have thought was sufficient preparation for the costs budgeting assessment procedure, the claimant had helpfully submitted a ‘Supplemental Note for Precedent H’. However, they had not addressed the issue of incurred costs, and the failure to do so affected the amount allowed in their budget.

During the hearing, the defendant argued that comparisons should be made between both parties’ budgets when assessing reasonableness.  Good news for the claimant –the judge refused to accept this submission, and accepted that the claimant naturally incurs costs in excess of the defendant’s costs during litigation. He did, however, accept that regard should be given to the opponent’s budget when assessing the other party’s budget, because it ‘may provide useful indicators about necessary resourcing of the litigation’.

The court found that although it may not assess and approve incurred costs, it would take them into account when assessing the reasonableness and proportionate nature of the budget. The court reduced the claimant’s budget from £824,000 to £425,000. Mr Justice Stuart-Smith supported the summary approach to budgeting, and relied on the fact that the detailed assessment provides a later opportunity for the costs to be analysed in much greater detail. The amount allowed in the approved budget is not cast in stone – a lesser amount can be allowed on detailed assessment if deemed appropriate; and conversely, the budget can be revised upwards if a higher level of costs is required,
but only of course if there have been any significant developments in the litigation.

Unsurprisingly, the defendant launched a detailed attack of the claimant’s budget. The court agreed that this was the correct approach given the ‘grossly excessive’ nature of the budget, and applied a comprehensive analysis of the budget throughout. The court found that ‘there is no reason why the defendant should be out of pocket because of the need to deal with such an exorbitant estimate’. The judge estimated what additional time the defendant would have incurred in its preparation as a result of the overinflated budget, and ordered that the claimant pay those additional costs in the sum of £1,000.

TACTICAL PLAY?
There has been much debate regarding whether costs budgeting has encouraged tactical play between parties – for instance, have parties deliberately underestimated in an attempt to achieve reductions to their opponent’s budget? Such an allegation was made by the claimant in this case. The judge required these allegations to be substantiated, given that the defendant had signed a statement of truth and the tactic failed to assist the claimant in this case.

This certainly tells a cautionary tale. Many budgets are prepared with supplemental notes, breakdowns of disbursements and detailed assumptions. But as incurred costs cannot be assessed like future costs can, they are deprived of the same level of preparatory detail, and are ignored. Mr Justice Stuart-Smith was correct in his approach – while he could not assess incurred costs, he wanted to take these into account when considering the amount that would be approved. He commented that ‘because of the stance taken by the claimant, the defendant has virtually no information about or explanation of the significance or otherwise of the claimant’s incurred costs’. The incurred costs were
scrutinised, and the judge was critical that no justification had been provided regarding incurred time. Would a breakdown of incurred costs have assisted the claimant in this instance to achieve a more favourable result? I suspect so.

 

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