Realistic Budget - written by Jim Beeching - 03/08/2021

The importance of putting forward a realistic budget

 

Following the introduction of costs budgeting, parties are required to complete and exchange costs budgets (Precedent H) to show details of their incurred costs and an estimate of the likely costs of the proceedings to conclude the litigation.

 

After the exchange of the costs budgets, the parties are encouraged to identify any areas of dispute to narrow the issues that need to be raised before the Court and to file a budget discussion report (Precedent R).

 

However, in some cases, parties have been seen to treat costs budgeting as a form of game in which they seek to exploit the costs budgeting rules in the hope of obtaining an advantage over their opponent. An example of this is when one side offers a very low figure in their Precedent R in the hope that the Court will assess the other-side’s budget somewhere between the wildly different set of figures put forward by the parties.

 

Parties should be aware of this practice and in the case listed below, Mr Justice Coulson expressed caution against any party trying to do so.

 

Findcharm Ltd v Churchill Group Ltd [2017] EWHC 1108 (TCC)

 

The claim was for loss of profits following a gas explosion at a hotel. Proceedings had been issued with the Claimant (Findcharm Ltd) seeking £820,000 plus interest. A defence had been filed and budgets had been completed and exchanged.

 

Findcharm’s had made revisions to their costs budget before the CMC. The budget was £244,676.30 (not including costs already incurred) and made a number of assumptions to explain how the budget had been prepared. They had assumed that no expert evidence was necessary on the cause of the explosion because no positive defence had been pleaded, and that when it came to quantum, there would be a single joint accountancy expert. When it came to witness evidence, the Judge noted the need to explain the background to and circumstances of the explosion, together with detailed factual evidence of how the claim for loss of profits was made up.

 

Churchill’s cost budget was for £79,371.23, a sum described by the Judge as:

 

“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.”

 

Mr Justice Coulson also said that “when signing off a Precedent H you must be careful to ensure the amount of work claimed is a ‘realistic reflection of the work to be carried out’ and that the ‘sums claimed are a realistic reflection of that work”  

 

The judge was scathing of the Defendant in their approach to show the Claimant’s costs were excessive by submitting a very low budget and then offering just £46,900 in respect of estimated costs.

 

Mr Justice Coulson therefore disregarded the Defendant’s Precedent R and allowed the Claimant’s budget in full in the sum of £244,676.30.

 

Therefore, the Defendant lost out in the opportunity to reduce the Claimant’s budget which had been found to be reasonable and proportionate.

 

In his closing statement, Mr Justice Coulson emphasised the duty of the parties to civil litigation that “the Precedent R process is carefully and properly adhered to…” Therefore, by submitting unjustifiably low amounts, as the Defendant had done in this matter in an attempt to have the Claimant’s costs substantially reduced amounted to “an abuse of the costs budgeting process”.

 

A copy of the full Judgment can be found at:

http://www.bailii.org/ew/cases/EWHC/TCC/2017/1108.html

 

Jim Beeching – Costs Lawyer. August 2021.

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