Parties warned to stop treating costs budgeting "as a form of game"

Whether you’re a fan of cost budgeting or not, one thing’s for certain, it’s probably here to stay. It’s been over four years since the regime was introduced and many are still failing to come to terms with its effect on litigation and the approach to be taken in agreeing estimated costs and preparing for the CCMC. The decision in Findcharm Limited v Churchill Group Limited [2017] EWHC 1108 (TCC) considers just that.

It’s a badly kept secret that many budgets, both Defendant and Claimant, are not produced with the primary intention of providing a proportionate figure for costs by which the claim can be concluded. Indeed, there are many anecdotal examples of Defendants’ budgets being drafted with the intention of making the Claimant’s look disproportionate. Similarly, there are many examples of Claimants’ budgets including some ‘breathing space’ in anticipation of the inevitable reductions that will be applied by the Court.

It is with this in mind that the Precedent R (or budget discussion report) was introduced. As the Hon. Mr Justice Coulson said ‘the introduction of Precedent R, which requires each party to comment on the costs budget of the other, 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, and has assisted in the identification of the real disputes between the parties on costs.

Facts

The matter of Findcharm concerned a claim valued in the sum of £820,000.00, primarily flowing from business interruption/loss of profit. It was alleged that a gas explosion emanating from the Defendant’s property caused the loss faced by the Claimant. In seeking to pursue this claim, the Claimant’s pleaded costs budget totalled £244,676.30. By contrast, the Defendant’s costs budget was pleaded at £79,371.23. In seeking to agree the Claimant’s costs budget, the Defendant offered £46,900.00 for estimated costs, which amounted to less than £90,000.00 once incurred costs were taken into account. The Claimant agreed the Defendant’s budget.

The Finding

Justice Coulson was highly critical of the approach taken by the Defendant in seeking to come to an agreement as to estimated costs. He went so far as to say that the Defendant had treated the budgeting process as a ‘form of game’ and that they had sought to ‘exploit the costs budgeting rules in the hope of gaining a tactical advantage’. In essence, he was of the view that the Defendant’s Precedent R was so unrealistic as to be of no utility to the budgeting process and was an ‘abuse of process’. He was particularly critical of the Defendant’s offers for disclosure, witness statements, expert reports and trial prep. By way of example, the Claimant estimated £40,235.00 for the witness statement phase, which consisted of preparing three witness statements and the consideration of two witness statements. The Defendant had offered £5,300.00 for this phase, and the Judge said ‘That was simply incredible in a case where, not only does the background and circumstances of the explosion need to be explained, but also where a large claim for loss of profits will need to be underpinned by detailed factual evidence’.

Outcome

Having set out multiple reasons generally and specifically to the facts on the claim, the Judge allowed the Claimant’s budget in full as the costs were found to be both proportionate and reasonable.

Conclusion

This Judgement makes for interesting reading on how not to prepare for a CCMC. It highlights that parties should not ignore the need to behave reasonably during the course of negotiations over costs budgets. In particular, the use of Precedent R should be seen as an opportunity to agree costs budgets and not as a means of gaining a strategic advantage in the litigation.

By James Sherwood – Law Costs Draftsman