Costs budgeting delays highlight proportionality issues in professional negligence claims

The High Court case of Pontis Finance LLP v Karam, Missick & Traube LLP demonstrates the significant consequences of procedural delays in costs budgeting exercises. Following a costs and case management conference in February 2025, Deputy Master Henderson failed to rule promptly on updated costs budgets, resulting in future costs becoming incurred costs before determination.

The underlying dispute

The claim arose from a £812,500 loan transaction where Pontis Finance alleged that the defendant solicitors KMT acted for an impostor posing as property owner Stefano Brugnolo. Pontis claimed approximately £1.2 million, asserting that KMT failed to perform adequate know-your-client checks and breached undertakings in their certificate of legal advice.

KMT denied the allegations, challenging whether their client was indeed an impostor and putting Pontis to proof on various aspects of the claim, including whether the charge would inevitably be removed and whether certain heads of loss were recoverable.

Judicial delay and its consequences

The court's failure to process the costs budgeting submissions promptly had serious ramifications. Deputy Master Henderson apologised for the oversight, which meant that disclosure phase costs had become incurred costs by the time of his ruling, limiting his powers to effect costs budgeting.

For witness statements and settlement/ADR phases, the court found it could not distinguish between incurred and future costs without updated budgets, requiring parties to apply for separate costs management hearings if budgeting was desired for these phases.

Proportionality assessment

Deputy Master Henderson categorised this as "relatively low value professional claim" that was "neither a complex case, nor a case which could be sensibly categorised as heavy commercial litigation." The total budgeted figure of £489,891.31 was deemed outside the range of reasonable and proportionate costs for a £1.2 million claim.

The court determined that London Band 2 guideline rates applied rather than Band 1, as the work did not constitute "very heavy commercial or corporate work." This significantly impacted the assessment of Mishcon de Reya's claimed hourly rates, which substantially exceeded the guidelines.

Key reductions made

For the trial preparation phase, the court reduced the claimed £136,550 to £115,000, citing excessive solicitor rates and disproportionate counsel brief fees of £90,000 for leading and junior counsel combined.

The trial phase budget was cut from £88,700 to £50,000, with the court finding that refreshers totalling £10,250 per day "substantially exceeded what is reasonable and proportionate for a case of this nature and value."

An error in calculating refresher days was also corrected - for a five-day trial including one day of judicial pre-reading, only three refresher days were appropriate rather than four.

Broader implications

The judgement reinforces that costs budgeting focuses on overall phase totals rather than specific hourly rates, following the principle established in Yirenkyi v Ministry of Defence. Courts must assess whether total budgeted costs are reasonable and proportionate, regardless of how those figures are achieved through different combinations of rates and hours.

The case serves as a cautionary tale about both procedural compliance in costs management and the importance of realistic budgeting that reflects the true nature and value of claims, particularly in professional negligence matters.