Unreasonable costs

Two years into the Jackson reforms and the focus on costs management is intensifying, with the Court of Appeal set to get its teeth into the subject later this year in the (so far) little-noted case of Redfern v Corby Borough Council [2014] EWHC 4526 (QB).

Last December, His Honour Judge Seymour QC upheld the decision of Deputy Master Eyre to reduce a proposed budget of £744,000 to £267,000 (having said that he initially considered £220,000 to be reasonable and proportionate).

Deputy Master Eyre had been particularly unhappy that £130,000 had already been spent and said the fact that a budget might be set which would give the claimant little room to manoeuvre thereafter ought to have been considered when deciding to spend that much. ‘That is the unfortunate arithmetical result that you must live with,’ he said.

The appeal considered the issue of inadequate provision for future costs. HHJ Seymour backed the Deputy Master’s ruling, saying: ‘The only way in which one can take into account excessive costs already incurred in determining the reasonableness and proportionality of subsequent costs is to limit the approved subsequent costs at figures below what they might otherwise have been approved at but for the excessive sums which have already been expended.’

Meanwhile, Mr Justice Coulson’s excoriating judgment in CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd and Others (Costs No 2) [2015] EWHC 481 (TCC) also dealt, inter alia, with the issue of substantial incurred expenditure which fell to be considered when estimating future costs. The total including estimated costs (around £9.5m) was judged to be disproportionate and unreasonable, and Coulson J instead set a figure of £4.3m – around the sum that the claimant had already spent.

Overall budget formula

What is of particular interest is the methodology the judge used when reaching a formula for the overall budget figures. Working on a phase-by-phase basis, he first of all recorded his observations on the costs already incurred (as per Practice Direction 3E 7.4), then arguably went further by recording the actual figures he felt to be the maximum for the incurred work. He then commented on the forecast work, again with figures.

For example, in phase two (pleadings/statements of case) there were allegedly incurred costs of £630,945 and forecast costs of £442,475. The judge criticised both figures and said that he felt a maximum overall total should be no more than £500,000. In phase three (case management conference (CMC)), he recorded that no more than £50,000 should already have been spent, as against £143,670 claimed, and then allowed a maximum of £50,000 for future CMCs, as against £123,225 sought.

So, the overall result was that the total budget was almost exactly equal to the amount already allegedly incurred. The judge then went on to consider the four options open to him, the first three being to order the claimant to prepare a new budget; to set a budget on a phase-by-phase basis by reference to forecast costs; or to refuse to allow more than the costs already stated to have been incurred.

He rejected these for the following reasons:

• To make the claimant go away and produce a fresh budget would simply add to the already high costs. Furthermore, it would not resolve the issue and might encourage the claimant to spend what they liked and take their chances on detailed assessment;
• I can summarise best by quoting the judge: ‘If I simply commented on the costs incurred, and then did a budgeting exercise for the prospective costs, I would arrive at an overall figure that was far in excess of that which I consider to be a reasonable and proportionate figure for the costs as a whole’; and
• This ignores the reality of detailed assessment when the paying party can seek to reduce the incurred costs. In almost every case there will be a reduction – in this case, almost certainly a substantial one. This would leave the receiving party with a ‘double loss’ (i.e. a reduction on incurred costs and nothing for forecast costs, however reasonably incurred).

The judge instead plumped for the fourth option, namely setting an overall total for each phase (i.e. both incurred and forecast), commenting: ‘To the extent that the claimant recovers more than [the figure recorded as by him as the maximum for incurred costs] on assessment, it would mean that more work had been legitimately done… than I thought, which would in turn mean that less remained to be done in the future.’

This seems to me to be a perfectly proper and reasonable approach to have taken – it will be interesting to see how the Court of Appeal grapples with the issue in Redfern. SJ

Sue Nash is chair of the Association of Costs Lawyers (ACL)