Coulson J and the case of CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd & Ors continue to provide guidance on the implementation of Costs Management Rules. The most recent instalment highlights the importance of producing a reliable and accurate Costs Budget.
In October 2014 it was held that, regardless of the limits placed on Costs Management by CPR 3.12(1)(a) (currently a value of £10m or more), the Court has an unfettered discretion to order Costs Management.
In February 2015 the case came back before the Court and Coulson J, following the parties filing Precedent H Costs Budgets as a result of the previous judgment.
By way of background, the claim arises from alleged defects and is being heard in the TCC. The Claimant issued proceedings against the Defendant, the main contractor, with the value of the claim pleaded at approximately £18m. The Defendant subsequently issued third party proceedings against various sub-contractors.
The Claimant’s filed budget totalled over £9.2m, with incurred costs of over £4.2m and anticipated costs of over £5m. This was in ‘stark contrast’ to figures submitted prior to the first CMC in February 2014, where total costs were estimated at £3.42m, inclusive of £1.5m incurred costs. The budget was deemed to be ‘an entirely unreliable document’ by Coulson J, in what turned out to be a scathing judgment, resulting in the budget being reduced by over 50% to £4.28m, a sum largely equivalent to what was already purported to have been incurred.
Of the judgment, Coulson J said:
This Judgment explains in detail why I have formed such a dim view of the claimant's costs budget, and which of the various options suggested by the parties I have felt obliged to take. Along the way, a number of points of principle fall to be considered and decided.
The claim was deemed to be ‘a relatively straightforward matter for the Claimant to pursue’ and that the ‘Defendant has a greater burden than the Claimant in the litigation’ as it is defending itself against the claims as well as seeking to pass them on to the other parties.
In relation to the reliability of the Claimant’s Costs Budget, 4 main factors were considered which led to the finding by Coulson J that the Claimant’s Budget was ‘a wholly unreliable document’:
• The Increase in Costs
• Increase in Estimated Costs
• Costs of Preliminary Issues
• The Schedule of Assumptions and Contingency
There was said to be a ‘deliberate absence of any explanation for the huge increase in the costs incurred and estimated’ and the Schedule of Assumptions was said to have ‘only been designed to give the Claimant’s legal team the maximum room for manoeuvre later on’. This led to the conclusion that the budget had been ‘deliberately manipulated’.
The Proportionality of the budget was also considered, with it ultimately being found that ‘the Claimant’s costs both incurred and estimated are disproportionate to the complexity and value of this claim’. The Defendant’s budget, totalling £4.4m was considered to be ‘at the upper end of costs which could be said to be proportionate’.
In relation to the reasonableness of the Claimant’s budget, five arguments were put forward by the Claimant explaining the disparity. Unsurprisingly perhaps at this stage, each was dismissed.
Coulson J then considered each phase of the budget individually, looking at the incurred and anticipated costs. The figures indicated for each phase as an upper limit of what was a reasonable amount, to include both incurred and estimated costs, totalled £4.28m.
The parties were asked to identify what options were open to Coulson J in light of the disparity between the perceived reasonable costs and those budgeted by the Claimant. Four options were identified:
• Order a New Budget
• Decline to Approve Claimant’s Costs Budget
• Setting Budget Figures
• Refuse to Allow Any Further Costs
Setting Budget Figures was considered to be the only viable option, but given the circumstances of this case the same needed to be ‘modified in order to arrive at a better approximation of justice’. What Coulson J proposed to do was
identify and set out in a Cost Management Order the various figures which I have explained and identified… But the precise nature of the order will be tailored to the phase of costs in question.
The Claimant’s budget was reduced to a total of £4.28 million, with Coulson J explaining that this was
made up of the figures which I consider to be recoverable on assessment in respect of the costs said to have been incurred, and the approved budget figures in respect of the estimated costs. As noted above, the estimated costs fall to be reduced, £ for £, to the extent that the amounts actually recovered on assessment in respect of costs incurred are higher than the figures which I have indicated.
This case serves to highlight the importance of filing an accurate, realistic and reliable costs budget and the potential implications should the Court take a dim view of the costs identified in the budget, both incurred and anticipated. The full judgment makes for interesting reading and can be accessed here.
At John M Hayes we have a wealth of experience in preparing Costs Budgets and dealing with all aspects of Costs Management. Click here for more information on our services or contact your local office directly.