Claimant ordered to pay Costs Management Hearing costs for unrealistic budget
Posted on 12th February 2025 at 10:00
Another decision has been published whereby the Claimant was ordered to pay the Defendants' costs of the Costs Management hearing where the Claimant's budget was "unrealistic both in terms of reasonableness and proportionality". In GS Woodland Court GP 1 Ltd & Anor v RGCM Ltd & Ors [2025] EWHC 285 (TCC) (17 January 2025) Mr Justice Constable approved the Claimant's budget in the sum of £4.212million, a reduction from the £8.74million claimed. Of interest was that the Defendants had made offers ranging between £2.7million to £3.539million.
The claim related to numerous alleged defects at a black of student accommodation. The Defendants made an application for their costs of the Costs Management hearing at the end of the Costs Management hearing.
The decision comes against the backdrop of multiple cases reaching similar conclusions. Practitioners should have no doubt that unrealistic and unreasonable costs budgets can and will be sanctioned. Opposing parties will look to make more of these applications (where they can). A strong and robust Costs Budget backed by strategic negotiations is vitally important. Prevention is always better than cure.
What do I need to know?
The key takeaways for practitioners can be summarised as follows:
1. The court can and will make adverse costs orders within the Costs Management process where it is appropriate to do so.
2. It is the responsibility of the parties to ensure that any Costs Budget is both proportionate and realistic.
3. The court will take into account both incurred costs and hourly rates when considering the reasonableness of a budget. Parties claiming in excess of GHRs ought to be prepared to justify any enhanced rates at any hearing dealing with Costs Management.
4. The fact that something is agreed with another party in relation to their budget, does not necessarily justify the same for the other party. It's open to all parties to challenge aspects of a budget such as hourly rates.
5. The court can make a comment on incurred costs but that will not always be appropriate. Incurred costs will be assessed in the usual way on assessment anyway.
6. Beating the opposing parties' offers on a budget does not necessarily mean the budget was reasonable or realistic. The size of reductions will be taken into account, as will the reasonableness of the opposing parties' offers.
7. The sums in dispute are not the only relevant factor when considering proportionality and reasonableness of a budget. A high value claim may be straight forward whilst a low value claim may be more complex.
Mr Justice Constable was critical of the Claimant's budget which included significantly high hourly rates and time which ought not to have been claimed at all.
The judgment though exposes the tensions between the courts powers in relation to incurred costs and hourly rates (which are strictly not meant to be dealt with under costs management) and the fact they clearly have a significant impact on costs management decisions. Here the court would not provide an hourly rate but made clear that the future sums would be significantly reduced to reflect the "excessive rates".
The Claimant's Budget (and the approach to costs managing it)
Mr Justice Constable made several points of interest:
6. In terms of headline points to make at this stage, in relation to incurred costs, I am not in a position today to form a view on the material I have, or any time available, as to whether or not the incurred costs are excessive. That does not preclude an argument on detailed assessment that they are excessive, but I am certainly not in a position to make a finding at this stage that they are.
7. What I can do, on any view, however, is take the incurred costs well into account when I am considering the overall costs that would be expended in relation to any particular phase. There is particular force in the point that Ms Stephens makes that the Claimants' experts should, before such a claim as this is launched, be well advanced in their investigations and their views. Of course there will be engagement with the Defendants' experts, but one would hope that will be a narrowing of views, particularly in circumstances where it is unlikely that experts, in line with their duties to the Court, will adopt the general 'non-admission' approach which has been taken within the pleadings.
8. In terms of proportionality, it is not helpful in an over generalised way to take broad comparisons with other cases between the amount at stake and the overall costs incurred and estimated by ratio. One of course steps back and looks at the number -- the overall total here, some now £11 million being claimed against a potential remediation cost of £30 million -- but making comparisons to other cases can be unhelpful. A £100 million case may turn on a point of contractual interpretation. The fact that £100 million is in dispute has little to do with the amount that it would be reasonable and proportionate to spend on a contractual-interpretation dispute. Similarly, you could have a low-value claim that is a 'death-by-a-thousand-cuts' type of case where costs may end up being 'disproportionate' if only the amount claimed, and not the complexity, is considered.
9. On any view, however, one headline point can be made by reference to a comparison between the Claimants' costs with those of the Defendants, either individually and in the aggregate. Ms Packman is of course right that one has to exercise caution when making any comparisons in cases where there will be a burden on the Claimants to prove each of the allegations against each of the Defendants, and at least some of the Defendants are only facing a small number or a number of those claims.
10. That said, in my experience in a case such as this, whilst the Claimants' costs will likely exceed the highest of the Defendants', it is unlikely that they will be significantly higher than the highest of the costs of the Defendants; and certainly not approaching the aggregate of all of the Defendants' costs taken together. Each of the Defendants have to, for example, instruct their own experts, go through their own disclosure exercises, and there will some be necessary duplication, if it can be put that way, of costs between each Defendant facing the same allegations. That is not so for the Claimants, who will have a single team and will therefore have a more efficient mode of working.
11. Standing back, the costs of £11 million or so (and £12 million as it was before concession this morning), against the aggregate of around £12 million to £13 million of all of the Defendants is a preliminary indicator that the costs claimed by the Claimants may potentially be disproportionate and/or unreasonable.
12. In terms of rates, it is not for me to provide any particular rates that ought to be substituted for those claimed. However, the rates claimed are significantly in excess of the guideline rates. The claimed rates by Jones Day for the Claimants: Grade A, £1,089 each, compares with Band 1 London of £566; Grade B, £450 against £385; Grade C, £421 and £446 against £299; and trainee paralegal, £248 against £205. I do think a case of this nature justifies London Band 1, but I am reminded of the clear words of Lord Justice Males in Samsung Electronics Co Ltd & Ors v LG Display Co Ltd & Anor (Costs) [2022] EWCA Civ 466, where he recognises that, when it has been determined that Band 1 is appropriate, that in itself recognises that the litigation is substantial and complex, and it qualifies as very heavy commercial work.
13. In that case, as this, the Claimants have not attempted to justify their solicitors' charging rates substantially in excess of the guideline rates. The only justification that Ms Packman advances for the rates claimed is that the other Defendants have claimed in excess of the guideline rates. But that is no justification. If the Claimants wanted to take a point about the Defendants' rates they could have done so; instead they have agreed them. That does not mean that I am bound to take the same view in relation to the Claimants' claimed rates. I do not take that view.
14. The rates are excessive and, in due course, whilst of course I am not going to say anything specific in terms of what the rates should be or the precise calculation, I will take account of a relatively sizeable downward adjustment in each of the phases where there are heavy time costs to reflect the excessive rates. An overview of the extent of that contribution to the overall claim has been provided by Ms Stephens. If one substitutes the guideline rates for those that are claimed, it takes about £1.4 million off the overall budget.
15. In terms of hours, it seems to me that is the point at which we should stop overall comments and turn to the case on a phase-by-phase basis.
16. My spreadsheet tells me, subject to correction and checking, that that makes a total estimated costs of £4,212,126 and total of incurred and estimated costs of £7,374,370, which I will say for completeness, in a case such as this, seems to me to be a reasonable and proportionate sum in view of the complexity of the matter and the amount in dispute. This compares to a sum of £8,743,141 claimed as of this morning, and which was amended downwards by around £1m at the commencement of Ms Packman's submissions. This was due, in large part, to a recognition that Reply witness statements and expert reports, for which there is no Order, should not have been part of the budget.
The Application for Costs by the Defendants
The judgment continued with consideration as to the Defendants' application for costs.
17. There is an application before me advanced by Mr Fowler for the Second Defendant seeking its costs, and, in the alternative, seeking that the Claimants do not recover their costs of preparation and attendance today. No other costs in relation to the budgeting process leading up to the costs of today are being sought. That submission and application is being supported by D3, and D4 and D5, who have each put in Summary Schedules of Costs. D6 and D1 are in the position that they have not submitted their own costs schedules, and are not in a position to, and do not, make an application for their own costs. They do, however, support the submission that the Claimants should not recover their costs.
18. The traditional view has been that costs generally in relation to costs management are in the case. That, as Ms Packman rightly says, is the appropriate starting point. There have been two recent authorities demonstrating a trend, at least before Master Thornett, that the Court should take a more proactive view in considering the approach of parties in their cost management and the extent to which the way in which they have approached the matter has led to a hearing, or has increased the likelihood of a hearing, which causes the parties to incur costs and, of course, uses judicial resources.
19. The first of those two cases is Nicholas Worcester v Dr Philip Hopley [2024] EWHC 2181 (KB). That was a medical negligence case. It was a case in which there was a specific hearing to deal with cost management, as is regularly the case in the King's Bench division. The latter part of the judgment deals with the discussion of the parties' submissions.
20. For my purposes, in the context of the application before me, it is sensible to make reference to paragraphs 19 and 20 and 30 of that judgment in particular:
"19. In short, a party that resolutely proceeds to a separately listed costs management hearing with an overly ambitious budget should not readily assume that the court will be willing to see both its time and resources and those of opposing parties' engaged without any potential consequence in costs.
20. Neither do I agree that if there is to be an order other than "in the case", the starting point is that a party that secures approval of a sum at least something in excess of that offered by an opponent thereby establishes "success" and so should avoid an adverse costs order against them. Not least because success could equally be defined as that of the opposing party in securing substantial reductions. Hence, as I am satisfied, why it is appropriate for the court to take a more rounded and general view of the process that took place.
...
30. The overall impression and conclusion I reached was that the Claimant's Precedent H was unreasonable and unrealistic in terms of proportionality. It led to a polarised approach between the parties on budgeting that had prevented settlement and so necessitated a separate hearing proceeding that either might have been vacated or, even if not, should have followed a more conventional process of modest arithmetical adjustment and modification, rather than fundamental deconstruction of the Claimant's proposals and as led to sizeable reductions."
21. Master Thornett took the same approach in Jenkins v Thurrock Council [2024] EWHC 2248. I fully endorse the approach taken by the Master. It is plainly appropriate that a party that resolutely proceeds to a separately listed cost-management hearing with an overly ambitious budget should not readily assume that it will avoid any potential consequence in costs.
22. I also agree that, in considering whether a party has 'succeeded', it is not determinative that the sum allowed exceeds the amount they have been offered. Equally, the mere fact of a reduction, as a matter of course, will not itself mean 'success' for the opposing party. The word 'resolutely' is important, because the reasonableness of the sums offered is also obviously a factor in judging the conduct of the party whose costs are being scrutinised. There will be a range within which, in the round, and even where there is a separate costs management specific hearing, the appropriate starting point of costs in case remains the appropriate order, if the conduct of both parties is within the range of reasonableness. The Court has to step back and look at the numbers involved and use its judgment to determine whether this case is a case that is on the wrong side of the line, and where one party cannot demonstrate appropriate conduct in approaching the cost-management process. Have the parties had a realistic view as to what is reasonable and proportionate and likely to be recovered?
23. There are a number of features of this case that suggest that the Claimants' position is clearly on the wrong side of the line.
24. In headline terms, the Claimants were seeking -- at least before the reductions that were made this morning -- £8.74 million. Against that, the highest offer they received -- from D4 and D5 - was £3.539 million. The other offers ranged between £2.7 million and £3.4 million. In fact, the sum recovered was £4.212 million. It is readily obvious from the scale of the reduction that the Claimants' Precedent H was unrealistic both in terms of reasonableness and proportionality. It is not necessary to ascribe the word "success" or "loss" to that, but if it were, the Claimants 'lost' the hearing.
25. In addition, I had to make a number of remarks on a phase-specific basis in relation to the hours, which at one point I remarked as "implausible". In relation to rates, on the basis of the Court of Appeal authority to which I have made reference, that there would (given the absence of meaningful justification) be a significant reduction from the rates which were claimed. It was pretty obvious, what this Court's approach would have been to the rates claimed.
26. In the circumstances of this case, therefore, I conclude that the application for costs is well founded. There is no particular reason in this case why that costs order should not be the ordinary costs order that is made when a party has 'lost': the losing party is deprived of its costs and has to pay the other parties' costs to the extent claimed and assessed as reasonable.
27. So, D2, D3, and D4 and D5 will recover their reasonable costs of today from the Claimants limited to the costs of attendance of counsel and one solicitor at the hearing today and that the Claimants shall bear their own costs of the costs management hearing in any event. D1 and D6 do not get their costs but they will not be responsible for any part of the Claimants' costs.
Do you want to discuss matters around Costs Budgeting or simply general costs matters? We are always happy to have a chat and provide a view or advice on strategy, tactics and/or approach. The court's comments again show the importance of making sure the Costs Budget is reasonable and justified when drawn. It's important proper thought and consideration is put into budgeting to avoid any unwanted prospective costs sanctions. Should you want to discuss this or any other issues, then you can give us a call on 01482 534 567 or email info@carterburnett.co.uk.
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