Costs Sanction for "unrealistically high" Costs Budget
Posted on 22nd November 2023 at 15:55
By Sean Linley, Senior Costs Draftsman
A warning from the court that if a party submits an unrealistically high costs budget then an order may be made to reduce the recoverable costs relating to the Costs Management work. The court’s view is that parties should take reasonable steps to negotiate their costs budget and to achieve agreement.
In Reid v Wye Valley NHS Trust & Anor  EWHC 2843 (KB) (18 July 2023) the claim concerned a matter where there had been a case management hearing and directions had been set. The parties were directed to proceed with costs budgeting and to seek to negotiate the budgets. The Defendants position was that “no reasonable endeavours were made by the Claimant to do that and it is for this reason that no order for costs should be made.” The court’s primary concern was that the level of costs sought by the Claimant were “significantly unrealistic” and that “considerable reduction[s]” to the budget were made.
Master Brown was also critical of the high hourly rates claimed (£425 for Grade A in Manchester) and the perceived lack of delegation catered for in the budget.
The matter concerned a Clinical Negligence claim for delayed diagnosis of cauda equina syndrome and was pleaded with a value in excess of £1million. Liability was not admitted, was accepted to have complex issues and to be of high importance to the Claimant. It was further accepted that the case “would require a considerable amount of skill, effort and specialised knowledge of a clinical negligence firm and counsel.” The court budgeted the matter on this basis.
The Costs Management Hearing
The Court “reduced the Claimant’s budget substantially”, noting that there were very substantial sum claims in relation to Statements of Case, Expert Reports, Trial Preparation and Trial. The court had “particular concern about the claims made for solicitors’ fees in the budget.”
It was accepted that the court had discretion to take into account conduct when determining the appropriate order for costs and there was no reason such decisions could not be reached in costs matters.
The Defendant’s position was that the Claimant did not properly engage in trying to resolve the costs budget by negotiation.
Master Brown stated that:
“My particular concern however in going through this costs budgeting process was that there were elements of the budget that seemed to be put unrealistically high, as it was pursued and maintained at the hearing; that there were elements that would put at a level which was unrealistically high and essentially outside the bracket of realistic contention. I raised with the parties either at the end of the costs budgeting hearing or in the subsequent argument. That this is a concern that stuck with me.”
The court specifically raised concerns over the level of hourly rate claim which was noted to be £425 for Grade A for a firm in Manchester. It was accepted that the Court could not deal with rates at the Costs Management hearing but reaffirmed that “I was concerned, as I say, that some of these claims in the budget were just not realistic.”
The Court was critical at the lack of delegation, the level of Counsel’s fees claimed where it was assumed work, like the preparation of the Schedule of Loss, would be by the solicitor. There was also comment as to the level of future expert fees where many of the experts had already been engaged and the “case [was] already reasonably well formulated.” 119 hours claimed for a 10-day trial was also said to be “substantially outside the range that [Master Brown] would expect to see”.
Master Brown stated it was correct to have regard to the substantial reductions made to the Claimant’s budget when considering what costs order to make.
The Claimant sought to argue that too high a sanction may “discourage defendants, from making realistic offers”, essentially incentivising them to sit back and allow the court to make significant reductions in the hope of displacing the usual order of costs in the case.
The Claimant also argued that the Defendant did not make realistic offers, however, the court rejected this and said that whilst increased allowances for some phases above the Defendant’s offers were given, this did not mean the Defendant’s approach was unrealistic.
Considering matters, Master Brown stated that:
“I recognise that the nature of costs budgeting and estimating costs means that there is necessarily a broad range of what might be awarded. I think, as I say, that some of these claims were just too high and I would be surprised if any other judge took another view in relation to that. I must, of course, be wary and careful before coming to the view that something is unrealistically high. However it would be concerning if the claimants or their solicitors, thought that they advance budgets which were made without any real constraint or consideration as to whether the claim was reasonable. I am concerned that that was what was going on here. In any event, whatever the claimant's legal representative actually thought about their claim, I formed the view that it is appropriate that there should be some discount of the costs to reflect my concern that these claims were unrealistically high and out with the reasonable band.”
The court concluded as follows:
“As I have made clear I have in approaching this task been wary about considering whether some of the claims for costs made were unrealistic in all the circumstances including the background which I have set out. As I say, I think they were, and I think some costs deduction should be made. However, I do not think that no order as to costs is the right order. I think inevitably there will be a substantial amount of negotiation. I think also the position in relation to the negotiation and matters was somewhat more mixed than the Defendants would have it. I think overall the right deduction from costs is a 25%, so that the costs are costs in the case, save that should the claimant recover their costs there is a 25% reduction of those costs. That seemed to me to meet the broad justice of the matter bearing in mind also that these claims were really pursued to the end.
It may be that sort of percentage deduction encourages to take reasonable steps to negotiate their costs budget and to achieve settlement- or at least I might hope so. In any event that is the view that I have taken as to the appropriate deduction applying the relevant factors”
The court considered that the cap would apply post-application of the cap, else any reduction might not make any difference.
The case of Reid shows the need to be realistic when preparing a Costs Budget and the need to engage constructively in budget negotiations. A budget claimed unreasonably high will give rise to costs sanctions.
It shows a need for practitioners to work closely with their instructed costs professional to ensure that the individual needs of each case is properly considered. There is a need to avoid overly defensive costs budget. Good assumptions will assist this process.
It can also be gleamed from Master Brown’s comments that there is a hope that this judgment will send a signal to parties to try to engage constructively in budget negotiations and to ideally try to achieve agreement without the court’s involvement.
Budgeting is a collaborative process and understanding the specific demands of individual claims is key. It means the Costs Budget will be more robust and more justifiable.
The comments around rates and delegations should also be of interest to practitioners. Higher rates will give rise to higher costs budgets and feed into the ‘unreasonably high’ narrative. Moreover, practitioners should think about how cases can be managed to allow delegation which may reduce costs overall, particularly where there are higher hourly rates claimed. Again good plotting of the budget will take into account and reflect these nuances.
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. Master Brown's comments show the importance of making sure the Costs Budget is reasonable and justified when drawn so it's important proper thought and consideration is put into budgeting. Should you want to discuss this or any other issues, then you can give us a call on 01482 534 567 or email firstname.lastname@example.org.
Share this post: