Costs Sanctions for Claimant's Unrealistic & Disproportionate Costs Budget
Posted on 23rd August 2024 at 11:31
By Sean Linley, Senior Costs Draftsman
A warning from the High Court after no order for costs was made for the Costs Management Conference, a 15% reduction to the Claimant's costs management costs (which may come to be assessed) was ordered and the Claimant had to pay the Defendant's costs of the interlocutory hearing to determine these issues. The dispute arose after substantial reductions to the Claimant's costs budget at the Costs Management Conference, seeing them recover just over 3.5% more than the Defendant had offered with their estimated costs reduced by over 50%. It is a reminder of the need for a strong Costs Budget with justifiable estimated costs that are also proportionate.
In Worcester v Hopley [2024] EWHC 2181 (KB) (21 August 2024) Master Thornett stated that:
"[T]he 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."
He also made clear that the Claimant had benefited from the Defendant seeking no order as to costs for the Costs Management Hearing rather than costs in its favour.
The Costs Management Procedure
The claim arose from Clinical Negligence relating to treatment provided by the Defendant of the Claimant's mental health. Liability was denied by the Defendant.
The claim was subject to a CMC which took place on 11 April 2024 to address directions to trial. The parties were directed to either request a direction that budgeting be dispensed with or request a Costs Management Hearing in default of agreement.
Crucially, the Costs Management Conference was separate to the CMC. This disentanglement of case management from costs management is common in the King's Bench Division. This meant the costs of the Costs Management Conference could be addressed separately.
There was an interim period between the CMC and Costs Management Conference to allow the parties the opportunity to seek agreement upon the budgets:
"7. The interim period saw agreement of the Defendant's budget but unfortunately did not see agreement of the Claimant's budget. The Costs Management Conference proceeded and saw substantial reductions to the Claimant's budget. Estimated costs as sought a total figure of £342,263 were instead approved in the sum of £159,675; a total budget of £316,110.29 recorded. The reduction in the Claimant's estimated costs was by 53.35%, being just 3.58% above that offered by the Defendant. To illustrate the parties' respective positions Mr Arnot, Costs Lawyer for the Defendant, provided me at the hearing with the table that follows at the conclusion of this judgment."
[...]
9. Owing to the substantial reductions in the Claimant's estimated costs as approved, the Defendant indicated he would be seeking a specific costs order in its favour. Or at least other than "in the case". Costs for that hearing were accordingly expressed as reserved and hence the hearing of 16 July 2024 listed."
The Arguments
It was argued as follows:
"10. The Defendant submits that the court should exercise its discretion under CPR 44 by directing that (i) there be no order for costs in respect of the hearing on 15 May 2024; (ii) the Claimant pays the costs of the hearing on 16 July; and (iii) should the Claimant recover costs upon success, there should be a 50% reduction of such assessed costs of and occasioned by Costs Management.
11. In summary, the Defendant maintains that the sequence of events commencing with the Claimant's service of an unrealistically high budget, even having had the opportunity to review and revise the same following the Case Management Conference, the Defendants' Precedent R form presenting and maintaining critical views in response, correspondence between the parties through to the considerable reductions made at the 15 May hearing all take the case beyond the typical and conventional "costs in the case" order, as follows what one might describe as an "ordinary" costs management hearing during which unremarkable adjustments and reductions are made following predictable submissions from the parties. Conversely, the Claimant submits that the process was indeed just that and the final arithmetical reductions should not be taken as self-proving that any unreasonable expectation or approach had been adopted by the Claimant. Properly analysed, the Claimant says the exercise was no different to any other costs management hearing, following which an "in the case" costs order usually and indeed, the Claimant submits, should follow."
The court reflected that it had a wide discretion when making a costs order.
The Claimant contended that there was at this juncture in the proceedings no successful party identified and that finding in the Defendant's favour could encourage satellite litigation and deter Defendants from making realistic or reasonable offers, either in the Precedent R (budget discussion reports) or in the negotiations that followed.
In addition:
"16. The Claimant points out that some of the reasons accounting for the reductions approved reflect events or assumptions that could not have been anticipated by the Claimant when preparing his budget. For example, that the "Issue/Statements of Case" phase was not budgeted at all because of intention expressed by the Defendant to amend (which, Mr Dunne observes, has still yet to manifest itself), Witness Evidence phase was approved on the basis of there being a reduced number of witnesses and ADR/Settlement on the basis that it did not include mediation or the costs of an approval hearing in event of pre-trial settlement. In this context, the reductions instead mark a difference of approach. The Claimant had not exaggerated his costs and there was no element of poor conduct."
The Court's Analysis
The court considered the arguments:
"17. The Claimant is correct in principle that it would not be appropriate for the court regularly to depart from an "in the case" costs order following "ordinary" costs management just because a party has seen their budget reduced. I agree that even though the court may, and often does, express critical views during the course of costs management, that should not necessarily lead to a costs penalty.
18. That said, I disagree with the submission that r.44.2 is not readily suited to justify a specific costs order if the circumstances of a particular case are justified. Especially when, as here, the court had listed a separate hearing for the exclusive purpose of costs management, with an expectation that the intervening period provided should prompt the parties to reconsider their respective positions. The notion that because costs management is necessarily interwoven with the process of case management then both should be treated as within an enveloped whole, during which process the court should always adopt a holistic "in the case" approach, substantially overlooks the wide discretion the court has on costs and the factors listed in r.44.2 to be taken into account when deciding costs.
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.
21. Leading from this point, Mr Dunne's submission that specific costs orders against parties following costs management will deter reasonable offers from opponents before the hearing rather works both ways. An assumption that costs management should always see an order "in the case" as much encourages parties to maintain an unrealistically ambitious approach and to proceed to the hearing without any consideration of their opponents' submissions. In effect, to "chance their luck on the day". That is hardly a reasonable or appropriate approach."
The court also had regard to the arguments advanced by the Defendant in their Precedent R and noted that hourly rates were not dealt with as part of costs management. It was also made clear that the court only took into account what had been costs managed and did not take into account the issue / statements of case phase which had not been dealt with.
Master Thornett stated that:
26. [...] I am not at all persuaded that the process was, as the Claimant submits, entirely routine and not out of the ordinary because the issues in contention typically touched upon hourly rates being said to be too high, proposed time excessive and the use of two counsel in conjunction with work at partnerial level disproportionate. Whilst I agree that these considerations in themselves may well often be routine and ordinary in such hearings, the figures in question and the time and attention that had to be attended to them in this particular case marks a distinction.
27. Neither can the disproportionality of the Claimant's budget and its reduction be simply excused away with comparisons between the Claimant's assumptions during the preparation of his budget and alternative assumptions expressed by the court during costs management. It is important to distinguish between assumptions expressed as to the basis on which budgeting took place [2] and the objective consequence of budgeting to a party. In approving a sum, the court ultimately does not direct that a proposed aspect of work should not be carried out, neither does it direct how the approved sum should be spent. Instead, it applies an evaluative approach to proportionality if less obvious work (or at least justifiable expense) appears to have been factored into a party's budget.
28. Hence, whilst the Claimant's Witness Statement phase had assumed a statement was required from the Claimant's treating CBT expert whereas the court assumed that the evidential input could be more cost effectively established, the substantial reduction of that phase reflected the court not being persuaded that, howsoever chosen to be spent by the Claimant, the amount should be anywhere near the sum sought.
29. Parties must be prepared to account for not just what work justifies their estimated costs but why the figure claimed is also proportionate.
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."
The Court's Decision
Master Thornett concluded thus:
"31. I therefore conclude that it is appropriate in this case for the court to make the following specific costs orders:
31.1 There be no costs for the Costs Hearing on 15 May 2024. It seems to me unnecessary to conclude whether that hearing might have been avoided entirely. The central point is that the Defendant's budget had been agreed in advance and the hearing was spent in significant and fundamental deconstruction of the Claimant's adopted approach. There should be no case for the Claimant ultimately receiving costs (if successful on liability) for having adopted that approach. In that the Defendant seeks no order, rather than an order in his favour for that hearing, the Claimant ought to see this as a benefit;
31.2 The Claimant has been unsuccessful in persuading the court to pass off the exercise as "in the case". He should pay the Defendant's costs of the hearing on 16 July 2024;
31.3 The element to which the Claimant increased his preparation for costs management by adopting figures that did not find favour with the court is not an easy one to assess, if it should be recognised in principle. One might argue that lower figures would have made no difference in terms of the preparation and hence costs of cost management. That said, taken as whole, both the Claimant's original and revised Precedent H forms evidence a more elaborate approach than might have been adopted and so I infer a process of additional formulation the Defendant ought not come to pay for. I reduce the Claimant's costs management costs (such as may come to be assessed) by 15%."
Conclusions
Another warning to practitioners about the real risk of costs sanctions for unrealistic and disproportionate costs budgets. It is also a reminder of the wide discretion the court has when making an order as to costs.
Here the Claimant will not recover any costs for the Costs Management Conference, if the case succeeds it will see its assessed costs management costs reduced by 15% and has to pay the Defendant's costs of the interlocutory hearing to address the matters.
The case signifies the importance of a realistic budget and the need to be prepared to both justify the work which gives rise to the estimated costs and why that figure is proportionate. It also highlights the importance of budget discussion reports and any subsequent negotiations in seeking to narrow issues and ultimately reach agreement. There is an expectation from the court that the negotiation period is used appropriately.
Making sure the costs budget drafted at the outset is realistic and justifiable is important and a strong well prepared budget will aid this. This coupled with cogent arguments in budget discussions/negotiations and any costs advocacy is key. Having a costs specialist will help.
What is not clear from Worcester v Hopley is how the court would have addressed matters if budgeting had been dealt with at the same time as directions i.e. at a CCMC, though it is clear that the court has wide discretion to make some form of costs sanction.
It's likely that Defendants will seek more of these forms of orders/costs sanctions and Claimant's need to be alive to this by ensuring they are well prepared for budgeting and any hearing that follows.
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 info@carterburnett.co.uk.
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