Kerry Underwood

COST BUDGETING: USING PRECEDENT R TO PLAY A PROCEDURAL GAME

with 2 comments


In Findcharm Ltd v Churchill Group Ltd (2017) EWHC1109 (TCC) Mr Justice Coulson sent out a clear warning against the use of Precedent R as tactics in a cost budgeting exercise.

 

Mr Justice Coulson made his remarks at the end of a Case Management Conference. He accepted that in recent times, judges were spending more time than they used to on dealing with costs budgeting disputes but that recently steps had been taken to try and make that process more efficient for the court. He referred in particular to the introduction of Precedent R which required each party to comment on the costs budget of the other. This has the effect of saving time because the parties are obliged to adopt a realistic attitude towards the budget of the other side and has assisted in identifying the areas of dispute between the parties on costs.

 

However, the judge went on criticise some parties who seem to treat cost budgeting as a form of a game where they are seeking to obtain a tactical advantage over the other side. One example was where one party offered very low figures in the Precedent R in the hope that the court may look at the two different sets of figures put forward by the parties and calculate a figure somewhere in between the two. In this particular case, the judge found that that had happened here.

 

The case was brought by the claimant who operated a restaurant within the defendant’s hotel. There was a gas explosion at the hotel which closed the restaurant for approximately 4 months and the claimant sought to recover its expenses arising out of the explosion which totalled £820,000.00 plus interest. The single largest item was a claim for loss of profit as a result of the business interruption.

 

The defendant’s defence consisted of their denials and non-admissions of a kind which is completely against the spirit of the Civil Procedural Rules and harks back to a bygone age of pleading such defences. Despite the fact that the explosion happened in the defendant’s hotel, they did not even admit the cause of the explosion.

 

Following initial exchanges between the parties, the claimant put forward a cost budget in the total sum of £244,676.30. This figure assumed that there will be no need for expert evidence to deal with the cause of the explosion and assumed a single joint expert in accountancy to deal with the loss of profit claim. The judge had ordered during the Case Management Conference that unless the defendant, within 21 days, pleaded a positive defence on the cause of the explosion then they will be taken to admit the claimant’s case on that issue. For the purposes of cost budgeting the judge proceeded on the basis that no expert evidence on that topic would be required. He also ordered that a single joint expert in accountancy was indeed appropriate.

 

The defendant’s cost budget totalled £79,371.23. The judge was unhappy with the budget as, for example, it allowed nothing for experts to deal with the issue of the cause of the fire even though the defendant, during the CMC, was arguing that causation was an issue and an expert was necessary. It had an estimate of a sum of less than £7,000.00 for the preparation of a High Court trial which, on any interpretation, was unrealistically low. As the figure for the overall budget was clearly low the claimant had agreed it and therefore the court approved the budget figure for the defendant.

 

Through the Precedent R the defendant had offered only £46,900.00 in respect of the claimant’s estimated costs and when added to the costs already incurred by the claimant, came to a total of less than £90,000.00.

 

The judge was unhappy with the defendant’s Precedent R because it was totally unrealistic and had been designed to put as low a figure as possible on each and every stage of the process without justification. In the judge’s view it was an abuse of the costs budgeting process.

 

Particular examples of the amounts offered by the defendant in the Precedent R include disclosure where the claimant’s estimate was just below £30,000.00 which the judge believed was reasonable for a claim of this type whereas the defendant’s offer was £10,600.00.

 

In relation to witness statements the claimant’s estimate was £40,235.00 for the preparation of three witness statements and considering two statements to be provided by the defendant, all of which the judge believed was reasonable. The defendant had only offered £5,300.00 for all of that work. The judge said that was incredible in a case of this nature where all of the background and circumstances of the explosion had to be explained and where there was a large claim for loss of profits which would need to be underpinned by detailed factual evidence.

 

In relation to expert’s reports the claimant estimated £28,648.00 which again was not excessive bearing in mind the fees charged by forensic accountants. The defendant put forward £16,000.00 based upon an expert’s fee of £13,500.00 but it was not based on any estimate from a proposed expert and in the judge’s experience it was completely out of step with what a forensic expert accountant would charge for in this type of work.

 

Finally, the claimant allowed £69,765.00 for trial preparation and again the judge believed that in the circumstances of the claim that was not unreasonable. The sum offered by the defendant was £10,000.00 which the judge saw no justification for whatsoever.

 

As a result, the judge concluded that the cost budget of the claimant would be allowed in full as it was both proportionate and reasonable.

 

The judge was understandably critical of the Precedent R filed on behalf of the defendant and levelled that criticism at the defendant’s solicitors, Kennedys and in particular their costs department.

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Written by kerryunderwood

May 17, 2017 at 9:02 am

Posted in Uncategorized

2 Responses

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  1. I think the biggest surprise for me was that this did not involve the NHSLA …certainly not the only culprit of this kind of thing, but the one that springs most readily to mind…

    Chris

    May 19, 2017 at 1:52 pm

    • The NHSLA is indeed guilty of such practices. Of course in personal injury work there is a particular incentive on defendants to under budget, as due to Qualified One Way Costs Shifting, they will rarely be able to recover costs and so the figure that they put in is usually irrelevant.

      Kerry

      kerryunderwood

      May 21, 2017 at 11:00 am


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