Cost Budgeting and Proportionality

All litigation involves key stages in the Court process and there is none so more important than costs budgeting and management particularly when it comes to costs recovery on an inter partes basis at the conclusion of the case. Here we will look at the decision of Mr Justice Birss in Red and White Services Ltd v Phil Anslow Ltd and Anor [2018] EWHC 1699 (Ch).

The Claimant, a bus company, issued proceedings against the Defendant, also a bus company, alleging trespass to its bus slots at Cwmbran Bus Station in Wales. The Defendant counterclaimed on the basis that this was a competition law claim. The Owner of the Bus Station was brought into the action as a Third Party.

The Court considered costs budgeting at a CCMC following the giving of case management directions. A Ten-Day Trial of the competition law issue is set for July 2019, with two economist experts and seven fact witnesses. The Defendant’s Costs Budget was for £288,000 to bring the case to Trial, including £104,000 of incurred costs. It should be noted that the Defendant’s original Costs Budget totalled £400,000 but was reduced to £288,000 prior to the CCMC. The Costs Budgets of the Claimant and Third Party were each both just shy of £1.5 million, with the incurred costs in each of those Costs Budgets about £104,000 and £348,000 respectively.

The Defendant – effectively the Claimant in the competition case – submitted that the Costs Budgets of the Claimant and Third Party were “seriously disproportionate”, given that the damages were likely to be in the region of £80,000 to £120,000. Both the Claimant and Third Party submitted that the Defendant’s Costs Budget was unrealistically low, so as to act as an unfavourable contrast to their figures, and highlighted the claim had serious implications beyond the claim for damages such as the potential impact of competition law affecting both of their services generally.

In attempting to resolve the costs budgeting position, Mr Justice Birss’ first point of consideration was proportionality and this factor was at the forefront of his decision making throughout. If the Defendant’s argument of disproportionality was based on the anticipated level of damages alone then their Costs Budget was deemed disproportionate for what was at stake as “one cannot simply look at this dispute as a money claim for £80,000 to £120,000. The claim has a higher value and greater significance than can be seen simply by focusing on the likely quantum of damages”.

In considering the Costs Budget of the Claimant and Third Party as well as the far-reaching implications of competition law it was stated that “legal novelty is not a good explanation for high costs”.

Mr Justice Birss elaborated that “Costs budgeting is not directly concerned with how much a party can actually spend to protect their reputation either. Wealthy litigants can spend what they like but whether they can recover what they spend from the other party is a different matter. The budget is concerned with recoverable costs”.

While noting the wider significance of the case – such as for the Third Party as an investor – Mr Justice Birss said the multi-party nature of the claim was not a factor. “The fact that the two budgets together, each of £1.5m, mean that the Defendant could be bearing a cost risk of £3m, does not seem to me to be a matter of great significance on the facts of this case. The individual budgets are the figures I need to consider, not the net risk to the Defendant of aggregating the two”.

Mr Justice Birss concluded that a Costs Budget of £1.5m was disproportionate. “It is and should be possible for a competition law claim about a Bus Station to be tried at a more modest costs level than that”. In deciding the right level, Mr Justice Birss rejected the Defendant’s suggestion that the Costs Budgets be set at roughly the same level as its own Costs Budget. “The Defendant’s budget is too low and is not a good guide. For example, the Defendant’s budgeted figure for disclosure just does not make sense and, as I have mentioned already, the figure for experts seems to be surprisingly low”. The Defendant budgeted £9,375 and £25,875 for disclosure and expert reports, against £264,000 and £148,980 respectively by the Claimant.

Finding various parts of the Costs Budgets too high – such as the Claimant seeking £633,000 for the Trial – Mr Justice Birss decided to set the Claimant and Third Party’s Costs Budgets for future costs at no more than £800,000 and ordered them to file revised Costs Budgets. This was double the initial estimate from the Defendant. “That gives some indication of what might have been thought by the Defendant to be a proportionate sum in costs for this dispute, at least at one stage”.

The fact that the Court was prepared to reject a comparison of the Claimant’s Costs Budget with the Defendant’s Costs Budget when “that budget was patently too low and did not make sense” was good news for Claimant personal injury and clinical negligence lawyers as it is all too often adopted as a tactical approach by Defendants to serve unrealistically low Costs Budgets. Furthermore, the fact that most, if not all, Defendant lawyers can work at significantly lower hourly rates than Claimant lawyers will always result in an unfair and unjust comparison.

Partners in Costs can assist in all aspects of costs budgeting and management including preparation of Precedent H Costs Budgets, Costs Budget negotiations with the Opponent including production of Precedent R Budget Discussion Reports and representation at Costs Management Hearings.

Mathew Lawton – Costs Lawyer at PIC – 12.09.18

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