Costs Budgets and Interim Payments – The High Court’s view.
Sarah Slesser, Senior Legal Costs Negotiator at PIC reports on the case of Cleveland Bridge UK Ltd v. Sarens UK Ltd.
The High Court ruled that due to the receiving party having an approved budget that the paying party provides a payment on account of 90% of the estimated/anticipated costs plus 70% of the incurred costs claimed.
In this case the Claimant, Cleveland Bridge UK Ltd had an entitlement to recover costs from the Defendant, Sarens, whom accepted it must pay the cost of action.
However, the issue which remained was the level of payment on account Sarens should make pursuant to CPR 44.2 (8).
The Claimants costs claimed totalled in the region of £140,000.00, but the starting point remained at £128,124.54, this being the total within the agreed budget.
Deducting the amount which had not been incurred and adding on subsequent costs relating to two applications, the final starting position to consider was in the sum of £124,390.04. The court referred to this figure as the “adjusted figure”
The Claimant maintained that 90% of this figure should be payable as a payment on account to which the Defendant contested this on the basis the “adjusted” figure would be reduced upon a detailed assessment.
The basis of the Defendant’s argument was twofold, the first point being the hourly rates would be reduced upon assessment, which they averred would be a good reason to depart from the budget (thus reducing the anticipated costs within the approved budget). Secondly it was argued that the Claimant would not recover the full amount of the incurred costs claimed.
Deputy Judge Miss Joanna Smith QC held that:
“The consequence of my decision on this over-arching point, seems to me to be that CBUK is entitled to recover 90% of its estimated/budgeted costs (following the decision in MacInnes v Gross) and that I must then seek to determine a reasonable sum in respect of incurred costs. In addition, it seems to me that I must also determine a reasonable sum in respect of the costs incurred on the December Applications, which do not form part of the estimated costs and cannot on any view be said to fall within CBUK’s agreed costs budget.”
“Of the Adjusted Figure, CBUK’s total estimated costs amount to £56,255, 90% of which is £50,629.50. In deciding to make an order for costs on account (of estimated costs) in this sum, I disregard Ms Bodnar’s submissions as to partner hourly rates in relation to those estimated costs. The purpose of the principle articulated by Coulson J in MacInnes was to allow for a consistent approach where budgeted costs had been approved, thereby avoiding the need to engage in detailed argument about what may or may not be disallowed for good reason on detailed assessment. As I understand it, the maximum deduction of 10% envisaged by Coulson J is designed to take account of the possibility that there may be deductions for good reason, and I have applied that deduction.”
In respect of the incurred costs Deputy Judge Miss Joanna Smith QC confirmed a reduction of 30% would be made to calculate the payment on account amount and stated:
“Doing the best I can in the exercise of my discretion to arrive at a reasonable sum (with sufficient margin for error) on account of incurred costs and the costs of the December Applications (and also bearing in mind that it is suggested by Sarens that there may be other reductions for incurred costs and in respect of the costs of the December Applications), I intend to apply a 30% reduction. By my reckoning, total incurred costs amount to £47,859.54 while the costs of the December Applications amount to £20,275.50, together £68,135.04. Reducing this figure by 30% leaves £47,694.53.”
Overall Sarens was ordered to pay the Claimant the sum of £98,000.00 by way of payment on account.
The High Court sets out that where you have a Costs Management Order (“CMO”), the paying party should now be making an interim payment to the receiving party of 90% of the approved anticipated costs plus 70% of the incurred costs claimed. In view of this judgment, it gives receiving parties a persuasive argument for seeking a sizeable payment on account.
Securing a high payment on account attracts many benefits not least in increasing cash flow and reducing lock-up but also often helps to reduce the issues between the parties during the course of costs litigation.
The case also highlights the importance of getting the Costs Budget right, the Budget is key to the level of interim payment which will be awarded.
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