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Budgets: A Lesson Learned

Budgets: A Lesson Learned

It is necessary to give a flavour of the background to the budgeting exercise in CIP Properties v Galliford Try [2015] EWHC 481 (TCC) in order to put in context the budget ultimately approved.

This was a defects case in the Technology and Construction Court in which the pleaded value was up to £18 million, though the court was sceptical of that stated value, and HHJ Coulson stated the matter to be ‘not particularly complex’.

The Claimant had previously argued that the court could not or should not subject the matter to budgeting given that the value of the claim was over £10 million. The claimant failed in that argument (the subject of a previous decision) and the claim would be subject to budgeting.

The claimant put in a budget at approximately £9.2 million. Incurred costs stood at approximately £4.22 million. In order to understand the court’s considerable surprise, and it appears, frustration, at that figure, it should be noted that a previous indication of costs in the matter, provided approximately one year earlier, had proposed that overall costs would be of the order of £3.4 million, and that of that, £1.58 million or thereabouts had already been spent.

The court was highly critical of the claimant’s budget, the manner in which it was drawn and inaccuracies contained within it, the inability of the claimant to explain how costs had increased so dramatically from the previous estimate and the increase on incurred and estimated costs. It will be noted that incurred costs had increased by over £2.5 million over the course of approximately one year.

In the circumstances, the court found the budget to be unreliable and ‘plainly disproportionate’, both matters that were brought to bear in assessment of the budget.

How should the court go about assessing a budget it considers to be plainly disproportionate, especially where in a number of respects it considers the costs already incurred to be more than should be spent over the totality of the litigation? Consideration was given to the approach taken in Redfern – v – Corby Borough Council [2014] EWHC 4526 (QB) in which HHJ Seymour QC upheld allowance of a budget as a whole at £220,000.00, a sum broadly equivalent to the costs already incurred.

This was an issue the court plainly had to wrestle with, and ultimately adopted an approach of considering what it would think reasonable for the work already done, and therefore the incurred costs, and what it would think reasonable for future costs on the basis of those reasonable incurred costs. The court appears on that basis to allow less in some phases (to include past and future costs) than the claimant had actually already incurred, and with the total budget approved of approximately £4.28 million, allowed slightly more as a whole than the total of incurred costs.

On the face of it, this appears to be inconsistent with section 7.4 of PD3Em which provides that:

 ‘As part of the costs management process the court may not approve costs incurred before the date of any budget. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all subsequent costs.’

Depending on how the judgement is interpreted, this isn’t necessarily so however; the court is clearly alive to the potential problems of acceding to the defendant’s request to simply allow at nil all future work, and of allowing future costs consistent with the work required and in doing so effectively ignoring the costs already incurred. Instead what appears to be done is to balance both, suggesting a figure that the court considers reasonable for incurred costs, and on the basis of those reasonable costs, then allowing a reasonable amount for future work. In order not to be inconsistent with paragraph 7.4 of PD3E, on this reading, the allowance/figure for past costs does not then limit the claimant on assessment, and the claimant remains at liberty to argue for more, but as per comments later in the judgement, if the claimant does obtain more on assessment for the costs already incurred, then the judge has set the claimant up to recover less than the budgeted future costs, as the claimant will have achieved more in the work already done than HHJ Coulson had anticipated, and the work remaining to be done correspondingly less.

That is one interpretation, and there are others; this is a difficult judgement however we look at it and it can well be argued that the court has actually assessed and set a ceiling in the budget for incurred costs, that the claimant would have to persuade the court on assessment to depart from.

Greater clarity may be had if the judgement is appealed, but for the moment, if any lesson can be taken from this case it is to ensure that your budget is sensible, that you seek to assist the court at every step of assessing your budget lest it takes against you for a sense of obstruction, and to ensure that you can explain and justify the costs that have already been incurred so as to negate the impact of them upon the assessment of future costs.