The importance of keeping your client informed of any budget overspend during the course of the claim!
JXC (by his litigation friend CXJ) v NIS [2023] EWHC 1000 (SCCO), Costs Judge Leonard
In this matter the Claimant was a protected party and following a successful claim for damages in the total capitalised sum of over £14 million, with inter partes costs agreed in the sum of £1.05 million (representing a recovery of approximately 80% of total costs and disbursements), the Claimant’s Solicitors sought to claim a shortfall in base costs of £212,974.69 from the Claimant out of his damages.
The Claimant’s Costs Budget had been significantly exceeded in respect of several phases of the Budget, with a total overspend of £226,947.17.
The CFA between the Claimant and his Solicitor provided in its standard terms that in the event of success the Claimant could expect to recover the majority of, but not all, costs and disbursements from the Defendant and that success fees and ATE premiums were by there nature irrecoverable. The Claimant was also advised at the outset that the shortfall between the full legal charges the Claimant agreed to pay under the CFA and the recovered costs would be deducted from any damages.
Although the Claimant was provided with costs updates during the course of the litigation, including details of the potential contribution it was estimated would be payable out of damages, the Claimant was not specifically advised as to the different reasons for any shortfall and there was no specific discussion with the Claimant about costs that might be irrecoverable as a result of exceeding the Budget. The advice given as to the anticipated shortfall related to standard anticipated shortfalls of between 20% and 30% and were not case specific.
The Court concluded that no attempts had been made to obtain the Claimant’s authority for, or advise of, anything to do with the budget set for the case. The Claimant had not been given any opportunity to authorise the budgets or authorise (or decline to authorise) any element of spending outside the limits set by the budgets. The information which had been provided in respect of budgets and their effect was standard information, provided years after the budget had already been set, and did not apply to the facts of the case.
The Court approached the overspend on the basis that, whilst the Court’s duty was limited to ascertaining that the costs shortfall claimed by the Solicitor from the Claimant, had been reasonably incurred and was reasonable in amount, in doing so the Court must consider the totality of the costs claimed, given that the costs recovered from the opponent belonged to the protected party.
On the facts of the case the Court concluded that the entire budget overspend was unreasonably incurred and unreasonable in amount. The Solicitors, having given no thought to the effect of the Costs Management Orders, had given the Claimant no opportunity to consider whether it was appropriate to incur expenditure in excess of the budget that was in consequence likely to be irrecoverable.
It was therefore appropriate to deduct the budget overspend from the base costs shortfall sought. As the budget overspend amount exceeded the base costs shortfall sought, it followed that the Solicitors could not recover any base costs shortfall from the Claimant.
This case provides some useful insight on the Court’s approach in dealing with a shortfall in costs where there has been a significant budget overspend.
It is important to monitor your Costs Budget so that any areas of potential overspend can be identified; a formal Budget variation can be sought if appropriate; and the Client can be kept fully informed of any areas of likely overspend, the reasons for the overspend, and the implications of the overspend, so that they are able to make an informed decision as to whether to incur additional costs.
We are always happy to advise on any costs issue!
For a copy of the judgment please click this link JXC v NIS
Catherine Moran, Costs Lawyer
Catherine Moran, Costs Lawyer, 03458 72 76 78