By Colin Richmond
It is far from unknown, in my own experience of costs management hearings, for a party which does not expect to recover any costs (for example, a defendant in a case where liability has been admitted) to serve a very low costs budget.
Often, such budgets appear not only to be low, but unrealistically so, to the point that it appears impossible that the party could ever conduct the litigation appropriately at the level of costs set out in the budget.
In such cases, it can be difficult to escape the impression that a party is simply seeking to use an artificially low budget as a tactical tool to try to beat down the budget of the receiving party. Such conduct is wholly inappropriate, as set out by Coulson J in Findcharm Limited v Churchill Group Limited  EWHC 1108 (TCC).
The Defendant served what appeared to be an unrealistically low budget. The judge commented that:
“some parties seem to treat cost budgeting as a form of game, in which they can seek to exploit the cost budgeting rules in the hope of obtaining a tactical advantage over the other side. In extreme cases, this can lead one side to offer very low figures in their Precedent R, in the hope that the court may be tempted to calculate its own amount, somewhere between the wildly different sets of figures put forward by the parties. Unhappily, this case is, in my view, an example of that approach.”
He went on to describe the Defendant’s budget as being:
“of no utility. It is completely unrealistic. It is designed to put as low a figure as possible on every stage of the process, without justification, in the hope that the court’s subsequent assessment will also be low. In my view, therefore, it is an abuse of the cost budgeting process.”
The Hon. Mr Justice Coulson :
This Judgment deals with a potentially important point of practice relating to costs budgeting. It arose at the end of the CMC.
It is a fact of life for all judges who undertake Case Management Conferences, at whatever level, that they are obliged to spend more time on them than used to be the case, in order to deal with cost budgeting disputes. A number of steps have recently been taken to try and make the process more user-friendly and more efficient for the court. In particular, the introduction of Precedent R, which requires each party to comment on the cost budget of the other, has led to a great saving of time, because it has obliged the parties to adopt a realistic attitude to the budget of the other side, and has assisted in the identification of the real disputes between the parties on costs.
However, even now, some parties seem to treat cost budgeting as a form of game, in which they can seek to exploit the cost budgeting rules in the hope of obtaining a tactical advantage over the other side. In extreme cases, this can lead one side to offer very low figures in their Precedent R, in the hope that the court may be tempted to calculate its own amount, somewhere between the wildly different sets of figures put forward by the parties. Unhappily, this case is, in my view, an example of that approach.
This is a claim by the claimant, Findcharm Limited (“Findcharm”) who operates a restaurant within the Churchill Hotel in Portman Square. The hotel is owned/operated by the defendant (“Churchill”). In November 2014, there was a gas explosion at the hotel which closed the restaurant for about four months. In these proceedings, Findcharm claim against Churchill the costs arising out of that explosion. The claim is for £820,000 plus interest. By far the largest single item of claim is the claim for business interruption/loss of profit.
In contrast to Findcharm’s detailed pleaded claim, Churchill’s defence could not be more basic. It is a combination of bare denials and non-admissions of the kind that the Civil Procedure Rules was designed to sweep away. It is, bluntly, an insurer’s defence straight out of the 1970’s. For example, despite the fact that the explosion happened in its hotel, Churchill does not even formally admit the cause of that explosion.
During the exchanges between the parties prior to the CMC, Findcharm have revised their cost budget downwards, so that it is now in the total sum of £244,676.30. This figure assumes that no expert evidence will be necessary to deal with the cause of the explosion, because no positive defence on that issue has been pleaded by Churchill. It also assumes a single joint accountancy expert to address the loss of profit claim. Earlier today, I ruled that, unless within 21 days Churchill pleaded a positive defence on the cause of the explosion, they would be taken to admit Findcharm pleaded case on that issue. For cost budgeting purposes, therefore, we can proceed on the basis that no expert evidence on this topic will be required. I also ordered that a single joint expert was appropriate. For present purposes, therefore, I consider that it is reasonable for Findcharm’s cost budget to be based on those two assumptions.
Churchill’s cost budget is in the sum of £79,371.23. Even on Churchill’s own case, it seems erroneous on its face. For example, it allows nothing at all for fire experts, even though at the CMC Churchill were arguing that causation was in issue and an expert was necessary. It also purports to estimate a sum of less than £7,000 for the preparation of a High Court trial. It is therefore, on any view, an unrealistically low budget. However, since Churchill have put it forward, Findcharm have (not unreasonably) agreed it. The sum of £79,371.23 is therefore the approved cost budget figure for Churchill.
In that same vein, through their Precedent R, Churchill have offered just £46,900 in respect of the estimated costs to be incurred by Findcharm. When that is added to the costs that Findcharm have already incurred, that comes to less than £90,000 altogether.
In my view, Churchill’s Precedent R is of no utility. It is completely unrealistic. It is designed to put as low a figure as possible on every stage of the process, without justification, in the hope that the court’s subsequent assessment will also be low. In my view, therefore, it is an abuse of the cost budgeting process. I make clear that none of this is intended to be a criticism of Ms Akyol, the solicitor at Kennedys who appears this morning, because she told me that both Churchill’s cost budget, and its Precedent R, were prepared by Kennedys’ costs department. It is, unfortunately, a criticism of them.
Some examples of the lack of reality in Churchill’s Precedent R will suffice:
Disclosure: Findcharm’s estimate is just below £30,000. For a case with a large claim for loss of profit, that seems to me to be reasonable. Churchill’s offer of £10,600 is unjustifiably low.
Witness Statements: Findcharm’s estimate is £40,235 for the preparation of three witness statements and the consideration of the two statements to be produced by Churchill. Again that seems to me to be reasonable. But Churchill offer just £5,300 for all that work. That is simply incredible in a case where, not only does the background and circumstances of the explosion need to be explained, but also where a large claim for loss of profits will need to be underpinned by detailed factual evidence. As Ms Akyol herself pointed out, that claim is based on factual assumptions that will need to be carefully analysed.
Experts reports: Findcharm have allowed £28,648 for this item, which is not excessive, given the particularly high fees charged by forensic accountants. That figure is based on a single joint expert’s report, which is what I have ordered. Churchill allow £16,000 odd for this, based on an expert’s fee of £13,500. Ms Akyol conceded that this figure was not based on any estimate from a proposed expert. In my experience, it is wholly out of step with what an expert accountant would charge for this type of work.
Trial preparation: Findcharm have allowed £69,765 for trial preparation. In view of the sums at stake, and the potential complexity of the damages claim, I consider that that is not unreasonable. The sum of £10,000 allowed for by Churchill reflects their own unrealistically low figure for this stage, and is again unjustifiable.
For all these reasons, I am obliged to disregard Churchill’s Precedent R. Having considered Findcharm’s revised cost budget in the round, I conclude that it is both proportionate and reasonable. I therefore allow it in the sum claimed of £244,676.30.
Because of the critical need to ensure that the Precedent R process is carefully and properly adhered to by the parties to civil litigation, I will arrange for this short Judgment to be put on BAILLI.
A link to the aforementioned judgment on BAILII can be found below.