COSTS BUDGETING & DAVID -v- GOLIATH: DOES IT GIVE THE "LITTLE GUY" A CHANCE?

June 29, 2016 · by · in Assessment of Costs, Costs, Costs budgeting, Proportionality, Uncategorized

Costs budgeting remains highly controversial.  One question that is open to debate is – is it useful?  Its utility may be most apparent in cases where the sizes and resources of the litigants are vastly disparate. (Many personal injury lawyers would argue that this is virtually every personal injury case where the defendant is insured, however that is not what I am concerned with in this post).

The issue I want to consider is whether, in some types of litigation, costs budgeting is a useful tool for preventing a party with deep pockets using costs as a threat. “Costs capping” has been available for some time and pre-dates Jackson. However the mixture of proportionality and costs capping could be important in some cases that are not subject to QOCS.

THE WISDOM OF SOCRATES

The first example, ironically, considers the decision in Socrates Training Limited -v- The Law Society of England and Wales [2016] CAT 10 (technically this was a decision about costs capping but budgeting figured heavily).

  • The claimant was a SME with a turnover of some £750,000 bringing a claim for abuse of dominant position by the Law Society.
  • The claimant’s costs budget was £220,00 which included £56,000 for an expert economist.
  • The defendant’s costs budget was for £637,000 including £33,000 for an expert economist.

DISPROPORTIONATE COSTS

Mr Justice Roth made the following observations:
“I start by looking at the costs budget of the Law Society’s solicitors. Even accepting the level of charge per fee earner, I consider that in terms of the modern approach to costs, the overall figure in excess of £600,000 is disproportionate for a case of this nature, where the trial is estimated to last three to four days. Looking at the individual elements in that costs budget, I make just a few comments:
(a) So far, this case has involved the preparation and then amendment of a defence, which was drafted by counsel, attendance at one case management conference and consideration of issues concerning disclosure, but not any actual disclosure. I find it surprising and certainly not reasonable that the solicitors have spent 450 hours since being instructed on the 25 April 2016 at a cost of almost £140,000.
(b) I note that the fees for preparing witness statements are calculated on the assumption that each of the four witness statements would be 30 pages in length. Even on that assumption, I do not think it is reasonable or necessary for the partner to devote 40 hours to reviewing those witness statements, and reviewing the statements of no more than three witnesses from the other side, when the other members of the team are also devoting 235 hours to this task. In addition, there is a charge of £16,000 for counsel’s work under the same head.
(c) Given that the expert economist is charging the fees of some £33,000 for his or her work on the experts’ reports, which I do regard as reasonable, it is not, in my view, reasonable or necessary for the solicitors and counsel to incur further fees of over £50,000 in connection with the preparation of the expert’s report, which, of course, has to be prepared by the expert not by them, and then consideration of the report produced by the other side’s expert. Some expenditure of time on that is clearly justifiable, but, in my view, not this much.
(d) For the solicitors to charge over £103,000 for trial preparation and attendance at a three to four day trial – all that, of course, quite apart from counsel’s fees – seems to me excessive. I should observe that it is, of course, the claimant’s solicitors, not the defendant’s solicitors, that will be preparing the trial bundles and this is not a case where those bundles will comprise many thousands of documents.”

THE POTENTIAL LIABILITY OF A SMALL COMPANY

“However, that is still an enormous potential liability to face a small company if it is to bring a case which cannot be dismissed as fanciful. In my view, the measure of cost capping under the FTP is not to be approached as a form of ex ante standard assessment. In particular, where parties are of very disparate means, it is important that those costs strike a fair balance between enabling access to justice for the claimant and providing a measure of protection to the defendant not only from unmeritorious claims but also from the burden of having to defend a claim which it is assumed for this purpose proves to be unfounded. That may mean that in some cases the amount is not the sum required to achieve justice only for the receiving party, but a limited contribution to that party’s costs”

COSTS CAPPING

“…in my judgement the appropriate figure for a cap on the claimant’s recoverable costs from the Law Society is £200,000, and the appropriate figure for a cap on the Law Society’s recoverable costs from the claimant is £350,000. As I have observed, that of course does not preclude the Law Society from paying a greater sum to its own solicitors; these costs are the maximum costs which the other side is liable to pay. I would observe that for most SMEs at the smaller end of the scale, and this is, as Mr Woolfe pointed out, a category that encompasses quite a range, to contemplate bringing a claim where the total costs risk is in excess of £0.5 million is a very substantial sum indeed.”

DAVID -v- GOLIATH

This is, of course, a case about costs capping in a specialist court. However the principle could be a good one generally. It is more difficult for a rich litigant to bully a poorer litigant just by using the strategy of hiring expensive lawyers.  Indeed in many cases it is the litigant using the expensive lawyer that is most likely to be out of pocket – regardless of the outcome.

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