COST BITES 29: THE PRINCIPLES OF BUDGETING CONSIDERING AND APPLIED: 15% REDUCTION TO BUDGET

In  Associated Newspapers Ltd v Buckingham Group Contracting Ltd (Cost Budgeting) [2022] EWHC 2767 (TCC) Mr Roger Ter Haar KC considered principles relating to the budgeting process. He reduced a budget by 15% across the board.

“In my judgment, the amount estimated is disproportionate to the issues arising in the case, even allowing for the presently estimated amount of the claim. It is of course open to ANL to make use of expensive and experienced lawyers, but in doing so, ANL’s legal team will need to consider the extent to which work can be delegated either to more junior members of the solicitor team, or to members of the Bar who are likely to charge lower hourly rates than the Grade B and C Senior Associates at Baker and McKenzie.”

THE CASE

The judge was budgeting in relation to a construction negligence/breach case in relation to the construction of a printing works. Damages were not quantified, but thought to be in the region of £10 million.

THE PRINCIPLES RELATING TO BUDGETING

The judge set out the principles relating to budgeting.

1. 1. The following is a summary of the principles which I am required to apply:

(1) Where costs budgets have been filed and exchanged the court will make a costs management order unless it is satisfied that the litigation can be conducted justly and at proportionate cost in accordance with the overriding objective without such an order being made: CPR 3.15(2).

(2) The court may not approve costs incurred before the date of any costs management hearing, but may record its comments on those costs and take those costs into account when considering the reasonableness and proportionality of budgeted costs: CPR 3.17(3).

(3) A costs management order must record the extent to which the budgeted costs are agreed between the parties. In respect of the unagreed budgeted costs, it must record the court’s approval after making appropriate revisions: CPR 3.15(2)(a)-(b).

(4) When reviewing unagreed budgeted costs, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs “fall within the range of reasonable and proportionate costs”: CPR PD3E, paragraph 12.

(5) A costs management order concerns the totals allowed for each phase of the budget, and while the underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes to assist the court in fixing a budget, it is not the role of the court in the costs management hearing to fix or approve the hourly rates claimed in the budget: CPR 3.15(8).

1. 1. In paragraphs [9] and [10] of his judgment in GSK Project Management Ltd v QPR Holdings Ltd [2015] EWHC 2274 (TCC); [2015] 4 Costs LR 729, Stuart-Smith J. said:

“9. The Costs Budgeting regime has led to disagreement about the extent of detailed argument that is appropriate when considering Precedent Hs. Experience in the TCC has shown that most costs budgeting reviews can and should be carried out quickly and with the application of a fairly broad brush. Only exceptionally will it be appropriate or necessary to go through a Precedent H with a fine tooth-comb, analysing the makeup of figures in detail. For reasons which will become apparent, however, this is an exceptional case which justifies a more detailed approach. The justification lies in the fact that the aggregate sum being put forward for approval is so disproportionate to the sums at stake or the length and complexity of the case that something has clearly gone wrong. The court’s interest in maintaining a robust and just approach to costs management requires an investigation into what has gone wrong for two reasons. First, to enable it to reach a figure which it prepared to approve; and, second, so that the court’s determination to exercise a moderating influence on costs is made clear.

“10. The parties are agreed that the approach adopted by Coulson J in CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 481 (TCC) is applicable in the circumstances of this case. I also agree, though Coulson J’s approach may better be seen as a guide rather than a straightjacket. On the facts of that case, he considered:

“i) The Proportionality of claimant’s Costs Budget [37-45];

“ii) The Reasonableness of the claimant’s Costs Budget [46-82];

“iii) Summary of Options [83-95];

“iv) Conclusions on the Available Options [96-98].

“I shall follow his lead.”

1. 1. I set out below my application of this guidance.

1. 1. Principle (5) of the principles set out at paragraph 32 above is derived from CPR 3.15(8) and is that it is not the role of the court in the costs management hearing to fix or approve the hourly rates claimed in the budget. This is not in dispute. However, it is relevant to have regard to the hourly rates of different fee-earners in order to see whether the proposed deployment of the legal team is reasonable and proportionate, subject to avoiding any temptation to micromanage the expenditure or costs. In that regard, not only is the guidance of Stuart-Smith J. set out above relevant, but so also is the guidance of Jacobs J. in Yirenki v Ministry of Defence [2018] EWHC 3102 (QB) at paragraph [21]:

“The final vice [in the judgment under appeal], which is apparent from what I have already said, is that the process of setting the budget, and then the question at a detailed assessment of comparing how the budget was spent, becomes something which is being micromanaged by the court. That is something to be avoided. Paragraph 7.3 of the Practice Direction indicates that the ultimate aim is to arrive at budgeted costs which fall within the range of reasonable and proportionate costs. None of that means, of course, that it is not appropriate for the Master, when setting the budget and approving the figures, to look at the constituent parts. Indeed, it is impossible to see how a Master can sensibly come to figures without looking to see how they have been calculated by the party putting them forward. In so doing, the Master should use his or her experience as to how much time should be spent, the type of people who should be doing the relevant work, and his or her experience of hourly rates. However, all of those matters feed in to a finding as to the specific number of hours which are to be spent in the future, or a finding as to [a] specific figure for disbursements to be incurred in the future.”

1. 1. Paragraph 5 of Practice Direction 3E provides:

“In deciding the reasonable and proportionate costs of each phase of the budget the court will have regard to the factors set out at Civil Procedure Rules 44.3(5) and 44.4(3) including a consideration of where and the circumstances in which the work was done as opposed to where the case is heard.”

1. 1. CPR 44.3(5) provides:

“Costs incurred are proportionate if they bear a reasonable relationship to –

“(a) the sums in issue in the proceedings;

“(b) the value of any non-monetary relief in issue in the proceedings;

“(c) the complexity of the litigation;

“(d) any additional work generated by the conduct of the paying party; and

“(e) any wider factors involved in the proceedings, such as reputation or public importance.”

1. 1. CPR 44.4 provides:

“The court will also have regard to –

“(a) the conduct of all the parties, including in particular –

“(i) conduct before, as well as during, the proceedings; and

“(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;

“(b) the amount or value of any money or property involved;

“(c) the importance of the matter to all the parties;

“(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;

“(e) the skill, effort, specialised knowledge and responsibility involved;

“(f) the time spent on the case;

“(g) the place where and the circumstances in which work or any part of it was done; and

“(h) the receiving party’s last approved or agreed budget.”

THE BUDGET IN THIS CASE

The judge was only budgeting the claimant’s budget. Other budgets had been agreed. In budgeting and applying the above principles to the current case the judge held that the budget in question was excessive and that a 15% reduction across the board should be applied to it.  There is an interesting table which compares the budgets of the parties involved.

The Claimant’s Proposed Costs Budget

1. 1. The Parties’ respective costs budgets put before me were as follows:

1. 1. It will be seen that ANL’s budget exceeds BCGL’s budget by a significant margin.

1. 1. Delving into the detail of the parties’ budgets shows that the most important difference between the parties is the amount of the hourly rates charged by the respective solicitors as shown in the following table:

1. 1. As set out above, I have no discretion to make a cost management order in respect of incurred costs. The offers made by BCGL in respect of the costs in respect of which I do have a discretion are as follows:

1. 1. The difference between what is put forward by ANL and what is offered by BCGL can in large measure be explained by the difference in hourly rates between the Guideline rates which BCGL is willing to accept and the rates charged by ANL’s solicitors, but not entirely. There are also differences as to the number of hours it is reasonable to expend upon disclosure, witness statements, experts, the PTR and trial preparation and the trial. Further, it is said that there is excessive involvement of counsel.

1. 1. I am required to consider whether the cost budget put forward is reasonable and proportionate. In deciding whether the budget is proportionate, the most important factor to have in mind is the amount of the claim: however, in this case, the relevant remedial scheme has not yet been determined, and, accordingly, the amount claimed cannot yet be determined.

1. 1. Notwithstanding that uncertainty, I was told by Ms. McCafferty KC that the amount was likely to be in excess of £10 million. This does not seem to me to be improbable – and it is clear that BCGL and other parties regard this as a heavy claim.

1. 1. Ms. McCafferty also emphasised that this is a claim of importance for ANL, involving as it does its principal printing works.

1. 1. Further, and importantly, this is a relatively complex case, reflected in the 12 day trial estimate.

1. 1. For his part, Mr. Patten KC emphasised the disparity between the cost budgets for ANL on the one hand, and the other parties on the other hand. In particular he contended that the burden upon BCGL which has to deal not only with ANL’s claim, but also with the issues concerning the Third to Sixth Parties is substantially greater than that upon ANL. He also took me through the various phases, contrasting the time and money budgeted by his client (and the other parties) with the time and money budgeted by ANL.

1. 1. I am required to take a broad brush view of the budget put forward by ANL.

1. 1. In my judgment, the amount estimated is disproportionate to the issues arising in the case, even allowing for the presently estimated amount of the claim. It is of course open to ANL to make use of expensive and experienced lawyers, but in doing so, ANL’s legal team will need to consider the extent to which work can be delegated either to more junior members of the solicitor team, or to members of the Bar who are likely to charge lower hourly rates than the Grade B and C Senior Associates at Baker and McKenzie.

1. 1. In reaching a view, I also take into account that the costs over which I have no jurisdiction (i.e. the incurred costs) are themselves very substantial.

1. My overall view is that the estimated costs should be reduced by about 15%. At this stage I am not going to allocate reductions on a phase by phase basis, but rather giving ANL an opportunity to come back with a revised budget taking this view into account.