COST BITES 48: WHERE THE ONLY RELEVANCE OF THE BUDGET IS TO SET AN UPPER LIMIT ON RECOVERABLE COSTS: THE ESCALATING COSTS OF “METAPHORICAL WARFARE”

We are returning to the judgment of Costs Judge Leonard in Reed v Woodward Property Developments Ltd & Anor [2023] EWHC 36 (SCCO) to look at two other aspects of the case. The first relates to the relevance of the costs budget when the budget was drafted on the assumption that two defendants could recover, but only one can.   The second issue relates to the conduct of the assessment itself, which was proving to be a lengthy process and the judge’s comments on the costs of “metaphorical warfare”.

“…. I observe first that parties routinely claim costs which the court finds to be irrecoverable, which is why we have assessments; second that, for that reason, the last sentence of the passage quoted above does not represent established practice; and third that, whilst detailed assessments can, metaphorically speaking, escalate into open war, even metaphorical wars are notoriously expensive.”

 

THE CASE

The claimant issued proceedings against a limited company and a director of that company personally.  The claim related to defective building works and the dumping of material on the claimant’s land. His claim against the second defendant was based on the proposition that the second defendant had accepted personal responsibility for the building works carried out by the first defendant.

The first defendant went into liquidation and took no part in the trial.  A trial was held as to whether the second defendant had any liability to the claimant.  The claimant was unsuccessful and he was ordered to pay the second defendant’s costs.  The judge found that the second defendant had acted in his capacity as director of the first defendant and not accepted any personal responsibility, nor was he personally liable for dumping of materials on the claimant’s land.

The position was that the claimant had a costs order against the first defendant, which in reality could not be enforced. Teh claimant also had a liability to pay the costs of the second defendant.

On assessment the costs judge found that there was a valid retainer between the second defendant and the solicitors he instructed.  However the second defendant could not recover for costs which, in reality, were carried out for the first defendant.  Those aspects of the judgment are considered in the earlier post. 

THE RELEVANCE OF THE COSTS BUDGET

The costs judge considered the relevance of the costs budget.  The claimant submitted that only a percentage of the budget should be recovered by the second defendant on the basis of a “broad brush” approach. The second defendant argued that the budge was, in effect, definitive.  The judge rejected both approaches. The budget was only relevant because it set an upper limit on recoverable costs.  The assessment required a detailed consideration of the work that was done on behalf of the second defendant, recoverable on the basis of the principles summarised earlier in the judgment and considered here.

THE JUDGMENT ON THE COSTS BUDGET

Budgeting
    1. I have heard extensive submissions about the budget approved on 11 July 2017 and approved as updated on 12 April 2019, including reference to the authorities on departing from budget. For the reasons I shall give, I have concluded that much of what has been said is irrelevant, but I will attempt briefly to summarise.
    1. The Second Defendant argues that his costs for each of the phases that fall within the 12 April 2019 approved budget’s estimated (as opposed to incurred) costs should be allowed as drawn. A relatively modest claim for costs in excess of budget for some phases has been withdrawn.
    1. The Claimant favours a “broad brush” approach, exemplified by figures set out in his written submissions based on the proposition that up to 90% of the costs of the action are attributable to the claim against the First Defendant. One can start, he suggests, by identifying that percentage, and then deduct from that percentage a figure reasonably attributable to the cost of work provided for in the budget but not actually undertaken.
    1. I am quite sure that neither party’s approach is right.
    1. The “broad-brush” approach advocated by the Claimant is, to my mind, wrong in principle. One cannot achieve a fair result by starting from the broad assumption that any particular percentage of the costs of the action is attributable to the First Defendant. There is no proper evidential basis for such an assumption, which would be directly contrary to the authorities on division to which I have referred.
    1. Obviously it would be open to the parties, in the interests of proportionality and saving costs, to agree something of the kind, but for me to impose it would be entirely arbitrary.
    1. Nor would it be appropriate for me to treat the budgeted figures (or a given percentage of them) as a “cap” from which one can then work down by going into the detail of the work actually done. That is directly contrary to the principles established by Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792.
    1. It seems to me that there is, equally, a fatal obstacle to the Second Defendant’s attempt to rely upon the revised cost budget of 12 April 2019. It is that the estimated figures approved by the judge on both occasions incorporate the First Defendant’s costs as well as those of the Second Defendant. At no point did either budget distinguish between the costs of the first and Second Defendants except to the extent that DJ Watkins, on 12 April 2019, approved “additional sums” for the Second Defendant alone.
    1. The difficulty is that this begs the question: additional to what? Because neither of the costs budgets distinguish between the costs of the first and Second Defendant, it is impossible to identify a total figure allowed in the budget for the Second Defendant’s costs alone.
    1. For that reason, my conclusions are these. First, the fact that the Claimant succeeded as against the First Defendant but not the Second Defendant gives good reason to depart from a budget which incorporate the costs of both Defendants without distinguishing between them. Second, the budget, for the same reason, is so unhelpful as to have become irrelevant, except in one respect.
    1. The budget is relevant only to this extent. It must be right that the Second Defendant has abandoned any claim for costs in excess of the budgeted figures, because it is highly unlikely that one defendant could justify the recovery of costs in excess of an approved budget designed for two defendants.
    1. For the above reasons, I have concluded that it is going to be necessary to assess the Second Defendant’s costs, on the usual principles, without further reference to the budget.

 

SUMMARY OF THE JUDGE’S CONCLUSIONS

Summary of My Conclusions
    1. There is no sound basis for the Claimant’s challenges to the retainer arrangements reached between the Second Defendant and DAS, and in fact no real reason to go behind the indemnity principle certification on the Second Defendant’s bill of costs.
    1. The argument that the Second Defendant is entitled, up to 5 June 2018, to recover all of DAS’s costs not incurred exclusively on behalf of the First Defendant, is not sustainable. There is clearly much scope for division of the specific common costs up to that date, and it seems likely that the Second Defendant’s bill will be reduced substantially as a result.
    1. After the point when DAS undertook work on behalf of the Second Defendant only, it may still be open to the Claimant to challenge work undertaken on the basis that it really had to do with the First Defendant’s case, but that would be an argument as to whether the costs were reasonably incurred, not one based upon principles of division.
    1. Because the approved costs budget of 12 April 2019 incorporated both defendants’ costs without distinguishing between them, it is impossible to identify an approved budget figure for the Second Defendant alone. It follows that, where only the Second Defendant has any right to recover costs from the Claimant, there is good reason to depart from that budget.
    1. As to the extent of that departure, the budget is of no value for the purposes of assessing the costs recoverable by the Second Defendant other than that it is unlikely that the Second Defendant alone could justify the recovery of costs in excess of a budget incorporating the costs of two defendants. Any claim for costs in excess of the approved budget has already, rightly, been abandoned. What is left will have to be assessed in the usual way without reference to the budgeted figures.

TAKING THE CASE FORWARD

There are some important observations on taking the case forward.

The Further Conduct of this Detailed Assessment

    1. The underlying litigation that led to this detailed assessment was characterised by strong antipathy between the Claimant and the Second Defendant, each of whom attacked the other’s credibility. As so often happens that antipathy, at least on the Claimant’s part, seems to have extended to the detailed assessment.

 

    1. The Claimant’s Points of Dispute are littered with allegations of dishonesty. Claims for costs which the Claimant argues are irrecoverable, excessive or disproportionate are not just opposed: they are, repeatedly, characterised as dishonest. In fact the words “dishonest” or “dishonestly”, largely aimed at the Second Defendant’s legal representatives but also at the Second Defendant himself and his expert, appear in the Points of Dispute twelve times.

 

    1. I can illustrate the tone of the Claimant’s Points of Dispute by reference to their opening sentence:

 

“The Bill of Costs (“Bill”) is an attempt to mislead, profiteer and falsely claim costs, to which neither DAS nor the Second Defendant (“D2′) are entitled. As a result the recoverable costs should be nil. If found that the Bill includes costs that are not recoverable, then the indemnity principle has been breached, the Bill incorrectly certified and should be assessed at nil.”

    1. I do not pre-judge any of the points that remain to be made by the Claimant when I observe first that parties routinely claim costs which the court finds to be irrecoverable, which is why we have assessments; second that, for that reason, the last sentence of the passage quoted above does not represent established practice; and third that, whilst detailed assessments can, metaphorically speaking, escalate into open war, even metaphorical wars are notoriously expensive.

 

    1. At the conclusion of the second day’s proceedings the Claimant expressed some horror at the prospect (now, I fear, almost inevitable) of these detailed assessment proceedings becoming longer than the trial itself. Having spent most of the first day of what was intended to be a two-day assessment entertaining speculative retainer challenges, extending to entirely hypothetical suggestions of criminal conduct on the part of the second Defendant’s legal representatives, I share his concern, if not for precisely the same reasons.

 

    1. As for the second day, all that was established in my view is that the second Defendant’s bill (as quite rightly submitted by the Claimant) should have been prepared quite differently, and that the budget is of no use for assessment purposes.

 

    1. The only real achievement in the detailed assessment proceedings so far has been the determination of hourly rates and recoverable interest, and we only achieved that because neither of those issues took much time.

 

    1. What is now in prospect is a continuing detailed assessment, likely I fear to be conducted against the background of hostility, which will of necessity address issues of division of costs to 5 June 2018 before moving on to the assessment of costs after that date without regard to any budget. In the course of that exercise I shall have to address the Second Defendant’s challenges to the validity of some of the Claimant’s Points of Dispute, in particular by reference to Ainsworth v Stewarts Law LLP [2020] EWCA Civ 178. When all that has been done, I will then be hearing submissions on proportionality and the Claimant’s intended application for a penalty under CPR 44.11.

 

    1. It is perhaps not entirely fair to compare the length of a trial with the length a detailed assessment hearing, because the detailed assessment concerns the entirety of the proceedings, and so much depends what the parties choose to put into issue. In fact, most detailed assessment hearings are avoided or curtailed by negotiation. That however requires an element of goodwill which seems, to date, to have been wholly lacking in this case.

 

    1. It is not difficult to see that in addressing all the remaining issues I have mentioned (not least when so many allegations of dishonesty are made) a disproportionate amount of time and cost is likely to incurred in relation to costs claimed at a total (even before division) of less than £120,000.

 

  1. I would suggest that the next step is to consider how this detailed assessment can be concluded in the most proportionate and cost-effective way possible. I will arrange a directions hearing with a view to determining that, and pending that hearing I would encourage the parties to discuss and if possible agree how it might be achieved. To that end, even a temporary cessation of hostilities might assist.