COST BITES 134: THE FACT THAT THE DEFENDANT HAD A COSTS ORDER IN ANOTHER ACTION WAS NOT GROUNDS FOR REFUSING AN INTERIM ORDER FOR COSTS

In  Baldudak v Matteo (Re Costs) [2024] EWHC 301 (Ch) Mr Andrew Sutcliffe KC, sitting as a High Court Judge,  made an order for a substantial interim payment of the claimant’s costs.   He did not accept the defendant’s argument that no interim order should be made.  The fact that the defendant had a costs order in separate proceedings, but had yet to commence detailed assessment, was not a good reason to depart from the normal order that an interim payment on account of costs should be made.

“A party who waits 18 months to commence detailed assessment proceedings and raises them only in response to a pending costs application should expect the court to scrutinise his application for a stay or set off very carefully.”

TWO WEBINARS ON COSTS

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    • The costs judge over your shoulder 2024: maximising recovery in inter-partes costs. On the 12th March 2024. Booking details are available here. 
    • The summary assessment of costs. On the 18th March 2024. Booking details are available here.

THE CASE

The claimant had been successful in an action against the defendant. The defendant was ordered to pay the claimant’s costs. The judge was considering whether there should be an interim order for costs and, if so, the amount of that order.  The defendant objected to any interim order because it had an order for costs against the claimant in a previous case between the parties.  It argued that the balance due on assessment in that case could exceed the sums it would be ordered to pay the claimant.

However the claimant had already paid substantial interim payments on costs to the defendant in that earlier action. Further the order had been made 18 months earlier and the defendant had still not commenced  the costs proceedings.

The judge held that the existence of the costs order in the previous action was not a good reason for refusing to make an interim costs in the current action.

 

THE JUDGMENT ON THIS ISSUE

 

Should there be a payment on account of costs?

 

    1. Pursuant to CPR 44.2(8), if the court makes a costs order it will order the paying party to make a payment of costs on account pending detailed assessment, unless there is good reason not to do so. The Defendant submits that there is good reason not to make an order for payment of costs on account in this case, or at least to stay its enforcement.

 

 

    1. The Defendant has filed a statement of Vivienne Burbidge dated 6 February 2024. Ms Burbridge is a partner in Clarke Mairs Law Ltd, the solicitors instructed by the Defendant in these proceedings as well as the previous proceedings. In summary, she states as follows:

 

(1) the Defendant was successful in the previous proceedings and on 14 December 2022 (the “2022 Order”) was awarded his costs on the indemnity basis. On 4 January 2023 the Claimant made a payment on account of £200,000 which was followed by a further payment of £45,114 on 31 January 2023, making a total amount paid on account by the Claimant in the previous proceedings of £245,144;

(2) she is presently reviewing and finalising a draft bill of costs with a view to serving the same upon the Claimant. Without waving privilege, she states that the provisional figure for the bill of costs is £541,972.08. After applying the percentage reductions required by the 2022 Order, the bill is reduced to £414,266.88. There is a provisional figure yet to be incorporated reflecting additional costs incurred by the Defendant with his former solicitors which she does not anticipate being more than £25,000 which will again be reduced to reflect the percentage reduction required by the 2022 Order;

(3) after taking into account the payments on account of costs made by the Claimant in January 2023, she calculates there is a provisional balance due to the Defendant of £169,303.88, subject to either the parties agreeing the cost figure or detailed assessment taking place. This figure is said to exceed the Claimant’s budgeted costs in these proceedings and ought therefore to operate as a set off against any payment on account of costs ordered against the Defendant.

 

    1. Accordingly, the Defendant submits there should be no order for costs on account because the Claimant will be facing a bill of costs from the previous proceedings which is “not unlikely” to be equivalent to or even significantly in excess of his costs budget for these proceedings. The Defendant further argues that whilst the court is not yet in a position to ascertain the precise effect of the ultimate set-off, a set-off is inevitable and it will most likely extinguish or significantly reduce the costs ordered in these proceedings. In the circumstances, he says an order for costs on account would be pointless, because it would be unfair for that order to be enforceable before the assessment of costs of the previous proceedings, and there is no point in making an order and staying its enforcement (which would be the only just response).

 

 

    1. Mr Kitson for the Claimant points out that the sum ordered to be paid on account by his client in the previous proceedings was in fact £259,500, from which was deducted an outstanding costs order in the sum of £14,386 in the Claimant’s favour, which resulted in the total sum actually paid of £245,114. He relies on the case of Benyatov v Credit Suisse Securities (Europe) Ltd [2020] 1 WLR 2913 for the proposition that “CPR 44.2(8) would be undermined if a party was able to bring into account contingent and uncertain costs entitlements in order to defeat another party’s sure entitlement to an interim payment” (quoted from the headnote, and discussed at ¶¶20-23 of the judgment). He submits that the same reasoning applies to this case where the Defendant is seeking to set off inherently contingent and uncertain cost entitlements to defeat the Claimant’s claim to a payment on account of his costs.

 

 

    1. The Claimant makes the following further points:

 

(1) A party who waits 18 months to commence detailed assessment proceedings and raises them only in response to a pending costs application should expect the court to scrutinise his application for a stay or set off very carefully.

(2) In the previous proceedings, the Defendant has had the benefit of a substantial payment on account of £259,000. He now seeks to deprive the Claimant of that same benefit. There is no suggestion that the Claimant will not be able to repay any costs order if that is the net effect of the detailed assessment process.

(3) The Defendant filed two relevant cost budgets in previous proceedings. First, a budget for the Liability Trial dated 8 October 2021 which totalled £303,807.08, made up of (a) incurred costs (not approved) of £175,304.58 and (b) budgeted costs approved in the sum of £128,502.50. Second, a budget for the Remedies Trial (never considered by the court) which totalled £135,037. Thus, overall total costs (budgeted and incurred) came to £438,844.08. Those costs were certified as being reasonable and proportionate by the Defendant’s solicitors.

(4) The Defendant did not obtain an order for all of his costs in the previous proceedings. Rather, as confirmed in Ms Burbridge’s witness statement, he only obtained an order for 70% of his costs in respect of the Liability Trial (70% of £303,807 is £212,665, and overall total of costs budgeted and incurred of £347,702). The Claimant made two payments in January 2023 of £178,500 and £81,000 (totalling £259,000) on account of the costs of those proceedings that he was ordered to pay, leaving a balance of £88,702 to be argued over on detailed assessment.

(5) The Defendant now suggests, through Ms Burbridge, that he has incurred an additional £103,128 in costs in the previous proceedings.

(6) The Defendant has not yet commenced detailed assessment proceedings, nor has he committed himself to doing so. If he never chose to do so, and the court acceded to his request for a set-off or stay, the Claimant would have been deprived of an interim payment on account of his costs in these proceedings for no reason.

(7) The correct forum in which to argue about the further costs to which the Defendant is entitled pursuant to the 2022 Order (including the recoverability of the additional £103,128 or whatever sum the Defendant seeks to claim in his bill of costs when served) is in detailed assessment proceedings. It is not appropriate for the Defendant to invite this court to speculate or prejudge proceedings which are not on foot and may never be brought.

(8) In summary, the Defendant’s argument is misconceived as a matter of law (per Benyatov (supra) at ¶¶20-23) but, even if it is arguable as a matter of fact, it does not come close to providing a ‘good reason’ for departing from the usual rule that the court should order a payment on account of the successful party’s costs pending any detailed assessment.

    1. I accept the Claimant’s submissions. In my judgment there is no good reason for departing from the usual rule that the successful party is entitled to a payment on account of his costs pending any detailed assessment.

 

Amount of the payment on account

 

    1. CPR 44.2(8) provides that a ‘reasonable sum’ should be ordered as a payment on account. The Claimant seeks 90% of his cost budget as a payment on account. His Precedent T dated 11 September 2023 was agreed in the sum of £131,218.80 by the Defendant. However, of that figure £23,177 were incurred costs, which were not agreed by definition. Thus the agreed budgeted figure was £108,041.80, not the overall figure.

 

 

    1. In a case where (as here) the court has made a costs management order, the receiving party’s budget is a sensible starting position for determining a ‘reasonable sum’. Absent the existence of a good reason to depart from a budget, it is appropriate to order that 90% of a party’s budgeted costs be paid on account: Thomas Pink Ltd v Victoria’s Secret [2015] 3 Costs LR 463.

 

 

    1. The Claimant seeks a payment on account equivalent to 90% of 85% of his costs budget of £131,218.80 which is £100,382.38. He submits that the figure for incurred costs (£23,177), although not agreed, is nevertheless a reasonable figure.

 

 

    1. The Defendant submits that only the agreed budgeted cost figure of £108,041.80 should be taken into account for the purposes of arriving at a reasonable sum to be paid on account. He also contends that £8,650 should be deducted from that sum for the purpose of calculating a payment on account because this was the budgeted figure for ADR costs and there was no significant ADR process. Applying the same percentage reductions, this results in a figure of £76,034.73.

 

    1. The court should strive to ensure, in accordance with the principle enunciated in Mars v Teknowledge, that the payment on account does not result in an overpayment and should select a figure which is an irreducible minimum. I bear in mind the Defendant’s point that there appears to have been no significant ADR process. I also take account of the fact that the Claimant’s incurred costs, whilst not agreed and remaining subject to detailed assessment, do not on their face seem unreasonable. I have concluded that the appropriate reasonable amount which the Defendant should pay on account of the Claimant’s costs is £90,000.

 

Conclusion

  1. For the reasons given, the Claimant is entitled to be paid 85% of his costs, assessed on the standard basis if not agreed, and to a payment on account of those costs of £90,000.