COST BITES 180: EXCESSIVE BUDGET LEADS TO PARTY BEING ORDERED TO PAY THE COSTS OF A BUDGETING HEARING

In Nicholas Worcester v Dr Philip Hopley [2024] EWHC 2181 (KB) Master Thornett awarded costs against a party who, the Master felt, had over-inflated their costs budget.   The case stands as a warning that a party putting forward a budget which is found to be unrealistic may not escape without penalties in costs.  (I am grateful to David Arnot from Crown Costs Consultants  for bringing my attention to this case).

“An assumption that costs management should always see an order “in the case” as much encourages parties to maintain an unrealistically ambitious approach and to proceed to the hearing without any consideration of their opponents’ submissions. In effect, to “chance their luck on the day”. That is hardly a reasonable or appropriate approach.”

THE CASE

The claimant brings a claim alleging medical negligence against the defendant.  As hearing was held to consider case management and a separate hearing in relation to budgeting (a common practice in the King’s Bench Division). A preliminary hearing was held in relation to costs at which the defendant’s budget was agreed.  The Costs Management Conference proceeded and there was a reduction of 53.35% in the claimant’s budget, some 3.58% above the figure that had been conceded by the defendant.

THE COSTS OF THE BUDGET HEARING

The Master then considered issues relating to the costs of the budget hearing.  He rejected an argument that budgeting issues should, automatically, lead to an order for costs in the case. Instead he held that on the facts of this case the claimant’s conduct should lead to an order that the claimant should pay the costs of the budgeting hearing, with no order for costs of the preliminary hearing (the defendant having not sought its own costs of that preliminary hearing).

THE JUDGMENT ON THIS ISSUE

17.The Claimant is correct in principle that it would not be appropriate for the court regularly to depart from an “in the case” costs order following “ordinary” costs management just because a party has seen their budget reduced. I agree that even though the court may, and often does, express critical views during the course of costs management, that should not necessarily lead to a costs penalty.

18. That said, I disagree with the submission that r.44.2 is not readily suited to justify a specific costs order if the circumstances of a particular case are justified. Especially when, as here, the court had listed a separate hearing for the exclusive purpose of costs management, with an expectation that the intervening period provided should prompt the parties to reconsider their respective positions. The notion that because costs management is necessarily interwoven with the process of case management then both should be treated as within an enveloped whole, during which process the court should always adopt a holistic “in the case” approach, substantially overlooks the wide discretion the court has on costs and the factors listed in r.44.2 to be taken into account when deciding costs.

19. In short, a party that resolutely proceeds to a separately listed costs management hearing with an overly ambitious budget should not readily assume that the court will be willing to see both its time and resources and those of opposing parties’ engaged without any potential consequence in costs.

20. Neither do I agree that if there is to be an order other than “in the case”, the starting point is that a party that secures approval of a sum at least something in excess of that offered by an opponent thereby establishes “success” and so should avoid an adverse costs order against them. Not least because success could equally be defined as that of the opposing party in securing substantial reductions. Hence, as I am satisfied, why it is appropriate for the court to take a more rounded and general view of the process that took place.

21 Leading from this point, Mr Dunne’s submission that specific costs orders against parties following costs management will deter reasonable offers from opponents before the hearing rather works both ways. An assumption that costs management should always see an order “in the case” as much encourages parties to maintain an unrealistically ambitious approach and to proceed to the hearing without any consideration of their opponents’ submissions. In effect, to “chance their luck on the day”. That is hardly a reasonable or appropriate approach.

22. I have reminded myself of the Claimant’s revised Precedent H dated 1 May 2024, the Defendant’s revised Precedent R and the respective submissions made at the hearing on 8 May. The following factors were found particularly relevant on the question of proportionality during budgeting:

• The Claimant’s solicitors practise from a London EC4A address and so seek to justify rates enhanced to any comparative guideline. Estimated costs had been calculated based on a variety of hourly rates ranging from £195 for a Paralegal to £555 for a Partner;
• By far the most substantial financial element in each phase of estimated costs reflected the proposition that the work would be principally carried out by a partner. Given the nature of the claim, the addition of work by a Paralegal could not realistically be inferred to provide substantial additional value to the core legal work and preparation;
• There was therefore little if any structured delegation, despite the Precedent H listing interim fee earners at the level of Senior Associate, Associate, Junior Associate and Trainee Solicitor. Even in the phase Disclosure where, given the £15,487 already incurred, a reasonable inference was any further disclosure going to the preliminary issues ought to be readily understood and processed instead by qualified lawyers of more interim status;
• Witness Statements phase proposed some 30 hours of partnerial time at £16,650 but, in addition, Paralegal work at £4,875, the involvement of Leading Counsel at £3,000 and Junior Counsel at £2,550;
• A similar sequence of involvement featured in the Expert Report phase where only one expert discipline (psychiatry) had been permitted for the purposes of the preliminary issue trial. However, the figures proposed were for a Partner at £13,875, Paralegal £2,975, Leading Counsel £6,600 and Junior Counsel at £3,400;
• The Claimant proposed that the preparation and submission of written information for the purposes of listing by Kings Bench Judge Listing should engage a Court Clerk, Paralegal and a Partner all in a total sum of £1,155;
• Sixty hours would be spent preparing for trial, involving (again only) the Partner and Paralegal;
• For a six-day trial, the Partner would be engaged for 67 hours at a cost of £37,185, as well the Paralegal at £2,340, Leading Counsel at £28,800 and Junior Counsel at £17,000;
• ADR was sought to be approved in the total sum of £61,525.

23. I hasten to add that the above factors are not intended as an exhaustive list of all that was explored during case management. Further, to iterate, hourly rates were not in themselves subject to approval, nor that approval of figures for estimated costs carried any implied direction as to who should carry out that work. The question of which fee earner the Claimant’s firm proposed to carry out the work was instead relevant only in considering the proportionality of the resultant figure sought.

24. I draw no adverse inference upon the reduction in the Claimant’s approved costs because the Issue/Statements of Case phase was not cost managed owing to the Defendant’s inchoate revised position as to amendment.

25. I instead focus upon that that was cost managed. In doing so, it is appropriate both to look at the detail itself but also take a step back and consider the process as a whole. As with any hearing, the court draws upon its experience by taking stock of the various points and arguments raised and their significance in terms of the decisions ultimately reached.

26. In doing so, I am not at all persuaded that the process was, as the Claimant submits, entirely routine and not out of the ordinary because the issues in contention typically touched upon hourly rates being said to be too high, proposed time excessive and the use of two counsel in conjunction with work at partnerial level disproportionate. Whilst I agree that these considerations in themselves may well often be routine and ordinary in such hearings, the figures in question and the time and attention that had to be attended to them in this particular case marks a distinction.

27. Neither can the disproportionality of the Claimant’s budget and its reduction be simply excused away with comparisons between the Claimant’s assumptions during the preparation of his budget and alternative assumptions expressed by the court during costs management. It is important to distinguish between assumptions expressed as to the basis on which budgeting took place(Footnote:2) and the objective consequence of budgeting to a party. In approving a sum, the court ultimately does not direct that a proposed aspect of work should not be carried out, neither does it direct how the approved sum should be spent. Instead, it applies an evaluative approach to proportionality if less obvious work (or at least justifiable expense) appears to have been factored into a party’s budget.

28. Hence, whilst the Claimant’s Witness Statement phase had assumed a statement was required from the Claimant’s treating CBT expert whereas the court assumed that the evidential input could be more cost effectively established, the substantial reduction of that phase reflected the court not being persuaded that, howsoever chosen to be spent by the Claimant, the amount should be anywhere near the sum sought.

29.Parties must be prepared to account for not just what work justifies their estimated costs but why the figure claimed is also proportionate.

30. The overall impression and conclusion I reached was that the Claimant’s Precedent H was unreasonable and unrealistic in terms of proportionality. It led to a polarised approach between the parties on budgeting that had prevented settlement and so necessitated a separate hearing proceeding that either might have been vacated or, even if not, should have followed a more conventional process of modest arithmetical adjustment and modification, rather than fundamental deconstruction of the Claimant’s proposals and as led to sizeable reductions.

31. I therefore conclude that it is appropriate in this case for the court to make the following specific costs orders:

31.1 There be no costs for the Costs Hearing on 15 May 2024. It seems to me unnecessary to conclude whether that hearing might have been avoided entirely. The central point is that the Defendant’s budget had been agreed in advance and the hearing was spent in significant and fundamental deconstruction of the Claimant’s adopted approach. There should be no case for the Claimant ultimately receiving costs (if successful on liability) for having adopted that approach. In that the Defendant seeks no order, rather than an order in his favour for that hearing, the Claimant ought to see this as a benefit;

31.2 The Claimant has been unsuccessful in persuading the court to pass off the exercise as “in the case”. He should pay the Defendant’s costs of the hearing on 16 July 2024;

31.3 The element to which the Claimant increased his preparation for costs management by adopting figures that did not find favour with the court is not an easy one to assess, if it should be recognised in principle. One might argue that lower figures would have made no difference in terms of the preparation and hence costs of cost management. That said, taken as whole, both the Claimant’s original and revised Precedent H forms evidence a more elaborate approach than might have been adopted and so I infer a process of additional formulation the Defendant ought not come to pay for. I reduce the Claimant’s costs management costs (such as may come to be assessed) by 15%.