Having already determined whether the court had discretion to order costs budgeting in claims worth over £10 million (it has an unfettered discretion to do so, see CIP Properties (AIPT) Ltd v Galliford Try & Others  EWHC), Coulson J considered how to deal with costs management in circumstances where the Claimant’s budget was “entirely unreliable” and where the costs set out were “wholly disproportionate”.
Ultimately, the court took a very dim view of the Claimant’s costs budget and made an order which, in effect, slashed the proposed £9.2 million pound budget to £4.3 million. Michael Wheater appeared for the Third Party, EIC Limited.
The claim was a standard TCC defects claim. The Claimant, was an institutional investor who purchased a development in Birmingham. The Defendant was the Main Contractor and was being sued for a long list of alleged defects. The Defendant in turn joined the M&E sub-contractor, the lifts and escalator contractor and the architect. The pleaded value of the claim was c.£18m although the court noted that “Those figures are hotly contested because the defendant and the additional parties say that the claim is grossly exaggerated.”
At a first CMC in February 2014, the Claimant had filed a costs management information sheet stating that its incurred costs were £1,575,425.39 and that its estimated total costs for the case was £3,420,425.39. In the year that followed “very little has happened. A preliminary issue, first formulated by the defendant, was subsequently abandoned. Disclosure has taken place but is not complete.”
In September 2014, the additional parties were joined to the action and in October 2014, all of the defendant parties, concerned as to the Claimant’s likely costs, sought costs management. The Claimant opposed this and argued that the court did not have the discretion to consider making any cost management orders at all. Coulson J did not agree (see  EWHC 3546 (TCC)).
In January 2015, the Claimant submitted its costs budget alleging that it has incurred costs of £4,226,768.16 and that its total estimated costs are £5,050,469, making a total of over £9.2 million. On 5 March 2015, Coulson J handed down a detailed judgment, making numerous findings that every aspect of the Claimant’s budget was unreliable and disproportionate.
Coulson J heard from all parties in relation to costs management on 13 February 2015. He handed down a detailed judgment on 5 March 2015. That judgment repays careful reading.
At the outset, Coulson J was particularly concerned that this was the second time that the parties had spent all day arguing about costs management and noted that:
“At one point, there were 26 people in court, excluding me, considering the detail of its costs budgets. Such satellite litigation, and the costs incurred in consequence, is very far removed from the spirit and purpose of the new costs management provisions”.
The case also provides key guidance on a number of issues:
- The absence of any explanation as to why the incurred costs had increased by such a large amount was “highly significant” and that absent explanation, the court would be “suspicious of the figures":
“The claimant has not sought to explain how such a vast increase in costs has come about, nor why such an increase can be justified. On behalf of the third party, Ms Smith QC submitted that, in the circumstances of this case, the absence of such an explanation is highly significant. I agree.”
- The Claimant’s costs budget was accompanied by a Schedule of Assumptions and Contingencies running to around 65 items. The Court held that:
“There are so many of these assumptions, and they are so widespread in nature and effect, that they alone render the claimant's costs budget wholly uncertain and therefore unreliable.”
- The Court made scathing criticism of the approach adopted by the Claimant:
“What is more, given the deliberate absence of any explanation for the huge increase in the costs incurred and estimated, and the Schedule of Assumptions which can only be designed to give the claimant's legal team the maximum room for manoeuvre later on, I am driven to conclude that the claimant's costs budget has been deliberately manipulated. The claimant did not and does not wish the court to make costs management orders. I find that the production of the costs budget in this format and in this way is a continuation of that stance by other means.”
- Proportionality is to be assessed by reference to the value of the claim but also the nature of the claim and cited with approval the comments of Akenhead J in Savoye and Savoye Ltd v Spicers Ltd  EWHC 33 (TCC).
- Coulson J also noted that the nature of the case was a key element in assessing the reasonableness of a costs budget. For example:
“This is not a particularly complex claim. It is a relatively standard TCC defects case and, as is typical, a handful of individual defects will take up the lion's share of the case. There will not be the need for extensive witness statements or a lengthy chronological bundle. The issues of both liability and quantum will almost certainly turn on the expert evidence.”
“The value of the claim is of course a factor in calculating proportionality although, in a case of this type, it is not as important as complexity. After all, it might cost £300,000 or £30 million to rectify drainage defects, but the expert evidence necessary to prove those defects (and the reasonableness of any remedial scheme) will be broadly the same.”
- It is not correct for the Claimant in a multi-party case to say that it has been forced to incur the lion’s share of the costs:
“it is wrong for the claimant now to suggest that its own costs are greater because of the presence of the additional parties, given that the claimant has said throughout that its costs and its costs budgets have been prepared by reference to its claim against the defendant only. That is presumably why the claimant entered into a design and build contract in the first place. The presence of the additional parties may well justify an increase in the costs of the defendant; it does not justify any sort of increase in the costs of the claimant.”
- However, even if a Claimant’s costs are higher during the initial preparation of the case, the court will expect to see “a concomitant reduction in the claimant's costs, and an increase in the costs of the defendant and the additional parties, as the case moves towards trial.”
Furthermore, the Court considered the recent decisions in Redfern v Corby Borough Council  EWHC 4526 and Yeo v Times Newspapers Ltd  EWHC 209, both of which considered situations where there was a perceived "front-loading" of costs. The Court identified four possible options where such a situation arose:
- Option 1A would be to order the Claimant to prepare a revised budget; however, Coulson J held that this would not do justice between the parties and would inevitably lead to an increase in costs.
- Option 1B would be simply to decline to approve a budget for the Claimant. Coulson J had previously taken this course in Willis v MRJ Rundell  EWHC 2923 (TCC). However, in this case the court felt that this would leave the situation unresolved and may lead to an unfettered assessment if the Claimant’s costs were submitted for detailed assessment.
- Option 2 was to set budget figures moving forwards and to make robust comments as to the level of incurred costs. Coulson J pointed out that this option might place the defendant parties at risk if a costs judge later departed from the court’s comments during any detailed assessment of incurred costs. In other words, Option 2 might lead to a greater sum being recovered than the Court felt was reasonable or proportionate.
- Option 3 would be to set a "nil" budget moving forwards on the basis that the Court was entitled to take account of the level of incurred costs when considering costs budgets and could reach a decision that the Claimant had already spent its budget. However, Coulson J considered that a costs judge on assessment might make substantial reductions in the Claimant’s incurred costs and therefore the result would be a much lower recovery than the court believed was reasonable or proportionate.
- Ultimately, whilst Coulson J believed that there was merit in Option 3 and that it would place the risk on the Claimant (effectively the defaulting party) he believed that the risk of injustice was too great to render Option 3 workable. Accordingly, the court adopted a modified version of Option 2 and made a series of findings as to the levels of incurred costs that the Court would have expected to see in each phase. The Court then set a reasonable budget on the basis of those findings as to the reasonable incurred costs with a direction for any future costs judge that to the extent that the amounts actually recovered under each phase in respect of incurred costs are higher than the figures used in Coulson J’s judgment, the budgeted costs moving forwards would fall to be reduced on a pound-for pound basis.
For further information, please refer to the judgment in CIP Properties (AIPT) Ltd v Galliford Try Infrastructure & Ors [Costs Judgment No. 2]  EWHC 481 (TCC).