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Costs budgeting is not a game!
Costs Aware Issue 3
Coulson J criticised the defendant for treating cost budgeting as a form of game in which they sought to exploit the cost budgeting rules in the hope of obtaining a tactical advantage.
In Findcharm Ltd v Churchill Group Ltd  EWHC 1108 (TCC) the claimant’s restaurant was closed by a gas explosion at a hotel owned by the defendant. The claimant pursued a business interruption / loss of profit claim of £820,000 plus interest.
The claimant submitted a budget of £244,676 and the defendant submitted a budget of £79,371 having pleaded a bare denial of liability in the defence.
The court considered the defendant’s budget to be erroneous as it did not budget anything for causation experts and a minimal amount for trial preparation. It was regarded as an unrealistically low budget which had unsurprisingly been agreed as claimed.
The court considered the claimant’s budget and the defendant’s offers in the cost budget report totalling less than £90,000.
In a critical judgment, Coulson J said the defendant’s cost budget report was of no utility:
“It is completely unrealistic. It is designed to put as low a figure as possible on every stage of the process, without justification, in the hope that the court's subsequent assessment will also be low. In my view, therefore, it is an abuse of the cost budgeting process.”
The introduction of the costs budget report, which requires each party to make an offer and comment on the cost budget of the other, should lead to a saving in time, as it requires the parties to adopt a realistic attitude to an opponent’s budget.
“… some parties seem to treat cost budgeting as a form of game, in which they can seek to exploit the cost budgeting rules in the hope of obtaining a tactical advantage over the other side.
In extreme cases, this can lead one side to offer very low figures in their Precedent R, in the hope that the court may be tempted to calculate its own amount, somewhere between the wildly different sets of figures put forward by the parties.”
The defendant’s “low balling” approach to cost budgeting quite rightly attracted the censure of the court in this case.
However, the courts must ensure that they do not tar all defendants with same brush. There are a variety of valid reasons why the defendant’s budget is significantly less than the claimant’s, such as lower hourly rates; a smaller team or less reliance on counsel.
There are also a variety of valid reasons why offers made in costs budgeting reports are significantly lower than the budget claimed such as the costs ratcheting behaviours of excessive hours and hourly rates to be completed by a football team of fee earners together with over reliance on counsel at every step of the claim.
The offers may reflect the different directions being sought and dare we say it they may appear low when compared to an exaggerated budget.
Mr Justice Coulson’s forthright judgment is very welcome but we can expect further judicial censure of cost budgeting gaming in the future.