T:0151 921 7082
Inflated claim leads to budget being disregarded
On Track - May 2019
A recent decision in the Senior Courts Costs Office has confirmed that, where a claim for damages is grossly inflated, the court is likely to disregard any costs management order that has been previously made when the costs fail to be assessed. This is important guidance and gives reassurance that when a party exaggerates its claim, and is thereby given a large budget to work with at the costs management stage, it cannot hide behind any costs management order if the claim is later revealed to be exaggerated or other conduct issues arise.
The recent judgment in a successful case defended by Keoghs is the perfect illustration of this decision - we secured a £53,000 (71%) saving against the claimant’s bill of costs whilst being given more guidance on the court’s willingness to go behind a previously approved costs budget.
This was a motor claim which settled for £10,000 despite originally being pleaded at over £200,000 on the alleged basis that the claimant’s career was cut short by the accident and, consequentially, extensive loss of earnings were sought. A plethora of expert evidence was obtained but there were suspicions regarding the veracity and extent of the claim, particularly when social media investigations revealed the claimant was posting news about her success as a businesswoman! Surveillance was commenced.
The matter was subject to costs management, budgets were approved and a Case Management Order made. Following successful conclusion of the damages litigation, a bill of costs was served totalling almost £75,000, with the claimant’s Costs Draftsmen relying on the approved costs budget to defend their claim for costs.
We offered costs akin to fixed costs, as were considered appropriate in the circumstances of this claim. We also made extensive submissions regarding the claimant’s conduct during the course of substantive litigation, not least that we had demonstrated the claimant’s lack of truthfulness in her account of both her injuries and her losses. Rather bizarrely, the claimant’s Costs Negotiator admitted during the course of costs negotiations that their client had made false statements, yet they still sought to maintain their claim.
Negotiations proved fruitless and so Points of Dispute and Replies were prepared and served. Given the value of the bill of costs, the matter should have fallen to provisional assessment, but we successfully argued that such was the importance of the issues to be considered, an oral hearing was required before assessment could take place.
There was an inherent risk in adopting this stance. Extensive case law sets out that an approved budget is the starting point for any assessment and any departure from the costs approved therein can only be with “good reason”. Indeed, the courts have been reluctant to make such a departure in the past. However we believed in this case that such good reason was clear and, with client’s approval, proceeded at oral hearing to present fully detailed and evidenced submissions.
We stated that the claimant’s conduct in presenting such an inflated claim must result in the Costs Budget being disregarded. We submitted that the court should exercise its discretion under CPR 44.4(3) and instead make an award of costs which was proportionate and which reflected the true nature and value of this claim.
The court agreed and confirmed that the claimant’s conduct would be taken into account, either during the line by line assessment and/or by the application of the test of proportionality and that the Budget would be disregarded.
A written assessment of the bill was carried out. Disappointingly, the court did not consider costs akin to fixed costs were appropriate, but considerable reductions were made. Key amongst the reasons for reduction were that hourly rates were excessive and that an unreasonable and unnecessary amount of expert evidence was obtained at disproportionate cost. This resulted in the bill being reduced to £24,500.
The court then invited further submissions on proportionality. Following Keoghs’ recent success in the extensively reported Reynolds v One Stop Stores, we were confident in encouraging the court to take a bold approach to proportionality and to apply furthe reductions.
The court agreed and further reduced the bill to £22,000 - a saving of 70%.
There’s no doubt this decision is important. In addition to securing the right outcome for our client, it gives further and clear indication that the courts are willing to disregard a budget when assessing costs, if the budgeting process it was based on is later revealed to be an overly optimistic or exaggerated claim. This is likely to be the first of many decisions needed to provide the reassurance that paying parties need in this area.