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Successful challenge to demand for excessive interim costs
The High Court has given a useful decision on how the court should approach the assessment of an interim payment of costs in cases where, despite being budgeted, the claim settles for far less than originally claimed. Since the introduction of the costs management regime, case law suggests that where a claim has been budgeted, 90% of budgeted costs is a reasonable interim payment.
This is on the basis that a detailed analysis of what would be reasonable would have been carried out when the budget was set.
In JKA v London Borough of Haringey (unreported, 25/2/20) Master Sullivan, sitting in the High Court, held that where there were clear issues to resolve around departing from the budget and on proportionality, a cautious approach should be applied. The claimant’s solicitors relied on a costs budget that was set at approximately £165,000 and initially sought an interim payment of £100,000 against a schedule of circa £137,000, on the basis that this was some 70% of incurred costs and 90% of budgeted costs.
The defendant paid an interim of £40,000, later increasing to £60,000. The claimant issued an application, seeking the full £100,000. The claimant’s application failed to refer to several important factors that the defendant then set out in its Points of Dispute. This was a complex child abuse claim, but one where just prior to the budget being set the claimant had filed a Schedule of Loss seeking £870,000 in special damages alone. The defendants stance throughout was that this claim was unsustainable.
The claimant had, unfortunately, suffered other abuse both before and after the relevant abuse in the claim and lived a lifestyle that meant it was impossible to attribute all the lost earnings to this specific claim. The defendant argued that this should have been clear early on in the claim, particularly once medical records had been obtained.
As the trial date approached the claimant suddenly withdrew their entire special damages claim, settling the matter for £15,000, circa 0.2% of the pleaded value. In submissions the defendant made it clear that there would be an application on detailed assessment to depart from the costs budget and that when proportionality was applied, it was expected that a significant reduction to the bill, which was now over £160,000, would be achieved.
Master Sullivan concluded that departing from the budget and proportionality would be a big issue. It was also held that it was highly relevant that the budget was set only a month after the £870,000 schedule of loss was filed. The Judge suggested that it was highly unlikely that the claim would have been budgeted as it was had it been known that it would settle for only £15,000. Based on these factors Master Sullivan noted that the “purpose of an interim is that the claimant should not be kept out of costs, but only costs that they are likely to get. Here the Court cannot be certain that the claimant will get significantly more” than the £60,000 already paid. As such the claimant’s application was dismissed with an order for costs. Master Sullivan indicated that was it was still open for an application to be made before a Costs Judge now that the SCCO was seized with the matter, on the basis that the issue would be dealt with by the same Costs Judge who would be assessing the bill. They would be fully informed on the relevant issues.
This is a positive and useful outcome for defendants in cases where claimant solicitors issue aggressive applications for over-optimistic interim payments in matters where the claim settled for a fraction of what was originally claimed. It acts as a reminder that any interim award should be based on a degree of certainty compared to what is likely to be awarded on assessment, even in cases where a budget might have been set.