It has been an assumption for years in costs budgeting in civil litigation: claimants start high and negotiate down, assuming there will be scope for ending up at the figure wanted all along.
But have judges had enough of the game-playing? Two judgments in quick succession from Master Thornett have both criticised claimants’ overstated costs budgets and penalised the parties accordingly.
Costs experts are now warning that parties are not immune from sanctions during the costs management process, and if their costs appear high at first glance, they will have to justify this.
‘For those drafting costs budgets, ensuring they are robust and well thought-out from conception is key,’ said Sean Linley, senior costs draftsperson at Newcastle firm Carter Burnett. ‘It’s now abundantly clear that parties will need to be prepared to explain and justify a “high” costs budget. There is an expectation of reasonable engagement in both budget discussions and negotiations.’
Daniel Murray, senior associate with Leeds-based Clarion, said it is a misconception that all claimants approach costs budgeting with a ‘start high and negotiate down’ method. ‘In practice, most claimant solicitors take their budgeting obligations seriously and place great weight on their endorsement of costs sought by the signature given to the statement on the front sheet of a Precedent H.
‘In doing so, the majority of claimants present true and accurate reflections of what they believe to be reasonable and proportionate costs of the case, with the intention of agreeing most of those figures, or certainly sums close to them.’
In both Worcester v Hopley and Jenkins v Thurrock Council, Thornett asked why costs issues could not have been settled without the need for a specific costs management hearing. In Jenkins he said such hearings ‘are not always inevitable’ and pointed out that many parties agree their respective budgets by the time of the case management conference.
The claimant served up an updated budget for the costs hearing coming to more than £940,000. This compared to the defendant’s £383,000 costs total.
While acknowledging that claimant costs were often higher than those of the defence, the size of the budget ‘plainly calls for careful consideration and reflection’, the judge said.
Thornett observed that the claimant in Jenkins continued to take an unrealistic approach to costs despite offers to change position from the defendant. The period between the case and costs management conferences should have allowed ‘discussion and negotiation’, Thornett concluded.
In Worcester, he was similarly scathing about the gap between claimant and defence positions.
‘Parties must be prepared to account for not just what work justifies their estimated costs but why the figure claimed is also proportionate,’ said Thornett. ‘The claimant’s [budget] 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.’
Claimant firms have complained to the Gazette that judges fail to spot when defence lawyers ‘lowball’ their costs budgets to make it appear that claimant costs are disproportionately high.
Tom Blackburn, costs specialist at south west firm Croft Solicitors, said there remain fundamental problems with costs budgeting.
‘The yardstick by which the courts measure budgeting being a success is by reducing budgets in order to ‘control costs’. If you know from the outset that a budget is going to be reduced, regardless of how reasonable it is, then the system is broken,’ said Blackburn.
‘However, paying parties should also face the music. For over 11 years, paying parties have submitted unreasonably low budgets that bear no resemblance to what it would actually cost them to defend the case properly. They do this so the contrast between the budgets looks stark.’
Both parties should approach the process openly and honestly. At present, that is rarely the case.
There are also concerns that the courts may be trying to restrict the to-and-fro negotiations that are needed to end up with the correct figures.
‘There is a fine line between encouraging parties to engage sensibly and amicably and fostering an environment which discourages some parties from negotiating on the basis that they are incentivised to take a chance at a costs management hearing,’ said Linley. ‘What is clear, though, is that more parties are pushing for costs sanctions in the context of costs management and practitioners ought to be prepared for that.’
Michelle Farlow, legal costs manager at Partners in Costs, said the decisions should prompt a change in mindset by practitioners in how they set budgets. They should also be aware that courts may penalise parties who assume they can rely on a costs management hearing.
‘Parties will have a high hurdle to overcome if unrealistic and ambitious budgets are presented and maintained,’ said Farlow. ‘Parties need to take stock after case directions are made, adapt their positions accordingly and continue to strive to narrow the issues in accordance with the overriding objective.’
Murray stressed that the two cases must be judged on their own merits: ‘It would be dangerous for there now to be a blanket belief or invitations from defendants for there to be similar penalties as in these cases, when there are certain levels of reductions to a claimant’s budget. Parties should be encouraged to continue to make realistic and fair proposals during the budgeting process.’
