Shortfall, Significant Impact
Solicitors running cases on budgets have for some time been told not to ignore an overspend during a case. They cannot now simply seek to rely on good reason in any subsequent detailed assessment proceedings. The CPR wording on applications to amend budgets has long since been amended from “should” to “must”. The case of ST -v- ZY [2022] EWHC B5 (costs), arguably, takes this point a step further in an unexpectedly broad way.
The underlying case resulted from the death of a man from a motorcycle accident in 2015 with the claim (of some of the Claimants) settling in April 2020.
A Bill of Costs of £187,506.24 was presented and the Defendant’s liability on that costs claim had been agreed at £132,000.00 to include interest and the costs of the assessment process. However, the costs claim required approval of the court due to the status of one of the successful Claimants (a protected party).
A shortfall of £53,719.16 (that had been capped from a much larger sum), a success fee of 12.5% and an ATE premium of £1,092.00 were sought from the Claimant by way of deductions from the damages received. Unsurprisingly, this was noted to be a significant part of the damages.
Amongst the £53,719.16 was time claimed in excess of the amounts approved in the budgeting phases of £31,304.68 and an overspend of over £11,000.00 in the 1% and 2% caps on the costs of the budgeting process. In considering the details in this case the Claimant had been advised at the outset that there may be a shortfall in costs but that this was not anticipated to be significant. The Claimant was later informed about the implications of the court budget on recovery of costs at that level. Finally, they were told, at the point settlement of the underlying claim was achieved, that there was a shortfall in costs estimated at £43,500.00 plus VAT.
Senior Costs Judge Gordon-Saker noted, with surprise, that the client was not informed when the budget was exceeded and that the costs in excess would not be recoverable from the Defendant. At that point their solicitors moved forward incurring costs that they knew, or should have known, would not be recoverable (noting they were conceded in the between the party settlement). In applying the test of if these costs had been unreasonably incurred (if they are of an unusual nature) under CPR 46.9(3) the court decided that “…the costs in excess of the budget and in excess of the caps imposed by CPR 3.15(5) are to be presumed to have been unreasonably incurred” as there was no contemporaneous advice that the budget was being exceeded by a wide margin (by up to 400% in some phases).
Now the point of this decision is obviously for a case where there is a deduction from damages on a case that, by the nature of the Claimant, has undoubtedly been run on a CFA. It is also arguable that it is a weighted decision given the protected nature of the client. The view that settlement or Judgment in a case such as this has resulted in an acceptable amount of damages for that Claimant before deductions is paramount. In such cases it is clear the court is taking a hard line on any deductions from that amount by way of costs.
However, what if we take the decision one step further and into any case that has been run with a costs budget in place. The Association of Costs Lawyers runs an annual survey which has always highlighted the number of cases that its members see where a costs budget has been properly monitored and applications issued for enhancements as necessary. The returns on those questions are always frighteningly low and remain so. What catalyst is needed to address that problem is not known but, taking the decision away from the CFA and RTA market, could or should this be enough of a final warning? Taking a commercial case, where overspends have occurred and gone unaddressed, what is to stop that commercial client seeking to have the overspend disallowed as an unreasonable cost in the same way? Yes, they would have to invoke a Solicitors Act 1974 assessment of those costs (and deal with the timeframes contained therein that are coming under increased scrutiny) but why would the court conclude any differently just because the Claimant is not an individual in need of care?
In my opinion the time has come to monitor budgets properly and address any issues arising. The prescribed 2% allowable in larger cases is invariably more than adequate for that work to take place.
At the very least the client must be kept informed, with clear information, as to the level of overspending and that it is unlikely to be recovered from the opponent (absent a significant development and successful application). That information must also be provided in advance of the overspend otherwise there is a very real risk that the costs can simply be successfully disputed by the client as against the solicitor. In those circumstances there is no scope to be flippant about budget overspends moving forward.
Applications for enhancements must be made in cases where there has been a significant development. Good reason to depart on assessment is becoming limited to situations where such an application is not practicable (e.g., within the trial phase) and, absent (fully!) informed consent from the client it seems likely that the solicitors are going to be vulnerable to those costs themselves moving forward.
I would love for that message to finally be clear, but I am not holding my breath.
Francis Kendall, (Costs Lawyer), Director, Kain Knight (City) Ltd
