Parties to civil litigation need more guidance on costs, says expert, as High Court declines to approve "disproportionate" budgets

Legal costs expert Keith Levene of Pinsent Masons, the law firm behind Out-Law.com, was commenting as a High Court judge declined to approve the budgets of both parties to a construction dispute without offering guidance about the practical effect of this position. However, he noted that the judge himself had commented on the "unsatisfactory" situation, despite concluding that it was not "appropriate for the court to impose its own figures without notice and without any supporting material".

"The decision shows the courts continuing to take a proactive role in relation to the new costs management regime," Levene said. "Although the judge has noted that both parties' budgets were disproportionate, he has not really given any guidance about what the practical effect of this will be when costs are awarded at the end of the dispute."

The judge, Mr Justice Coulson, merely said that by refusing to approve either party's "disproportionate and unreasonable" costs budget, it was likely that "even the successful party will recover only some of its costs". He said that the absence of an approved costs budget did not necessarily mean that the successful party would recover no costs at all, as a "draconian approach" was not "in accordance with the letter or the spirit of the new costs rules".

The parties to the dispute will still be required to keep their costs budgets up to date, and to provide them to the court at the pre-trial review, he said.

A new costs management regime was introduced in April. It requires most parties in civil court actions to prepare and exchange costs budgets for agreement by the court. Parties that do not file a budget will be heavily penalised. Parties can submit amendments to the budget at any time; however, approval will be at the discretion of the court. Costs recoverable by the winning party will be linked to the court-approved budget.

The dispute was in relation to a professional negligence claim against a construction firm, and was run under an earlier costs management pilot in the Technology and Construction Court (TCC). However, Mr Justice Coulson said that the outcome would "not be uncommon" under the new rules.

When originally brought before the court, the claim was worth £1.6 million, although this was later reduced to £1.1m. At the original case management conference, in December 2012, each side produced a costs budget. These were set at £821,000 plus VAT for the claimant, and £616,000 for the defendant. The judge had already raised concerns that the amounts budgeted for were "disproportionate" at the case management conference. The budgets have now increased further, covering total costs of about £1.6m.

"In other words, it will cost significantly more to fight this case than the claimant will ever recover," said Mr Justice Coulson in his judgment. "On that basis alone, it seems to me that the costs in the costs budgets are both disproportionate and unreasonable."

"In reaching that conclusion, I accept that a professional negligence claim of this kind can involve costs that other commercial disputes may not ... Furthermore, there also needs to be an allowance, in any consideration of the proportionality of costs, for the non-quantifiable, but potentially serious, damage to the defendant's professional reputation that may be caused by a claim of this kind. But even making due allowance for both these factors, I do not regard the budget costs figures in this case as proportionate or reasonable, particularly given the relatively limited nature of the dispute between the parties."

The judge acknowledged that "in an ideal world" the court should be able to provide alternative figures when items in a costs budget were considered to be too high. However, he said that in this case he had "nothing on which I could rely in order to come up with reasonably accurate alternative figures".

"I appreciate that this is an unsatisfactory result," he said. "The whole point of costs management is for the court to make orders so as to assist the parties to keep costs to a reasonable level. But in the circumstances of this case, I hope as I have explained, it is not possible for there to be any other outcome."