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Court criticises party for 'completely unrealistic' view of other side's costs

A High Court judge has accused costs lawyers of "abuse of the cost budgeting process" following an "unjustifiably low" estimate of the other side's costs.18 May 2017

The firm is representing the owners of a hotel in a claim for business interruption and loss of profit brought by the operators of the hotel restaurant, after a gas explosion in the hotel led to its closure for four months. Parties to commercial litigation are required to comment on costs estimates supplied by the other side as part of the costs budgeting process, through a court protocol known as 'Precedent R'.

Mr Justice Coulson said that the case was an example of a litigant "treat[ing] cost budgeting as a form of game, in which [it] can seek to exploit the cost budgeting rules in the hope of obtaining a tactical advantage over the other side".

"In extreme cases, this can lead one side to offer very low figures in their Precedent R, in the hope that the court may be tempted to calculate its own amount, somewhere between the wildly different sets of figures put forward by the parties," he said.

In this case, the Precedent R submitted by the hotel owners was "completely unrealistic" and "designed to put as low a figure as possible on every stage of the process, without justification, in the hope that the court's subsequent assessment will also be low", he said.

"In my view, therefore, it is an abuse of the cost budgeting process," he said.

He went on to provide some examples of the "lack of reality" in the submission, before ordering the short judgment to be published "because of the critical need to ensure that the Precedent R process is carefully and properly adhered to by the parties to civil litigation".

Legal costs expert Keith Levene of Pinsent Masons, the law firm behind Out-Law.com, described the case as "a clear example of how not to prepare for a case and costs management conference".

"The point that those engaged in civil litigation should take away from the judgment is that you cannot put forward figures that are clearly unrealistic, and that do not reflect the work involved in preparing and litigating a case," he said.

The restaurant owners had submitted a costs budget of approximately £244,000, based on a single joint accountancy expert report and no expert evidence about the cause of the explosion. This was because the hotel owners had not put forward a positive defence on the cause of the explosion. The hotel owners, on the other hand, had budgeted around £79,000 for their own costs and £46,900 to cover the restaurant owners' estimated costs.

Mr Justice Coulson said that the hotel owners' estimate of even their own costs "seems erroneous on its face", as it did not make provision for expert evidence. This was despite the fact that, at the case management conference, they had argued that causation was an issue and an expert was necessary, he said.

"In contrast to [the restaurant owners'] detailed pleaded claim, [the hotel owners'] defence could not be more basic," he said. "It is a combination of bare denials and non-admissions of the kind that the Civil Procedure Rules was designed to sweep away. It is, bluntly, an insurer's defence straight out of the 1970s."

The judge ultimately concluded that the restaurant owners' costs budget was "proportionate and reasonable", and allowed the full £244,000 claim.