The High Court discourages misuse of the process of cost budgeting
Findcharm Ltd v Churchill Group Ltd  EWHC 1108 (TCC)
High Court judge has found that the Defendant’s Precedent R was of no use and even “an abuse of the cost budgeting process”. He disregarded the Defendant’s figures in the Precedent R form altogether and, having determined that the Claimant’s costs budget was reasonable and proportionate, approved it as claimed without any deduction.
This judgment, handed down by Mr Justice Coulson, related to the costs arising out of a dispute following a gas explosion at the Defendant’s hotel premises which closed the restaurant for about four months. The Claimant claimed damage to its restaurant business (the claim was put at £820,000.00 plus interest), mainly in the form of lost profits.
The Claimant’s cost budget was £244,676.30 and was based on assumptions that the Judge found to be reasonable. However, the Defendant offered just £46,900.00 in respect of the estimated costs to be incurred by the Claimant. When that is added to the costs that the Claimant has already incurred, that comes to less than £90,000 altogether.
The Judge noted that while the introduction of Precedent R, which requires each party to comment on the cost budget of the other, often achieves its objectives, the system is open to exploitation. He said that “some parties seem to treat cost budgeting as a form of game, in which they 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 added that in his view the present case is “an example of that approach”.
Mr Justice Coulson commented that the Defendant’s own cost budget of £79,371.23 was “on any view, an unrealistically low budget”. However, since the Defendant put it forward, the Claimant has (not unreasonably) agreed it. Thereafter he criticised the Defendant’s Precedent R and said that it was unjustifiably low and “completely unrealistic”.
The judge made a number of negative observations on the Defendant’s Precedent R. For example, it was noted that the Claimant had budgeted £28,648.00 for the preparation of a joint expert’s report. Without reference to any quote from a proposed expert the Defendant allowed only £16,000.00 odd for this.
In Mr Justice Coulson’s view the Defendant’s Precedent R was “of no utility” as it was “designed to put as low a figure as possible on every stage of the process, without justification,” in the hope that the court will choose a middle ground between the two figures.
Given the above Mr Justice Coulson held that the Defendant’s Precedent R was of no use and even an abuse of process.
As a result he disregarded the Defendant’s Precedent R and allowed the Claimant’s budget in full without any deductions on grounds that it was both proportionate and reasonable.
This judgement clearly warns parties against the use of Precedent R as tactics in a cost budgeting exercise and underlines the importance of ensuring that any objection or offer that a party makes in their Precedent R is properly reasoned and justifiable. Parties making tactically low offers in the hopes that the court will perform its own assessment to their advantage may instead find the court agreeing to the other party’s costs budget in full.