An art, not a science: the Court’s approach to cost budgeting
Since the Jackson Reforms of 2013, cost budgeting (and the process of attempting to agree budgets) has been a feature (and source of dread) of preparation for the first Case Management Conference in Court proceedings in the Technology and Construction Court (“TCC”). Whilst providing the Court and all parties with an estimate as to the likely costs of the proceedings, Precedent H forms (the Court’s prescribed template forms on which costs budgets are prepared) also provide a source of disagreement between the parties.
The recent decision of Associated Newspapers Ltd v Buckingham Group Contracting Ltd & Ors  EWHC 2767 (TCC) is a reminder from the Court that a sense of perspective is important as it will only be in exceptional circumstances that the Court will deem it “appropriate and necessary to go through a Precedent H with a fine tooth-comb, analysing the make up of figures in detail”1.
Associated Newspapers Ltd v Buckingham Group Contracting Ltd & Ors
By way of background, this decision was given in a dispute between Associated Newspapers Limited (“ANL”) and Buckingham Group Contracting Limited (“BGCL”) who were responsible for the design and construction of a new warehouse and production unit together with offices and outdoor areas at a site in Essex (the “Works”). The third to sixth parties to this dispute are professional indemnity insurers of TR Collier Associates Limited, an insolvent designer of the Works (“the Collier Insurers”).
The details of the dispute, for the purposes of this decision, are not relevant save for the fact that the remedial scheme has not been determined and, as such, the quantum of the case remains unknown but is estimated to be around £10 million. As an aside, had the claim form stated that the value was worth £10 million or more, then the parties would not have been subject to the cost budgeting regime2.
Only brief consideration of BGCL’s and the Collier Insurers’ respective cost budgets was given by the Judge, Roger Ter Haar KC, in his judgment because, whilst BGCL and the Collier Insurers had agreed their budgets amongst themselves, ANL had not explicitly agreed various budgets. The Judge approved the BGCL and the Collier Insurers’ cost budgets referencing the lack of criticism made by ANL and the fact that these budgets were significantly less than ANL’s budget.
The crux of this case revolved around the significant difference between ANL’s cost budget and BGCL’s cost budget (circa £1.3 million). The largest contributor to the difference between the parties was the hourly rate of fee earners when compared not only to BGCL’s lawyers, but also to the Guideline Hourly Rates used in the TCC for the assessment of costs3. In respect of Grade A and B fee earners, the costs were over 50% more than the Guideline Hourly Rates (for example, a Grade A fee earner for ANL was charging £801.00 an hour compared to the £512.00 per hour provided for in the Guideline Hourly Rates).
There were also differences as to the number of hours budgeted for certain stages of the case, such as disclosure and witness statements.
The Judge emphasised that he “was required to consider whether the cost budget put forward is reasonable and proportionate” and that an important factor in this consideration was the amount of the claim - which could not, at this stage, be determined but was estimated to be in excess of £10 million.
The Judge ultimately concluded that the amount budgeted by ANL was disproportionate to the issues arising in the case - even when considering the estimated £10 million value of the claim. He explained that:
“It is of course open to ANL to make use of expensive and experienced lawyers, but in doing so, ANL’s legal team will need to consider the extent to which work can be delegated either to more junior members of the solicitor team, or to members of the Bar who are likely to charge lower hourly rates than the Grade B and C Senior Associates at Baker and McKenzie.”
In conclusion, the Judge explained that the estimated costs of ANL should be reduced by 15%, but, rather than allocate reductions to particular phases, he invited ANL to revise its cost budget accordingly.
Take away points
Whilst not a particularly new area of law, this case is a useful reminder of the principles that are to be applied by the Court when considering cost budgets and the emphasis on costs being reasonable and proportionate. The Court will take a broad-brush approach to cost budgets (and adjustments to them), save in exceptional circumstances.
- 1. GSK Project Management Ltd v QPR Holdings Ltd  EWHC 2274 (TCC) at paragraph 9
- 2. See CPR 3.12(1)
- 3. Solicitors' guideline hourly rates - GOV.UK (www.gov.uk)