The Murky World of Litigation Budgets, Recoveries and the Proportionality Sword

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The Jackson reforms and the relatively new Precedent H costs budget scheme were supposed to clarify the murky world of litigation costs and reduce the cost of litigation. The idea was if your budget was approved and the matter made it to trial (and you won), if your final costs figure was under your budget estimate you could recover all, or substantially all, of your costs in line with the budget. Great, thought the litigators, some certainty to justify the agony of producing the Precedent H budget.

It is therefore good to see that in principle this process worked in the case of Thomas Pink Ltd v Victoria’s Secret UK Ltd [2014] EWHC 3258 (Ch) where the winning party (Thomas Pink) was awarded 90% of its approved costs budget as an interim payment following its success at trial as the minimum it would be awarded on assessment. Prior to the costs budgeting revolution, interim payments were nearer 40% of the final figure and the parties had little hope of recovering anywhere near 90% following an assessment on the standard basis. Unrecoverable costs are something that clients sometimes, quite rightly, struggle to understand having taken the maxim “the loser pays the winner’s costs” to heart.

However, this does not mean that the Courts no longer look at proportionality when awarding costs. The case of Savoye & Savoye Ltd v Spicers Ltd [2015] EWHC 33 (TCC) demonstrates the Court’s power to wield the proportionality sword and cut out anything deemed disproportionate.

In Savoye, the parties had already litigated substantially the point in issue via adjudication, which resulted in a non-binding but well-reasoned decision on whether a conveyor system formed part of the land as called for in Section 105 of the Housing Grants, Construction and Regeneration Act 1996. Proceedings were then issued and Savoye applied for summary judgment on this point. Following 3 hearings and an application from Spicers to adduce further evidence, the Court decided a site visit and a mini-trial were in order. Savoye won and sought its litigation costs of nearly £200,000 against a claim worth just shy of £1m.

Mr Justice Akenhead found the costs disproportionate. His main objection was that the parties were all familiar with the issues in dispute, having argued them (at their own cost) before the adjudicator. The legal teams had not changed and the evidence produced for the summary judgment applications was not substantial. He therefore adopted a pragmatic approach and rather than tinkering with hourly rates and reviewing in minute detail the time spent, he decided that the time incurred itself should be reduced. His proportionality sword cut the partner’s time from 111.2 hours to 20 hours – stating that “the very experienced construction law solicitor did much more than simply supervise a competent associate and liaise with the client“. The associate’s time was reduced from 223.5 hours to 160 hours and likewise trainee and paralegal time reduced accordingly. The outcome: costs of £96,465 were awarded, payable within 14 days which is a 47% recovery.

Perhaps if Savoye had proceeded along traditional lines to trial with a costs budget in place, rather than by early stage applications, the recovery would have been greater. History does not relate whether an approved budget was in place. However, this judgment reminds lawyers that proportionality when setting budgets and on deciding costs for the winning party are the keys to a successful recovery.