England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand. London. WC2A 2LL
		11/03/2016

 


The Deputy Judge:

1. In this action, the Claimant seeks recovery against 3 Defendants in relation to a property at 50 Finsbury Square, London, EC2. Between January 1999 and June 2000, pursuant to an Agreement for Lease, refurbishment works were carried out at those premises. Those works included the design, fabrication and installation of stone cladding works which were carried out by the Part 20 Defendant. In 2001, 2 soffit cladding tiles fell from the Property, leading to an investigation and remedial works which took place in 2001 and 2002. The First and/or the Second Defendant gave advice in relation to the extent of necessary remedial works and/or adequacy of the cladding and the cladding's fixing. The Third Defendant gave advice in relation to the adequacy of the cladding and, it is said, in 2003 when Buro provided a Condition Survey. In July 2013, a soffit cladding stone fell from the property. Investigations since that failure have demonstrated that many of the fixings which had been tested do not meet the required proof load. Bloomberg say that the fixings are inadequate and unsafe. Significant remedial works are being undertaken to replace the cladding.
2. Against that background, there is a claim for damages in negligence and/or breach of warranty. A technical dispute lies at the heart of the case concerning the advice which a reasonably competent façade consultant would have been given. Causation is in issue. Quantum is not admitted. There is a limitation defence.
3. The remedial costs claimed are slightly in excess of £2million. Trial has been fixed to begin on 16^th January 2017 to last 12 days.
4. On 27^th October 2015, Fraser J directed the Claimant to submit an application for a Costs and Case Management Conference by 27^th January 2016 if the parties were unable to agree the costs budgets. The parties were unable to agree the Claimant's costs budget, so by application made on 27^th January 2016, the Costs and Case Management Conference was heard on 3^rd March 2016. I heard argument which lasted from 10.30am until shortly after 3.00pm with a short adjournment in the middle of the day.
5. I am mindful of the dicta of Stuart-Smith J in GSK Project Management Limited v. OPR Holdings Limited [2015] 4 Costs LR 729 at 733:

"Experience in the TCC has shown most cost budgeting reviews can and should be carried out quickly and with the application of a fairly broad brush. Only exceptionally, will it be appropriate or necessary to go through a Precedent H with a fine tooth-comb, analysing the makeup of figures in detail."

In deference to the detailed arguments advanced before me and the sums claimed in the Costs Budget, I considered it appropriate to reserve judgment and to apply a relatively fine tooth-comb.

6. I do not think it necessary to set out the provisions of the CPR which govern the costs budgeting exercise. They are found in Part 3.12 and Practice Direction 3E - Cost Management.
7. In addition, my attention was drawn to the Yeo v. Times Newspapers Limited [2015] EWHC 209 (QB) where Warby J said in relation to incurred costs at paragraph 60:

"60. These are not subject to the approval process. This means that under the Default procedure substantial costs may already have been incurred, without any budgetary control, by the time a decision is taken at a CMC...

61. However, if by the time the costs management process take place substantial costs have been incurred, one thing the Court may do is to "record its comments on those costs" : see PD3 7.4. What the Court will do is to "take those costs into account when considering the reasonableness and proportionality of all subsequent costs": ibid. The Court may reduce the budget for reasons which apply equally to incurred costs, or for reasons which have a bearing of what should be recoverable in that respect, for instance, that so much had been spent before the action began that the budgeted costs of preparing witness statements is excessive."

8. A paragraph 65 of the Judgment in that case, Warby J drew attention to PD3 7.3 which provides: "When reviewing budgets, the Courts will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within a range of reasonable and proportionate costs". It also provides: "In the course of its review, the Court may have regard to the constituent elements of each total figure"
9. In relation to incurred costs, HH Judge Seymour QC in Redfern v. Corby Borough Council [2014] EWHC 4526 (QB) said at paragraph 32:

"The only way in which one can take into account excessive costs already incurred in determining the reasonableness and proportionality of subsequent costs is to limit the approved subsequent costs at figures below what they might otherwise have been approved at, but for the excessive sums which have already been expended."

10. I was also referred to the decision of Coulson J in CIP Properties Limited v. Galliford Try Limited and Others [2015] EWHC 481 (TCC). There, the Judge recorded a careful study of the Costs Management Rules and recent authority and gave helpful guidance on the approach to be taken. In particular, at paragraph 26, he drew attention to a vast increase (on the facts of that case) between the estimated costs originally indicated by the Claimant and the estimated costs in their latest Costs Budget. He described that increase as "unexplained and on the face of it wholly unjustified". He found that to be a further indication of the unreliability of the Claimant's Costs Budget. That guidance is apt in the particular circumstances of this case.
11. Second, having considered the dicta of Akenhead J. at paragraph 17 in Savoye and Savoye Limited v. Spicers Limited [2015] EWHC 33 (TCC), Coulson J said at paragraph 43:

"The value of the claim is of course a factor in calculating proportionality although, in a case of this type it is not as important as complexity... In my view, even if I took a value of £12m for this claim, it would not be appropriate for the Claimant's costs to be assessed at 75% of the value of the claim. That would be disproportionate."

12. In this case, the Claimant proposes a total spend of £2,288,286.59 against a claim valued slightly in excess of £2m.
13. At paragraph 53, Coulson J declined to investigate the rights and wrongs of difficulties with disclosure which were said to lead to problems in the formulation of the claim, that, in my judgment, emphasises the importance of taking an impressionistic approach to the cost budgeting exercise.
14. At paragraphs 56 and 57, Coulson J drew attention to excessive work being estimated to be done by a Grade A Partner with much less work being performed by Junior Lawyers. The Judge accepted that the hourly rate was too high but said that it was more important that the Claimant was using the Grade A Partner for work which could have been done more cheaply by lower grade Assistants. He also criticised the number of hours claimed as being "much more extensive than is reasonable or appropriate for a case of this type",
15. Thus, when carrying out this exercise, the Court should consider not only the rate and the number of hours, but the level of fee earner.
16. My attention was also taken to paragraph 12 of GSK (supra) where Stuart- Smith J said:

"My starting point is that a case would have to be wholly exceptional to render a costs budget of £824,000 proportional for the recovery of £805,000 plus interest."

17. Stuart-Smith J also said at paragraph 14:

"However, I do accept that the Court should have regard to the other party's cost budget because it may provide a useful indicator about necessary resourcing of the litigation."

18. With that guidance in mind, I have taken into account the Third Defendant's Costs Budget. However, neither in respect of rates nor hours, have I taken into account the First Defendant's Costs Budget. That is because, as Mr Patten accepted, there are good commercial reasons why solicitors who act for Insurers often charge less, both in terms of hours and rates, than solicitors who do not receive the same amount of work from one client.
19. Last, in relation specifically to Counsel's fees, I was referred to the decision in Various Claimants v. Sir Robert McAlpine and Another [2015] EWHC 3543 (QB) where, giving the judgment of the Tribunal, Supperstone J relied upon the dictum of Pennycuick J in Simnsons Motor Sales (London) Limited v. Hendon BC [1965] 1 WLR 112 at 118:

One must envisage a hypothetical Counsel capable of conducting the particular case effectively but unable or unwilling to insist on the particular high fee sometimes demanded by Counsel of pre-eminent reputation. Then one must estimate what fee this hypothetical character would be content to take on the brief."

20. I have applied that passage in my consideration of the fees claimed in respect of Counsel's fees.
21. Supperstone J also referred to the dictum of Leggatt J in Kazakhstan Kagazy Plc v. Zhunas [2015] EWHC 404 (Comm):

"In a case such as this where very large amounts of money are at stake, it may be entirely reasonable from the point of view of a party incurring costs, to spare no expense that might possibly help to influence the risk of the proceedings. It does not follow, however, that such expense should be guarded as reasonably or proportionately incurred or reasonable and proportionate in amount when it comes to determining what costs are recoverable from the other party. What is reasonable and proportionate in that context must be judged objectively. The touchstone is not the amount of costs which it was in a party's best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party's own account and not recoverable from the other party..."

22. In the exercise which I set out below, I have endeavoured to follow the guidelines given in the decisions which I have set out above. I do so on a phase by phase basis as required by CPR 3 PD 3E, paragraph 7.3.
23. Before turning to those phases, I make it plain that there are 3 features of the Claimants' Precedent H which trouble me:

(i) The first is the costs incurred to date. The Claimants say that they have incurred costs of £986,277.08. The Third Defendants have incurred £301,269.30. Even allowing for there being a greater burden on any Claimant, it is difficult to understand how such a sum was incurred, particularly where because of limitation issues there was none of the protracted exchanges which can be caused by compliance with pre-action protocols. I was told by Mr Mallalieu and, of course, I accept, that there were exchanges akin to those required by pre-action protocols after service of the proceedings but that goes nowhere near explaining to me why the Claimant can have incurred costs of that level. That the costs are so high is an indication to me that the Claimant and its solicitors are conducting this case in a way which is disproportionate to its value or importance;

(ii) Second, the Claimant's Case Management Information Sheet in October 2014 estimated that £650,000.00 had been incurred to date and its estimate of overall costs was £1,400,000.00. The Claimant's Precedent H is dated 18^th December 2015. By then, incurred costs were £986,277.08 and overall costs are £2,288,286.59. The explanation given is threefold: the figures in the CMIS were estimates, additional costs were incurred between the time of the CMIS and the drafting of the budget and in the production of the detailed budget there was a closer analysis of the work that would be required. Mr Patten explained that, in fact, there was very little work done between the time of the CMIS and the preparation of the budget: whether that be right or not, I am not in a position to say but none of the reasons given go in any way to dispel my alarm. The scale of both increases in such to call into question the reliability of both records of the work done and the analysis of the work to be done;

(iii) Third, precedent H is indicative of over-involvement of Counsel. For example, fees totalling in excess of £45,000 have been incurred in respect of pre-action costs, which is clearly separate from the work done on Statements of Case because a further £47,070.00 is claimed in respect of issues/Statements of Case. In relation to disclosure, Counsel will be involved to the extent of £27,000.00, Witness Statements apparently require Counsel's involvement to the extent of £21,750 and Experts' Reports £18,900. I deal separately below with the fees claimed in relation to trial but the scope of the fees claimed in respect of Counsel during the preparatory phases is high. Again, that suggests to me that the approach taken to this case by the Claimants or their solicitors is disproportionate to its value and/or importance.

24. If the Claimant is content to pay the fees set out in Precedent H, that is a matter for their commercial judgment. However, unless those fees are reasonable and proportionate, tested objectively, the Claimant should not expect to recover them from any other party to the litigation.
25. In carrying out the exercise to which I now turn, I have taken into account what was urged upon me by Mr Mallalieu, namely that in respect of some of the phases the hours estimated by the Claimant are less than those estimated by the Third Defendant, see in particular the phases concerning witness statements, expert evidence, the PTR, Trial preparation and Trial. I accept the force of that submission. However, as I conceive my task, it is to consider proportionality in terms not only of the volume of hours claimed but also by the total sum which the Claimant hopes to recover from either or both Defendants after judgment in respect of each phase.
26. I make plain that following the example of Coulson J in CIP Properties. I have considered the options available to me which are summarised at paragraph 84 of the Judgment in that case. Like him and for the same reasons I have decided not to adopt Options 1A, 1B and 3. I thus set the budget figures.
27. In setting the figures for the Claimant, I bear in mind that it is having to respond and to deal with Sandberg (in both its corporate guises) and Buro Happold. Proportionality must reflect that aspect of the case. I take into account the suggestion made by Mr Mallalieu, by particular reference to correspondence on disclosure, that the defences are pursued robustly.

Pre-Action Costs

28. The sum incurred is £486,536.68. Exceptionally, Sandberg's incurred costs are higher than the Third Defendants: Sandberg have incurred £106,871.00 and the Third Defendant £82,970.46. Of the Claimant's total, two Grade A Fee-earners have charged £349,456 and Counsel have charged £45,000. Mr Mallalieu told me that it is to be expected at the outset of a case that there will be greater reliance upon the Grade A Fee-earners. In the case of the Third Defendant, the costs incurred by the Associates exceed that of the Partner. I cannot say whether Mr Mallalieu's expectation is justified or not but, in any event, I would not be prepared to accept a figure of more than £120,000 as a reasonable sum for pre-action costs. I would not expect Counsel to be involved to the extent that they have been at such an early stage. It will be for the Costs Judge on any assessment to take such account as he thinks fit of my view.

Issues/Statement of Case

29. The Claimant says that they have spent £203,584.04 and estimate spending £20,220.84. Of that, some £113,942 is represented by Grade A Fee-earners and £45,600 by Counsel. Again, I regard that as disproportionate and, therefore, unjustified. In my view, a sum of £120,000 in respect of the totality of the pleadings is reasonable in a case like this. To the extent that those costs consist of incurred costs, it will be for the Costs Judge on any assessment to take such account as he thinks fit of my view.

CMC

30. It is said that £133,553.03 has been incurred and a further £13,713.86 is estimated. Of the costs incurred, £116,635 is claimed in respect of Grade A Fee-earners. That is disproportionate. Mr Mallalieu could say only that it would be for the Claimant to justify this sum on a detailed assessment.
31. The greater part of the CMC was not controversial. It is very difficult to understand how such a sum has been incurred and no detail was given. I consider that a reasonable assessment for both incurred and estimated costs in the circumstances of this case is £35,000. To the extent that those costs consist of incurred costs, it will be for the Costs Judge on any assessment to take such account as he thinks fit of my view.

Disclosure

32. It is said that £17,578.00 has been incurred and that £196,601.54 is estimated for the future, a total of £214,179.54. The Third Defendant's budget is for a total of £94,542.37. The greater part of the work on disclosure by the Claimant will be done by a Grade C Fee-earner whose hours appear at 440 or, assuming an 8 hour day, 55 days. A Grade A Fee-earner is also estimated at 93 hours or 11.6 days. Both Leading Counsel and Junior Counsel are estimated to be involved to the extent of £27,000.00. This does not appear to me to be a complex case. It is unlikely to be document heavy. It is unusual for Counsel to have any great involvement in the disclosure process and extremely unusual for Leading Counsel to be involved to the extent of earning anticipated fees of £18,000 which may well be in the region of 36 hours. I was shown by Mr Mallalieu some correspondence which suggest that the Defendants are pursuing disclosure issues but there is nothing unusual or even unreasonable in them doing so. I consider that £120,000 is the upper limit of what might be regarded as reasonable for the entirety of the Claimant's disclosure exercise in this case. To the extent that those costs consist of incurred costs, it will be for the Costs Judge on any assessment to take such account as he thinks fit of my view.

Witness Statements

33. The Claimant estimates £89,349.47. The Third Defendant estimates £72,603.00. Mr Mallalieu says that the justification for the increase is that the Claimant will have to deal with a greater range of issues. I accept that that may be so: I assess the costs at £89,000.00.

Expert Evidence

34. It is said that £77,580.28 has been incurred and that it is estimated that a further £206,790.72 will be incurred. The Third Defendant's budget includes a total of £166,351.25 for this phase. For the Claimant, it is estimated that a Grade C Fee-Elmer will spend 184.5 hours or 23 days on this phase. Additionally, it is estimated that a Grade A Fee-earner will spend 108.5 or 30.6 days. The Quantity Surveyor's fees alone are estimated at £82,500. Counsel's estimated involvement is a total of £18,900. One explanation for the difference between Claimant and Defendants is no doubt that the Defendants are sharing a quantum exercise but nevertheless the hours claimed in respect of lawyers' input to what is a report for which the Expert is responsible are surprising. In my view, they are disproportionate.
35. I consider that a figure of not more than £180,000 would be reasonable to include the costs incurred. To the extent that those costs consist of incurred costs, it will be for the Costs Judge on any assessment to take such account as he thinks fit of my view.

PTR

36. I accept that the estimated figure of £17,948.46 is reasonable, I round it to £18,000.00.

Trial Preparation

37. I accept that the figure claimed for £94,621.91 is reasonable. I round it to £95,000.00.

Trial

38. The sum estimated for a 12 day trial is £517,192.06. That figure includes both a Grade A Fee-earner and a Grade C Fee-earner attending the Trial. It is unusual nowadays for a Grade A Fee-earner to attend each day of the Trial. I regard it also as disproportionate. The Claimant has both Leading and Junior Counsel at the Trial. It may be that it is occasionally necessary for a Grade A Fee-earner to attend also if there is a significant witness or a complexity arises in the course of the Trial but it is disproportionate to estimate that a Grade A Fee-earner will attend each day of the Trial.
39. Counsel's fees suggest that in respect of a 12 day trial, 8 weeks (40 days) work will be done both before, during and after the Trial. In respect of the post-trial element I accept that the preparation of written Closings usually in a tight timetable places great demands in respect of time on Counsel but it is disproportionate to incur costs in respect of 8 weeks' work before, during and after a trial which is fixed to last 12 days. I consider that a reasonable sum for the Trial is £300,000.

Settlement/ADR

40. It is said that £65,061.86 has already been incurred and a further £35,242.43 is estimated. That is to be compared with the Third Defendant's total of £29,823.00. It is estimated that Counsel will have an involvement to the extent of (in round terms) £27.000, which sum includes both Leading and Junior Counsel. That sum is clearly disproportionate. I consider that a reasonable sum is £35,000 in total. To the extent that costs have been incurred, it will be for the Costs Judge on any assessment to take such account as he thinks fit of my view.

Contingency

41. The Budget contains a total of £112,710.13 for mediation, of which (again in round terms) £41,000 is estimated in respect of Counsel. Both the total and the sum claimed for Counsel is disproportionate. In my view, a figure of £50,000 is the most that could be said to be reasonable in respect of mediation in this case.
42. Thus the Costs Budget for the Claimant will be a total of £1,162,000.00 made up of the figures which I consider to be recoverable on assessment in respect of the costs said to have been incurred and the approved budget figures in respect of the estimated costs. The Costs Budgets of the First and Second Defendants and of the Third Defendants are agreed.