Banging the drum: proportionality and reasonableness of estimated costs in a costs budget

Discovery Land Company LLC and others v AXIS Specialty Europe SE [2021]

It may appear tedious to keep the drum banging about proportionality and reasonableness, but it is important to understand these concepts whilst considering organic growth and development in costs law and practice. This is especially true with changes such as the recent ratification of the revisions to Guideline Hourly Rates.

In the matter of Discovery Land Company LLC and others v AXIS Specialty Europe SE [2021], Peter MacDonald Eggers QC, sitting as a Deputy District Judge of the High Court, considered the issues of proportionality and reasonableness. Considering the claimant’s submissions, it was agreed that costs should be assessed, in part, by the manner prescribed by Mr Justice Leggatt in Kazakhstan Kagazy plc v Zhunus [2015]. In that case the defendant’s costs totalled around £945,000 with no agreement between the parties on interim payments. The claimant was of the opinion that these costs were both unreasonable and disproportionate to the matter at hand. Justice Leggatt was of the opinion that:

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.  – Kazakhstan Kagazy plc v Zhunus [2015] EWHC 404 (Comm) para. 13

Therefore, Justice Leggatt made an order for the claimants to pay £220,000 on account of costs.

In the present case it was the costs associated with the disclosure phase that attracted arguments from the claimant in respect of proportionality and reasonableness. The defendant’s total for the disclosure phase (including both incurred and estimated costs) was claimed in the sum of £624,781.99. This was considerably higher than the claimant’s phase total of £89,320. The court considered the details provided by the defendant, that the figures were largely attributable to the volume of disclosure which was still to be considered and obtained, and within the context for a claim at a value of just under £6,000,000. Nevertheless, reductions were made to the estimated costs, reducing the sum claimed from £324,750.00 to £190,000 for both time and disbursements.

DDJ Eggers was of the opinion that, whereas the court may adopt a different view when assessing the costs in the usual way at the conclusion of the claim, for the purposes of costs management the ongoing conduct of the matter will be prescribed by the sum of anticipated costs in the budget set by the court. Upon considering the level of costs claimed within the defendant’s budget, and with reference to the ruling of Leggatt, J, DDJ Eggers was “not certain why the “touchstone” of reasonable or proportionate costs must be the lowest amount which a party could reasonably have been expected to spend”.

The issues addressed in respect of the defendant’s budget included the level of incurred costs, which were held to be subject of detailed assessment only at the appropriate stage, the court’s power under CPR 3.17(3)(b) in respect of incurred costs, i.e. the recording of comments in relation to incurred costs, the costs to be incurred of subsequent phases, and the total sum of incurred and anticipated costs.

Rather than prescribing that the costs should be at the lower end of what would be reasonably expected to be incurred as in the matter of Kagazy, DDJ Eggers observed that, within the context of costs management, there should be a degree of flexibility to ensure that the costs allowed are not unrealistically low so as to hamper the conduct of the party to ensure that a case is still run efficiently.

This case, therefore, reinforces the view that the exercise of costs management is concerned primarily with the consideration of the future costs which are to be incurred. DDJ Eggers felt he was not in a position to criticise, or provide comment of, the level of costs incurred by the defendant based on the information presented to him. This, however, has little bearing on any outcome should the defendant’s costs be subject to detailed assessment upon conclusion of the matter.

This article, written by David Bailey-Vella was first publish on 11 October 2021 in Thomson Reuters Practical Dispute Resolution Blog

David Bailey-Vella is a Council member of the Association of Costs Lawyers and a senior Costs Lawyer at Masters Legal Costs Services.

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Costs News
Published date
11 Oct 2021

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