Payment of 90% of costs on account in budgeted cases “does not apply to incurred costs”

The principle that a payment on account of costs in budgeted cases should be 90% of the budgeted sum does not apply to incurred costs, the High Court has ruled.

Following determination of a construction contract dispute, the defendant Sarens accepted that it had to pay Cleveland Bridge UK’s (CBUK) costs.

CBUK took as its starting point the agreed budget of £128,124 – of which incurred costs represented £47,859 – before deducting costs that were not in fact incurred to leave £104,114. It then added the costs of two applications in December 2017, which Sarens accepted in principle that it had to pay, to produce a total figure of £124,390.

CBUK contended that it was entitled to a payment on account of costs of 90%, or £111,951.

In Cleveland Bridge UK Ltd v Sarens (UK) Ltd [2018] EWHC 827 (TCC), Miss Joanna Smith QC, sitting as a deputy High Court judge, followed the decision of Mr Justice Coulson (as he then was) in MacInnes v Gross [2017] EWHC 127 (QB), in which he took the approved costs budget figure and then made a 10% reduction to reflect “the maximum deduction that is appropriate in a case where there is an approved costs budget”.

However, she said the Court of Appeal’s ruling in Harrison meant that Coulson J could not have intended to include incurred costs.

“I of course accept both the desirability of consistency of approach and the undesirability of the court engaging in any form of shadow detailed assessment when seeking to determine an application for payment of costs on account…

“However, I do not accept that [the 10% deduction] is necessarily the approach that the court should adopt to incurred costs, which are, by definition, not approved costs, a point on which Coulson J’s judgment did not focus.

“As to these, it seems to me that (consistent with the approach taken in cases where there is no approved costs budget), the court must determine in every case, a reasonable sum by reference to an estimate which will be dependent upon the circumstances, including the fact that there has as yet been no detailed assessment and thus there remains an element of uncertainty, the extent of which may differ widely from case to case, as to what will be allowed on detailed assessment…

“Accordingly, in my judgment, a reasonable sum in respect of incurred costs will often be one that is an estimate of the likely level of recovery subject to an appropriate margin to allow for error.”

This meant that CBUK was entitled to recover 90% of its estimated/budgeted costs and the judge had then to determine a reasonable sum in respect of incurred costs.”

She disregarded the defendant’s argument about hourly rates – a detailed analysis of which she said was not appropriate on an application of this nature – and ordered a payment on account of £98,000.

Mr Lixenberg (instructed by Burness Paull) for the claimant and Ms Bodnar (instructed by Freeths) for the defendants.


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Costs News
Published date
25 Apr 2018

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