In the case of Lemos and Ors -v- Church Bay Trust Company Ltd and Ors  EWHC 157 (Ch) Judge Jones did not accept that budgets were reasonable and proportionate, despite being largely agreed by the parties. Instead of holding a further hearing to consider submissions on the agreed figures, the Judge highlighted disapproval on the Costs Management Order by specifying that “budgets remain unjustified in terms of reasonableness and proportionality”.
The sum in issue in this Section 423 Insolvency Act matter is £8m.
Ahead of the CCMC, Ds’ budget was agreed by Cs at c.£1.2m (estimated costs at c.£850k) but Ds raised some issues with Cs’ budget drawn at c.£1.9m.
Judge Jones referred to his general experience of insolvency proceedings and said he expected budgets to be in the region of £350k – £600k. He emphasised that this was only an initial impression which could be proved incorrect if the parties were able to point to the relevant factors at CPR 44.3(5) and 44.4(3) to justify higher budgets for the purpose of costs management.
The judge felt that the parties’ budgets did not explain how the agreed costs were justified, in terms of anticipated days/hours and grades involved, but essentially excused this on the basis the parties had relied on their prior agreement and had only prepared to address specific issues of dispute.
To avoid further escalation of costs arguments, the judge decided not to adjourn the CCMC for further information to be provided and dealt only with the contentious costs of Cs’ budget. This resulted in a provisional estimated costs figure of c.£893k.
More information from the parties was subsequently requested to be made available afterwards so reasonableness and proportionality could be assessed.
Handed down some 3 months post-CCMC, once additional information had been considered relating to the agreed costs, the judgment dissected the disclosure phase in particular, asserting it remained unexplained how Cs started with 381,000 documents when only 4,000 documents reached the third stage.
In relation to witness statement costs the figures were found to be based very much on numbers and not substance, even though Cs’ key witness is based in Greece, is elderly and does not speak English as a first language. There were also criticisms of trial preparation phase hours, particularly in view of the fact leading and junior counsel were involved and in relation to the trial phase, there was criticism of 4 fee earners being factored in to attend the hearing.
In relation to Ds’ budget it was decided that they were taking a more reasonable approach but that the information provided was not enough to justify costs of over £1m being reasonable and proportionate.
A recording in a new order was consequently made which confirms that on the information currently available the court does not consider that the budgets are reasonable and proportionate and estimated costs are therefore not approved. Reference can be made to this judgment for the court’s comments upon the budgets in any subsequent assessment proceedings.
The approach taken in this case is worth bearing in mind when preparing for CCMC. If certainty of approved budgets will benefit you as either the prospective receiving party or paying party, having submissions to hand to justify the reasonableness and proportionality of costs for agreed phases may prove incredibly useful and avoid budgeted costs being examined later down the line.
Anna Lockyer is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact the team at firstname.lastname@example.org