MacInnes v Gross [January 2017] EWHC 127 (QB) – the court looked at payments on account, indemnity awards, departure from the budget and proportionality!

Indemnity awards

In the case MacInnes v Gross [2017]EWHC 127 (QB), the honourable Mr Justice Coulson refused to award indemnity costs despite the claimant refusing to engage in negotiating a settlement. The judge comment that:

“More importantly, they also have to be considered against the background of the solicitors’ correspondence, which made plain that, on at least two separate occasions, the first defendant, through his solicitors, refused to engage in mediation. Again, that was doubtless because he genuinely believed in the rightness of his defence. But I consider that that failure tempers any criticism that might otherwise be made of the claimant’s rejection of the first defendant’s offers and his failure to make anything like a realistic offer in return”.

The Judge considered the criticism regarding negotiation collectively with the allegations regarding conduct and resolved that conduct had not been an issue.  He refused to grant an indemnity award.

Proportionality

The court commented on proportionality, commending the claimant as follows:

“The claimant litigated his claim in a reasonable and proportionate manner. In my view, the fact that the claimant’s approved costs budget was around £234,000, when set against a claim for €13.5 million, demonstrates the proportionate way in which the litigation was conducted”.

Payments on account/departure from the budget

HHJ Coulson stated that “the days of the educated guesswork are now gone”, the court found that the budget can be used to determine the level of the payment on account.

The defendant requested a payment on account, the request was not in dispute, however the level of the payment was.  The claimant proposed a payment on account in the sum of £375k, primarily on the basis that the defendant would not necessarily recover the amount of his costs budget at detailed assessment stage.  This was the principle that was laid down in the first instance decision in the Merrix case, however the court did not adopt that approach and the court found that:

“The first defendant’s approved costs budget was in the sum of £570,000. He originally sought an interim payment of £605,000, being 95% of the approved costs budget (£540,000) together with an additional £65,000 to reflect the fluctuations in exchange rate and interest. During the oral submissions, the latter figure was reduced to £30,000 to reflect interest only, so that the first defendant asked for the sum of £570,000 as an interim payment on account of costs”

The court referred to the cases of Silvia Henry v News Group Newspapers Ltd and Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd (No 2) and stated:

“CPR 3.18 makes plain that, where there is an approved or agreed costs budget, when costs are assessed on a standard basis at the end of the case, “the court will…not depart from such approved or agreed budget unless satisfied that there is good reason to do so. The significance of this rule cannot be understated. It means that, when costs are assessed, the costs judge will start with the figure in the approved costs budget. If there is no good reason to depart from that figure, he or she is likely to conclude the assessment at the same figure”.

 A view that was mirrored in the recent appeal decision in the Merrix case.  HHJ Coulson went on to comment: 

“One of the main benefits to be gained from the increased work for the parties (and the court) in undertaking the detailed costs management exercise at the outset of the case is the fact that, at its conclusion, there will be a large amount of certainty as to what the likely costs recovery will be. One consequence is that, for the purposes of calculating the interim payment on account of costs, the starting point will almost always be the payee’s approved costs budget”

 He concluded that:

“So when making an interim payment on account of costs in a case with an approved costs budget, the days of the educated guesswork identified by Jacob J in Mars UK Limited v Teknowledge Limited [1999] 2 Costs LR 44 are now gone. Instead the court can be confident that there is a figure for costs which, because it has already been approved, is both reasonable and proportionate”.

Accordingly, the court granted an interim payment on account of costs of £528,000.

The budget remains to be the essential tool to be used throughout the litigation and will be used for many purposes in addition to controlling legal spend.

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