Johnathan Payne reviews a recent decision on tactical cost budgeting

Articles | Fri 19th May, 2017

Findcharm Limited v Churchill Group Limited [2017] EWHC 1108 (TCC)

It is often the case that the budget of the Defendant will be substantially less than the budget of the Claimant. For instance next week I have a claim where the Defendant budgets £100,000 for the resolution of a preliminary issue whereas the Claimant estimates it will cost £500,000 to answer the same question.

There has grown a practice to inflate budgets (or restrict them) for tactical reasons. Parties (both sides) often hope that the court will ‘meet in the middle’.

In Findcharm the court (Coulson J) examined cost budgeting, its aim and the use (or abuse) of the process by parties to litigation. Findcharm Limited operated a restaurant within a hotel operated by Churchill Group. In November 2014 there was a gas explosion at the hotel which resulted in the closure of the restaurant for 4 months. Findcharm sued Churchill for the loss of revenue. The claim was for £820,000. The largest head of loss was business interruption.

Churchill defended the claim on a simple (perhaps too simplistic) basis. The court observed that their defence was “a combination of bare denials and non-admissions of the kind the Civil Procedure Rules were designed to sweep away. It is bluntly an insurer’s defence straight out of the 1970’s”. Churchill were not even prepared to admit the cause of the explosion.

Following revision Findcharm’s budget amounted to £244,676.30. Churchill’s cost budget was for £79,371.23. It allowed nothing for experts it argued were warranted and £7,000 for the preparation of a High Court trial. It was deemed on any view an unrealistically low budget. It was not surprisingly agreed by Findcharm.

Churchill offered £46,900 in relation to estimated costs (by way of Precedent R). This would have made a total budget spend of £90,000. The court took a particularly dim view of this. Coulson J regarded the approach as an abuse of the process of cost budgeting. The aim was to pitch figures as low as possible in the hope of influencing the approach of the court.

Each phase was unrealistic. Therefore the court ignored the Precedent R altogether. Considering the budget in the ‘round’ the court approved it as drawn.

The court was so concerned about the abuse of the process (and the importance of it) that the judge arranged for the case to be reported.

Practical Advice

The cost budgeting process is no place to play tactical games. If you are falling into that trap take a step back and analyse the overall figures and approach. If the budget is far too high (or far too low) beware that the court may disregard opposition to it.

This approach can be used against both sides to the argument in my view. Sometimes the budget of the Claimant is set at a point to maximise cost recovery (which is unrealistic) and to intimidate the Defendant into settlement. Equally, Defendants have a habit of not analysing the issues in the case and putting forward unreasonable offers. This is an example of the court protecting the fund of the careful litigator. Had reasonable opposition been taken Churchill would not then be facing the prospect of showing a good reason to depart from a budget set at nearly three times what they said was reasonable.

Johnathan Payne represents both Claimants and Defendants.