A very quick guide to litigation cost budgeting for dilapidations practitioners

Tim Rayner, Browne Jacobson

The issue of litigation costs in any dilapidations claim is the responsibility primarily for the solicitor. However it is important that experts, expert advisors and clients are also familiar with the rules because they are fundamental in determining recoverability of litigation costs.

As all dilapidations practitioners will no doubt know, costs in dilapidations claims can become as important as the damages themselves and a winning client will want to maximise its costs position.

Harrison v University Hospitals Coventry and Warwickshire NHS Trust [2017] EWCA Civ 792 is a long-awaited costs decision which clarifies a number of issues relating to cost budgeting. Costs budgeting was introduced by the Jackson reforms in 2013.

In broad terms under those reforms the parties are obliged to estimate at an early stage of the litigation their total costs to trial (often very tricky in the inherently uncertain world of litigation). That estimate or budget will need to capture all costs of the litigation including those already incurred by solicitors, counsel and experts as well as future costs. For experts those future costs will almost certainly include costs for drafting reports, meetings, joint statements, reviewing the other side’s report, conferences with counsel and preparation and attendances at trial. As well as estimating his own costs, the solicitor will be gathering costs information from all experts, counsel and other disbursements such as travel, mediator’s fees and court fees.

The starting point in terms of recovery of estimated costs will be the amount stated in the court-approved cost budget.

Harrison v University Hospitals Coventry confirmed that parties will not be entitled to depart from a court-approved cost budget unless there is ‘good reason’. In other words, the level of costs recoverable from the losing party will be the winning party’s costs budget, unless there is good reason to depart. (The judge declined to offer examples of what might constitute a ‘good reason’.) Broadly speaking CPR Part 36 sits outside this regime which means that a cost liability can, for instance, be reversed by a well-pitched Part 36 offer (as was demonstrated in the recent case of Acredart Limited and Car Giant Limited v London Borough of Hammersmith and Fulham [2017] EWHC 197 (TCC)).

Harrison v University Hospitals Coventry has confirmed that the ‘old’ regime of detailed assessment will still apply to costs incurred prior to the cost budget being approved by the court.

What do dilapidations professionals need to know about the cost budgeting process?

  • Experts will need to estimate carefully their overall costs to trial with a breakdown for the different elements leading up to it. The solicitor will need that information well in advance of the cost management hearing (usually listed a month or so after the defence is submitted). Experts need to undertake that task forensically because it could set in stone the most that the client can recover from the other side in the event of a ‘win’.
  • Experts should also make sure that prior to the case management hearing they have provided the solicitors with details of all incurred costs (which are properly recoverable) so that they are included in the costs budget submitted to the court.
  • Experts should establish from the solicitor whether the court approved the estimated costs or reduced it. If the budget is reduced by the court it may be that the expert will need to either ‘cut his cloth’ accordingly or warn the client of a potential shortfall.
  • Experts need to review continually the actual costs being incurred against the budget set because if there are ‘good reasons’ that the budget is going to be exceeded then the solicitor will need to make a court application to depart from the budget. Crucially that application should be made prior to the budget being exceeded – and not after. If the application is made after the cost have been incurred there is a much greater risk of the application failing, the overrun not being approved and the client being unable to recover that excess. The expert should also be ready to justify the ‘good reasons’ for the overrun. Poor estimating will not qualify as a ‘good enough’ reason which underlines the importance of making sure the initial estimating exercise is undertaken carefully.
  • Similarly, in respect of costs already incurred by the date the cost budget is approved, the expert may need to assist the solicitor in the detailed assessment process after trial. This can be quite a time consuming process.