90% Payment on account for budgeted cases


CLEVELAND BRIDGE UK LIMITED v SARENS (UK) LIMITED [2018] EWHC 827 (TCC)

Background 

The dispute arose out of construction work carried out by the Defendant for the Claimant along the Heysham to M6 Link Road in 2014 to 2015.

The dispute centred around the question of what, if anything, the Claimant and Defendant had agreed in a subcontract by way of provision for delay damages and/or liquidated damages. The Claimant contended the parties had discussions about the imposition of a 10% cap on liquidated damages but that no agreement was ever reached. The Defendant contended the parties had agreed a term whereby the Defendant’s liability for delay damages in general and/or liquidated damages in particular would be capped at 10% of the subcontract price. 

The matter came before an adjudicator on 11 July 2017 who decided in the Defendant’s favour. However, the Claimant was successful at trial before Miss Joanna Smith QC (sitting as a Deputy Judge of the High Court) and the decision of the adjudicator was overturned. It was accepted by the parties that the Defendant was liable for the Claimant’s costs.

Payment on account of costs 
The Claimant stated they had incurred an overall figure of £140k and suggested, as a starting point, a figure of £124,390.04. This figure represented the total figure approved in their costs budget minus £24,010.00 of costs, which were never incurred, plus costs of two applications the Defendant had accepted they were liable to pay. The Claimant submitted they were entitled to payment of 90% of this figure i.e. £111,951.04.

The Defendant opposed a payment on account of costs at such a level believing there was good reason to suggest this figure would be significantly reduced on a detailed assessment. This belief was largely based on criticisms of the partner’s hourly rate and on the likelihood the Claimant would not recover all of the incurred costs set out in the approved costs budget. The Defendant submitted that taking likely reductions on assessment into account reduced the Claimant’s starting point to a figure of £94,540.90 and that they should not be required to pay more than £74,634.02.

The Claimant relied on the decision of Coulson J in MacInnes v Gross [2017] EWHC 127 (QB) who took, as his starting point the approved costs budget figure of £570,000.00 and made a reduction of 10% which he regarded as “the maximum deduction that is appropriate in a case where there is an approved costs budget.’ The Claimant also referred to the decision in Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] 1 WLR 4456 where the Court of Appeal determined that a costs judge was precluded from going below the approved figures for estimated costs unless satisfied that there is good reason for doing so and that incurred costs were to be the subject of detailed assessment in the usual way. 

The Defendant submitted that in MacInnes Coulson J was only dealing with estimated costs and not incurred costs which, of course, had not been approved. The Defendant argued that Coulson J could not have intended to impose a general rule of payment of 90% of both incurred and estimated costs (the distinction had not been made in MacInnes) and that such a rule would fail to account for the separate approaches to incurred and estimated costs adopted by the court on detailed assessment and confirmed in Harrison. 

Decision 
The court agreed with the Defendant that in MacInnes there appeared to be no argument before Coulson J on the distinction between incurred and estimated costs and that the decision in Harrison confirmed there is no requirement of ‘good reason’ for departure from incurred costs. However, the court disregarded the Defendant’s submissions in relation to the partner’s hourly rate (as far as estimated costs were concerned) and determined that the Claimant was entitled to 90% of approved estimated costs or £50,629.50.


The court applied a 30% reduction in relation to incurred costs to account for the possibility that the partner’s hour rate (as far as incurred costs were concerned) may be reduced on assessment and the Defendant’s arguments in relation to pre-action costs. The court also applied a 30% reduction to costs of the applications which did not form part of the approved budget and arrived at a figure of £47,694.53 on these two issues. 
The court made an order for payment on account of £98,000.00. 


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Noel Heslin

Senior Legal Costs Draftsman

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