An expensive oversight

The recovery of the costs of
litigation is important to lenders – and rightly so. The general
rule is that the successful party is entitled to recover reasonable
costs of the litigation from its opponent. But the case below is a
timely reminder that, even where a party is successful, a failure
to provide an accurate and realistic costs estimate at the outset
of the case, or to update it at regular intervals when the estimate
is exceeded, may lead to the court imposing sanctions and
restricting costs recovery.

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Estimates
Under the Civil Procedure Rules
(CPR), the parties must keep each other and the court informed as
to what costs they are incurring. This is done by submitting costs
estimates at certain stages of the litigation. The parties may rely
on that information to determine the costs liability they might
face should they lose, or to put into place funding to cover such
costs. The court also refers to such estimates when considering the
reasonableness, or otherwise, of costs claimed following a trial or
settlement.

Tribe v Southdown Gliding Club Ltd and
others
In Tribe, the claimant abandoned its claim and had to pay the
defendants’ reasonable costs. Two of the defendants had filed an
estimate of costs early on in the proceedings indicating that their
overall costs would be £50,000. Relying on that information the
claimant obtained after the event insurance limited to £100,000 to
cover himself against the liability for the defendants’ costs
should he lose. The two defendants only revised their estimate
shortly before trial and their final bill of costs amounted to
almost £250,000, some five times more than they had originally
estimated.

The decision
The CPR provides that where there is a discrepancy between the
estimate of costs given and the final costs claimed of 20 per cent
or more, and there is no satisfactory explanation for that
difference, or the paying party relied on the estimate, the court
may regard the difference as evidence that the costs claimed are
unreasonable or disproportionate. The court can then disallow all
or some of those extra costs.
Here, when assessing the defendants’ costs, the court found that
the claimant had clearly relied on the estimate given by the two
defendants by putting in place insurance to cover their costs. Had
he known the true magnitude of the potential costs claim against
him, he would have purchased additional insurance cover at modest
cost. The two defendants also failed to provide a satisfactory
explanation for the difference between the estimate and the
eventual sum claimed. Their defence had been run no differently
from how it was envisaged it would be run at the outset at the cost
then estimated. The court reduced the two defendants’ recoverable
costs to £70,000.

Comment
Waiting until just before trial or, worse still, at the assessment
of costs stage following trial, to tell the other side that costs
have escalated is a very risky strategy, especially if the opponent
can prove reliance on the earlier estimate. Just as clients are
entitled to be informed by their own solicitors of the level of
costs that are being incurred on their behalf so that they will
know what costs liability they may have, so is the opponent.

The author is director of the Recoveries & Finance team,
Wragge & Co LLP