Costs estimates

Costs estimates are often suggested as one of the ways in which the costs of civil litigation can be controlled. By requiring parties to consider in advance the steps needed in relation to their case and cost the case accordingly, the Courts and litigants have much greater awareness of the potential costs of the case at a much earlier stage. As such, it is important that costs estimates are accurate as far as possible and where an estimate proves to be inaccurate, then the Court has the power to take this fact into account when assessing a successful party’s recoverable costs:

The leading case in relation to when and how a court will exercise this power is the Court of Appeal’s decision in Leigh v Michelin Tyre plc (2003). The Court confirmed that an estimate should not be treated as a cap such that a party was unable to recover more than the estimate. However, there were three situations where a court could take the estimate into account. Firstly, if the opposing party could be shown to have relied on the estimate. Secondly, if the Court had relied on the estimate in exercising its case management decisions. Finally, in the absence of reliance, if there was a substantial difference between the estimate and the actual costs, this called for an explanation. If the explanation was insufficient to explain the discrepancy, then the Court could take this as prima facie evidence that the costs being claimed were unreasonable.

Following this decision, the Costs Practice Direction was amended to reflect the decision in Leigh. Section 6.5A defined the ‘substantial difference’ as 20% and required a party to file a statement with their Bill of Costs explaining the reasons for such a discrepancy. The Court could then consider this and decide whether the reasons were sufficient or, if not:

Following these developments, there has been very little reported case law on the issue. However, a recent decision in the Supreme Court Costs Office shows the application of these principles.

Douglas Tribe v Southdown Glider Club and Others (2007) concerned the assessment of costs following an unsuccessful claim arising from an aviation accident. The Claimant was seriously injured when his glider crashed. Proceedings were brought against the company who hired the glider, the owner of the glider and the company who had inspected and maintained the glider. The first and third Defendants were represented by the same firm and they filed a costs estimate at allocation stating that their estimated total costs to trial were £50,000. Liability was disputed and at a case management conference in October 2004, it was ordered that liability would be tried as a preliminary issue with a estimated length of trial of 4 days. Expert evidence was exchanged and the first and third Defendants filed a further estimate of £314,363.39 at the listing stage in September 2005. Shortly thereafter, it became clear that the Claimant’s case was in difficulty and the Claimant ultimately discontinued the claim later in September 2005.

Costs were claimed by the first and third Defendants in the total sum of £244,509.72 and the Claimant objected that this was nearly five times the estimate provided at allocation and should therefore be a relevant factor in assessing the costs. Master Gordon-Saker ordered that the issue be heard as a preliminary issue and statement were filed by the paying party and the receiving party relevant to the issue.

The Claimant’s case was that they had relied on the estimate, specifically in relation to the After the Event Insurance policy taken out by the Claimant. Insurance had been taken out the beginning of the claim with an indemnity limit of £100,000. Following the Defendant’s estimate, the Claimant Solicitor considered that this was sufficient and therefore did not advise the Claimant to take out any further cover. In fact, as a result of the final costs being substantially in excess of the £100,000 limit of indemnity, the Claimant faced a substantial personal liability for the Defendant’s costs. This reliance, argued the Claimant, was exactly the type of situation envisaged in Leigh and the Court should therefore exercise its discretion and limit the costs accordingly. The Court agreed and held that the Claimant had relied on the estimate and that, furthermore, that reliance was entirely reasonable.

The Defendant’s argument was that there were good reasons for the costs having increased over and above those set out in the estimate, and in particular, it was argued that there were a number of unanticipated developments in the case, namely:

• The complexity and volume of the engineering evidence
• The identification of 2 further lay witnesses to the accident
• The death of the second Defendant
• The death of the Claimant’s expert and the difficulties in relation to obtaining new expert evidence
• The need for expert metallurgical evidence
• The need to consider the Claimant’s medical history
• Delays on the part of the Claimant Solicitors

The Court considered these issues and held that the requirement for expert evidence should have been foreseeable and in relation to the remaining issues, these would not have increased the costs by the level that the costs did in fact increase. As the Master held, at paragraph 37:

Having held that the estimate had been relied upon and that the Defendants had failed to satisfactorily explain the discrepancy, the Master went on to determine the effect on the costs claimed.

Firstly, he rejected the contention that the costs should be capped at the level of the estimate. He then referred to Leigh, and in particular, paragraph 32 of the judgement of Dyson LJ:

The Master started by estimating that he would have expected costs in the region of £100,000 to £150,000 for a case of this nature. He then took into account 3 factors:

• 1. The low estimate
• 2. The fact that the costs of trial and quantum have not been incurred and therefore need to be deducted from the figures contained in the estimate
• 3. The additional costs incurred as a result of the unforeseen events.

Taking all of these factors into account, the Court held that a figure of £70,000 was the maximum sum that the Defendants could recover for their costs. The Defendant’s costs were therefore reduced by nearly £175,000.

This case is clearly an extreme example of the consequences that can follow when costs estimates prove to be inaccurate. The judiciary are increasingly keen to encourage parties to give estimates the attention they deserve and the draconian effects suffered by the Defendant Solicitor in this case clearly give a strong warning in this direction. The forthcoming amendments to the Costs Practice Direction will further reinforce this message by strengthening the requirements to file properly detailed costs estimates in all cases and parties can expect courts to take an increasingly strong line in relation to any failings in this area.

In light of the risks posed to a litigant by under estimating their costs, one could posit the theory that a party would be far better over estimating their costs so as to avoid any difficulties on assessment. However, the developing area of costs capping should, in theory, be a counterbalance to this temptation. The Court could, in theory, when faced with an excessive estimate, impose a cap on the costs of that party. The case law in this area is sparse at the moment, with such orders generally confined to group actions and libel claims, but there are signs that a broader application may be forthcoming in the future. This development will be necessary if costs estimates are to be given their proper place in the tools open to the courts to control litigation costs. Estimates and caps are different sides of the same coin and it remains to be seen how these twin areas will continue to develop together.

Paul Jones
Technical Director
LCN

Cases Cited:

Leigh v Michelin Tyre plc [2003] EWCA Civ 1766
Douglas Tribe v Southdown Glider Club and Others [2007] EWHC 90080 (Costs)