GSK Project Management Ltd v QPR Holdings Ltd

The Claimant company, which is now in liquidation, was formed in order to carry out works at Queens Park Rangers’ Loftus Road ground. The Defendant is the parent company of the group that includes the operator of the football club and occupier of the ground.

It is common ground that the Claimant entered into a contract to carry out works at the ground and that it carried out works. In the course of the works, the Claimant invoiced the Defendant for £1,778,517 (inclusive of VAT) and was paid a total of £917,205. It has now reconstructed its final account and claims that it is owed £1,722,800 less the amount it has been paid. Its claim is therefore for £805,675. The Defendant counterclaims on the basis that some of the works are defective.

Although the Claimant is in liquidation, the individuals who were involved with the works are available and have been assisting in the preparation of the claim. In addition, the creation of the reconstructed final account was carried out with assistance from a Quantity Surveyor [“the QS”]. The process was made more complicated by the fact that the Claimant had overwritten the Revised Cash Flow Forecast which was a contract document and necessary for the calculation of the final account. As presented in this litigation, the Claimant’s claim is made up of 25 works packages. However, five of them involve claims for less than £1,000 each while another three are claims for between £1,000 and £5,000.

The main Particulars of Claim is 12 pages long. It is straightforward in rehearsing the fact of the contract, alleging that the works were carried out and claiming for under-payment by reference to 25 Appendices, one for each works package. Counsel drafted the main Particulars of Claim; the QS compiled (either substantially or entirely) the Appendices. There followed a detailed Request for Information, which the Claimant answered; a detailed Defence and Counterclaim; a Request for Further Information relating to that pleading, which the Defendant answered; and a Reply and Defence to Counterclaim.

The parties agree that four days will be sufficient for the trial and have agreed directions to that end.

Against this background, the Claimant’s cost budget produced for the first CMC on 24 July 2015 was in the overall sum of £824,038 and stated that over £310,000 has already been spent. The overall estimate therefore exceeds the sum at stake (exclusive of interest) while the sums which are alleged to have been incurred amount to nearly 40% of the sum at stake. The headline breakdown of the costs budget was as follows (with rounding):

By way of overall comparison, the Defendant’s cost budget (to which the Claimant took no objection) was in the total sum of £455,554. However, a straight comparison is not appropriate because of the widely differing hourly rates charged by the various people on either side, as follows:

Because of the wide disparity in rates, comparison between the two costs budgets can most usefully be by reference to the number of hours spent rather than the sums set out in the precedent H.

The Costs Budgeting regime has led to disagreement about the extent of detailed argument that is appropriate when considering Precedent Hs. Experience in the TCC has shown that most costs budgeting reviews can and should be carried out quickly and with the application of a fairly broad brush. Only exceptionally will it be appropriate or necessary to go through a Precedent H with a fine tooth-comb, analysing the makeup of figures in detail. For reasons which will become apparent, however, this is an exceptional case which justifies a more detailed approach. The justification lies in the fact that the aggregate sum being put forward for approval is so disproportionate to the sums at stake or the length and complexity of the case that something has clearly gone wrong. The Court’s interest in maintaining a robust and just approach to costs management requires an investigation into what has gone wrong for two reasons. First, to enable it to reach a figure which it is prepared to approve; and, second, so that the court’s determination to exercise a moderating influence on costs is made clear.

The parties are agreed that the approach adopted by Coulson J in CIP Properties (AIPT) Limited v Galliford Try Infrastructure Limited [2015] EWHC 481 (TCC) is applicable in the circumstances of this case. I also agree, though Coulson J’s approach may better be seen as a guide rather than a straightjacket. On the facts of that case, he considered:

The Claimant submitted a “Supplementary Note for Precedent H” but did not address incurred costs “as the Court cannot amend the incurred Costs.” It is, however, well established that the Court shall take into account incurred costs when considering what costs are reasonable and proportionate going forward: see CPR 3E PD 7.4. Because of the stance taken by the Claimant, the Defendant has virtually no information about or explanation of the significance or otherwise of the Claimant’s incurred costs.

My starting point is that a case would have to be wholly exceptional to render a costs budget of £824,000 proportional for the recovery of £805,000 plus interest. This case is not exceptional in any material respect. The contract is agreed. Therefore the issues are (a) what work did the Claimant carry out, (b) what is it entitled to be paid for that work, either under the contract or on a quantum meruit basis, and (c) were its works defective so as to give rise to a set-off and counterclaim? There is nothing in the Statements of Case to suggest that there will be any novel or particularly difficult issues of law. There will only be a handful of witnesses, not least because a Mr MacDonald, who carried out most of the negotiations for the Defendant, is not now available, which has limited the Defendant’s ability to plead a positive case and means that he will not be called unless things change. The straightforward nature of the case is shown by the parties’ agreement that the trial will take four days. The sensible device of breaking the Claimant’s works down into discrete works packages means that the disputes between the parties can readily be defined, without an excessive burden of documentation. Documentation can readily be allocated to works packages as relevant and there is nothing to suggest that this will be a document-heavy case.

Counsel for the Defendant submitted that, when a comparison is made with the Defendant’s costs budget, suitably adjusted for differing rates, a proportionate figure for the Claimant would be £350,000 in total. In CIP Properties Coulson J formed a view during the hearing and informed the parties that he thought that a reasonable and proportionate figure for the entirety of the claimant’s costs of the action would be broadly equivalent to £4.3 million. I do not have sufficient knowledge or experience of the out-turn cost of standard four-day cases in the TCC to be confident in settling on so precise a figure as a matter of impression. But my initial reaction on proportionality when considering the Claimants’ estimate of £825,000 is that good reason would need to be shown to justify more than about half that figure on proportionality grounds.

My initial view on proportionality was reached without carrying out any comparison with the Defendant’s costs budget. Counsel for the Defendant submitted that the correct approach when assessing one party’s costs budget is to take the other party’s costs budget as a starting point. I do not accept that submission, because different parties to litigation have different roles and responsibilities which are likely to distort one party’s costs when compared with those of another: the obvious example is that in some cases the Claimants have to make the running in preparing and presenting the case while the Defendant “can sit and snipe on the sidelines”; and, later, the Claimant typically has to manage the logistics of litigation. In the present case, the Claimant has had to incur the costs of reconstituting its Revised Cash Flow Forecast and has undertaken the work of breaking down its claim into the 25 works packages. So I would expect the Claimant’s costs to be heavier than those of the Defendant, at least in the early stages. However, I do accept that the Court should have regard to the other party’s costs budget because it may provide useful indicators about necessary resourcing of the litigation. And I bear in mind Coulson J’s observation that in the TCC the defendant needs to be on top of all the relevant material just as much as the Claimant: see CIP Properties at [49].

Counsel for the Claimant in the present case submitted (rather faintly in the end) that the Defendant had underestimated the resources that were necessary. To my mind, if such a submission is to be made at all in the face of a Solicitor’s statement of truth that his costs budget is a fair and accurate statement of incurred and estimated costs “which it would be reasonable and proportionate for my client to incur in this litigation”, it needs to be properly substantiated; and that substantiation will probably require evidence and not mere assertion. It has not been substantiated in the present case.

The Claim includes for 52 hours of partner time and 138 hours of associate time, together totalling £40,927. Assuming roughly 35 billable hours per week, this would equate to about 5 ½ weeks solid work on the case. No justification for these hours is apparent, particularly as the Court was told that the final account which is reflected in the appendices to the Particulars of Claim was done by the QS between issue of proceedings in April 2014 and service of the Particulars of Claim on 8 October 2014. I make two comments. The first is that if a significant proportion of these costs were incurred for good reason, then the Claimant’s solicitors should have been well on top of the case by the time of issue. If, as the subsequent estimates for solicitors’ time suggest, little real progress was made, then 190 hours have not been reasonably or proportionately incurred.

On the information that has been made available to the Court, approximately 10 hours of partner time and 30 hours of associate time appear to be reasonable and proportionate to enable the taking of instructions, collection of papers and preparation for the issuing of proceedings. This would entail total profit costs of about £10,000 to which disbursements of £1,564 may be added. Making due allowance for uncertainty, I would approve (if I could) a figure of £13,500 as reasonable and proportionate for pre-action costs.

The total figure for Issue / Statements of Case in the Precedent H as served was reduced by £20,000 on the acceptance by the Claimant’s counsel that no further Statements of Case were required.

The incurred costs figure is £246,908. This includes:

The Court was told that solicitors typically budget for between 1100-1300 billable hours from salaried solicitors. On that basis, between April 2014 (when preparation of the final account was commenced by the QS) and about April 2015 (or slightly later) the claimant’s associate solicitor spent approximately 35% of a year’s estimated billable hours on this case. No explanation of what the associate has done during those 429 billable hours has been provided. In addition, the partner has apparently spent 96 billable hours (or nearly three weeks elapsed time assuming 35 billable hours per week).

These figures would be astonishing even if it were the case that the solicitors had been putting the case together: but that is not the case. During the period the QS put together the final account and, as the Court was informed by Counsel, substantially prepared the 25 appendices that went with the 12 page Particulars of Claim. The QS had other involvement, because he charged for 482 hours work in the period to 8 October 2014, shortly before service of the Particulars of Claim and the Appendices. Thereafter he continued to work and charged:

Having read the appendices to the Particulars of Claim and the other materials in the Permanent CMC Bundle, I am unable to understand how the process of producing the revised Final Account and the Appendices could have taken the QS 428 hours, or anything approaching it. Assuming a 37.5 hour week, 428 hours would be 11 ½ weeks elapsed work, which is not self-evidently necessary to construct a final account in the sum of about £1.5 million and the 25 appendices to the Particulars of Claim.

In addition to this, Counsel’s fees since issue have included the following items that included under this heading on Precedent H:

The entries for drafting are mostly combined with advising in conference, so that a precise breakdown is not possible. Equally, I can only form a broad estimate of the time that drafting the documents I have seen should or could take. In a legally straightforward case where the QS prepared the final account and (substantially) the appendices to the Particulars of Claim, the spending of 40 hours on the Particulars of Claim plus associated advice is, to my mind, beyond understanding; and the other items, both singly and cumulatively appear out of all reasonable proportion to the nature of the case in hand.

I am very conscious that a detailed investigation might run the risk of impinging on areas of legal professional privilege; and also that I have been given no explanation at all to justify these astonishing figures. The Defendant submitted that an overall figure of £115,000 would have been reasonable and proportionate for this stage of the proceedings. Without that suggestion I would have concluded that a reasonable and proportionate expenditure for this heading would have been about £100,000 on the basis of 200 hours of associate time (£40,000), 50 hours of partner time (£15,000), 50 hours of counsel’s time (£15,000) and 200 hours of the QS’s time (£28,000). But I recognise that Counsel for the Defendant may have a more complete understanding than I can have of what has been involved. I therefore conclude that £115,000 would have been a reasonable and proportionate expenditure on Issue and Statements of Case.

The CMC was listed for one hour, though the Court was told it might take rather longer. Apart from consideration of the Claimant’s costs budget, the only business that was contentious by the time that the parties had discussed directions were an application by the Claimant for an order that the Defendant produce further pleadings (which substantially failed) and a dispute about the costs of an otherwise agreed application by the Defendant for an extension of time for serving its Defence.

The Claimant’s incurred and estimated costs for the CMC were £22,090. This included:

In other words, it is suggested that 80 hours of lawyers’ time was reasonably and proportionately spent upon a 1 hour CMC. I reject that suggestion both taking the overall hours and each of the constituent parts that I have summarised above. The papers were competently included in four files of a Permanent Case Management Bundle. The costs of drafting the Claimants’ application were included in the previous item. Counsel provided a skeleton argument for the CMC and attended. In the event, largely because of the protracted argument about the costs budget, the CMC took longer than had been listed. However, the issues to be considered at the CMC were not particularly complex.

The Defendant submitted that £10,000 would be reasonable and proportionate. My assessment without reference to the Defendant’s Costs Budget would be that 20 hours of associate time (£4,000), 5 hours of partner time (£1,500) and £3,000 for counsel would be reasonable and proportionate. The Defendant allocated 17 hours of solicitor’s time and £3,750 for counsel. That provides some support for my assessment, as counsel for the Defendant undertook the detailed additional exercise of attacking the Claimant’s costs budget. Adding in miscellaneous items included under this heading (£1,480) to my assessment would lead to a total of just under £10,000. In case I have underestimated the work required from the solicitors, I increase this to £15,000 to represent a sum of costs that would be reasonable and proportionate under this heading

No criticism is made of the Claimant’s figure of £29,522.

The Claimant has estimated a total of £75,440 which includes:

These hours are quite simply absurd for a straightforward case where the Claimant intends to call two (or possibly three) witnesses, the QS has already prepared the final account and the appendices to the Particulars of Claim, and the people involved at the time (who are likely to provide the bulk of the witness evidence) have been cooperating with the lawyers to bring the case this far. Counsel for the Claimant accepted that there was a need for a “reasonable” reduction, without offering any particular figures. There is nothing in the materials before the Court to suggest that more than 30 hours of associate’s time and 5 hours of partner’s time could reasonably be required per witness statement to be prepared. It will of course be necessary to read the Defendant’s witness statements when they come in, to assess them and consider whether any responsive evidence is required; but the case has been fully pleaded and Mr MacDonald is not available to the Defendant, so that exercise should not take long. Quite what the QS is required to do is unclear. Counsel may in a case such as this be required to read final draft witness statements and the Defendant’s when they come in, but that should not under any circumstances take 20 hours of competent counsel’s time, even if a conference is called at some stage.

On the materials available to the Court, it is not possible to justify more than 80 hours of associate’s time (£16,000), 12 hours of partner’s time (£3,600), £3,000 for counsel and (as a contingency) £2,500 for the QS. That provides a figure of £25,100.

The sum claimed is £114,690 which includes:

My initial reaction is that for £80,000 it might be hoped that competent experts who were conscious of their obligations to the Court would be able to consider, meet, agree or disagree and write their reports with plenty left over for supplemental reports. Reminding myself that this is in preparation for a four day trial, I reject any suggestion that the preparation of the reports, exchange, and consideration of the other side’s experts’ reports could possibly require 108 hours of solicitors’ time and over 30 hours of Counsel’s time.

The Defendant suggested £10,000 for solicitors’ time, £7,000 for Counsel and £60,000 for the experts. I consider that £85,000 is the highest sum that can be described as necessary, reasonable or proportional under this head.

If the parties comply with the Court’s directions, the PTR should be straightforward. It should last no more than an hour, not least because most outstanding issues (if there are any) should be capable of agreement.

The Claimant’s estimate is £21,920, which includes:

Counsel for the Claimant attempted to justify these figures by saying that the PTR is a time when there may be a review of the case on either side as well as preparation for and attendance at the PTR itself. I accept the proposition that there may be a review of the case at that time but, given the time already spent and close knowledge that the lawyers should by this stage have about the case and how it has progressed, I reject the suggestion that this can justify the time estimated for solicitors’ or counsel’s time. There is no need to incur hotel expenses: if requested, the Court will list the case at a time that enables a day trip to be made. At present I can see no justification for three solicitors attending the PTR.

On the information that is available to the Court at present, I consider that 30 hours of associate’s time (£4,000), 5 hours of partner’s time (£1,500), 5 hours of trainee’s time (£575) and 12 hours of counsel’s time (£3,600) would be reasonable and proportionate. I would allow £650 for miscellaneous disbursements. Court fees are £1090. Those figures add up to £11,415. I round that up to £12,000 as a sum that is reasonable and proportionate in the context of the case as a whole.

The Claimant’s estimate is £68,225 which includes:

The Claimant’s supplemental note state that these estimated solicitors’ costs include preparing the trial bundle, drafting the brief to counsel, preparing the statement of costs, and conferences with counsel, experts and witnesses. As to these:

Nothing in the Claimant’s note gives any hint of an explanation that would justify the 224 hours claimed for solicitors’ time in this period even making every allowance for the need to co-ordinate and arrange the attendance of experts and lay witnesses during the four day trial. The Defendant submitted that adopting the same hours as are estimated for the Defendant’s costs for this stage would be reasonable as there will be little or no disparity between the sides in their need to prepare for trial. Apart from the preparation of the trial bundles, I agree. When asked to provide an explanation for the size of this item, the partner attending court said that it included an element of contingency. That appears to me to be a considerable understatement.

On the information that is available to the court, the most that could be said to be a reasonable and proportionate allowance would be:

This gives a total of £37,500.

The Claimant’s estimate is £97,525 for the four day trial. This includes:

In submissions, Counsel for the Claimant recognised that it was not reasonable for the partner to be present full time at the trial. That concession was wisely made. Given the relatively straightforward nature of the trial, it would be understandable for the partner to attend on the first and last days, while being on call for the remainder and leaving the day to day running of the case to the associate. I would therefore allow 20 hours of partner time (£6,000), 40 hours of associate time (£8,000) and 40 hours of trainee time (£4,600), a total of £18,600 for solicitors’ time during trial.

Assuming two experts and equal distribution, £25,000 for the four days amounts to £12,500 each. It is not obvious that they would both need to be present for the whole of the four day trial. Even allowing for a contingency, £25,000 is disproportionately high and I would not allow more than £15,000.

Counsel’s fees for trial preparation and the four day hearing amount to £43,300. As a sanity check, I asked how long a trial such as this should take to prepare. The answer was about a week, which seems generous for a case such as this given the extent of Counsel’s prior involvement. Assuming 50 hours of preparation and then 12 hours per day during the trial suggests about 100 hours involvement in preparation and presentation. That would suggest something in the region of £30,000 given Counsel’s charging rate of £300 per hour. Putting this in perspective, if trial preparation and the trial are treated as two week’s work, £30,000 for the two weeks equates to £15,000 per week or (assuming a 40 week working year) an annualised rate of £600,000 per annum. With these considerations in mind I find it impossible to conclude that the Court should sanction more than £30,000 as being reasonable and proportionate on the facts of this case. Since I have already allowed £4,500 for the trial preparation period, there remains £25,500 for the trial period.

On this basis I do not accept that more than £65,000 is reasonable or proportionate under this heading.

The Claimant estimates £50,060 for settlement and ADR and a further £34,590 for mediation. Although this looks like double-counting, the two entries were said to be separate and distinct. By the end, the Defendant’s counsel had suggested a total of £25,000 for settlement/ADR/Mediation and I did not understand the Claimant’s counsel to argue for more. Had he done so I would have rejected the argument. I would therefore approve £25,000 for Settlement/ADR and nothing in addition for mediation as a separate item.

The various sums estimated by the Claimant and the sums I would approve as reasonable and proportionate for the purposes of a costs budgeting exercise are:

It turns out that the itemised approach that I have adopted in this section comes out almost exactly the same as my first assessment of the proportionality of the sums being estimated. Since this process of estimation cannot be exact, I round the figures slightly and conclude that an appropriate figure for costs for the Claimant in this case would be £425,000.

In CIP Properties at [83]ff Coulson J reviewed the available options, which he identified as:

Coulson J settled on Option 2 in a case where the Claimants said that they had already incurred the same amount of costs as he assessed as being reasonable and proportionate for the action as a whole. In the present case, I would reject Options 1A and 1B for the same reasons as given by Coulson J at [85]-[89]. Although I would not have to assess all future costs at nil, it seems to me that to adopt Option 3 would give rise to the same potential difficulties as identified by Coulson J at [93], namely that if I simply subtract the incurred costs and allow the balance of my figure of appropriate costs, the Claimant will be doubly penalised if the Defendant makes substantial inroads on the Claimant’s figure for incurred costs at an assessment. I have therefore concluded that Option 2, modified in the same way as by Coulson J, is the best solution to adopt.

The provision in CPR 3E PD 7.4 that the court may not approve costs incurred before the date of any budget but may take those costs into account when considering the reasonableness and proportionality of all subsequent costs does not make specific provision for the situation where, as here, taking the incurred costs into account reveals a disproportionate level of expenditure with no consequential benefit being reflected in the estimate of future costs. I respectfully agree with Coulson J that there is no prohibition against saying what the Court would have approved if presented with an estimate for future costs rather than the fait-accompli of incurred costs.

The summary nature of the costs budgeting procedure means that the Court may either overestimate or underestimate the future expenditure of costs that will reasonably and proportionately be required. If a lower level of costs than estimated turns out to be reasonable and proportionate, the other party’s protection lies in assessment: the Costs Judge can disallow costs even though the approved budget has not been exceeded. If a higher level of costs is in fact required in order to run the litigation reasonably and proportionately, the affected party has the leeway afforded by CPR 3EPD.2.6, which requires a party to revise its budget in respect of future costs if significant developments in the litigation warrant such revisions, and CPR 3.18, which allows the Court when assessing costs on the standard basis to depart from the approved or agreed budget if satisfied there is good reason to do so.

In the present case I order as follows:

In this way the incurred costs/approved costs budget will be a total of £425,000.

At one point in the attempt to justify its exorbitant costs estimate, the Claimant submitted that this litigation has been and is “combative”. That is plain and obvious from the length, approach and tone of both the Statements of Case and the correspondence included in the materials for this CMC. It does not begin to justify the level of incurred and prospective costs set out in the Claimant’s Precedent H.

I respectfully repeat and adopt the recent observations of Edwards-Stuart J in Gotch v Enelco Ltd [2015] EWHC 1802 (TCC), where he said:

“44.

It is therefore time to say, in the clearest terms, that parties and their solicitors can no longer conduct litigation in a manner which does not keep the proportionality of the costs being incurred at the forefront of their minds at all times.

45.

It is no longer acceptable – if it ever was – for the parties to pursue issues or applications that have no real impact on the issues that are central to the dispute. Further, it is no longer acceptable for solicitors to carry on a war of attrition by correspondence, whether instructed to do so or not; it is the parties who are the subject of the duty in CPR 1.3, not merely their solicitors.

46.

[...]

47.

Whilst English law is an adversarial process, that goes to the issues in the case: not to every aspect of the procedure. Parties to litigation, in the TCC at least, are expected to conduct that litigation in the manner that is most expedition and economical. Bringing the right issues to trial in the most economical fashion, and taking steps to ensure that the costs are kept at a level that is proportionate to what is at stake, is to be at the heart of the process.

48.

Unreasonableness, intransigence and the taking of every point must in my view now be regarded as unacceptable, because conducting litigation in that way flies in the face of the overriding objective as it is now formulated. These habits must disappear from the landscape of litigation in the TCC. If they do not, offending litigants must expect to bear the costs.

49.

If access to justice is to have any real meaning, then the aim of keeping costs to the reasonable minimum must become paramount. Procedural squabbles must be banished and a culture of co-operative conduct introduced in their place. This will not prevent contentious issues from being tried fairly: on the contrary it should promote it.”

It is hard to imagine anything more sterile than arguing about a grossly excessive costs estimate. It does not go to the issues, it is wasteful of Court and the parties’ time, and it offends against the obligation to keep costs to the reasonable minimum (both in the fact of the estimate and the need to whittle it down).

This costs estimate was grossly excessive, being overstated by almost 100% in relative terms and nearly £400,000 in absolute terms. It justified the effort and expense of the detailed attack made on it by the Defendant. There is no reason why the Defendant should be out of pocket because of the need to deal with such an exorbitant estimate. On a most broad-brush approach I estimate that it must have taken counsel at least 3 hours to prepare for the issue; and about 1 ½ hours of Court time was spent on it, during which time the Defendant’s solicitor was necessarily engaged. The Claimant will pay the Defendant’s costs of this issue, which I summarily assess in the sum of £1,000. That sum will be paid to the Defendant by 4pm on the date 14 days after delivery of this judgement. I direct that, within 14 days, the Claimant’s solicitors shall bring the terms of this judgment to the attention of any paying client who has retained them in this action and that they shall notify the Court when that has been done.