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90% of Budgeted Costs: The impact that the Costs Budget has on the payment on account of costs was once again considered in the case of of Puharic v Silverbond Enterprises Ltd

Earlier this year, in the matter of Puharic v Silverbond Enterprises Ltd [2021] EWHC 389 (QB), it was once again reiterated that it is the norm to pay 90% of approved budgeted costs on account of costs in the absence of a good reason to depart from the costs budget.

The parties had agreed that the Claimant should pay the Defendant’s costs to be assessed by detailed assessment and that the Court should make an order for payment on account of those costs.  The parties were, however, unable to agree the basis on which the costs ought to be assessed or the amount of the payment on account.

The Defendant considered that indemnity costs should apply however, although the Claimant’s case failed, Gavin Mansfield QC did not consider that the claim or conduct of it was outside of the norm.  As such, an order was made for the Claimant to pay the Defendant’s costs on the standard basis.

CPR 44.2(8) provides that where the Court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so.  The Claimant accepted that a payment on account should be made but the parties could not agree to a reasonable sum.

The Claimant had offered 50% of the Defendant’s budgeted costs, arguing that this was reasonable.  In Gavin Mansfield QC’s opinion, the Claimant’s proposal failed to “have regard to the developing body of law as to the relationship between costs management and detailed assessment”.

As per MacInnes v Gross [2017] 4 WLR 49 and pursuant to CPR 3.18, the court should have regard for the fact that upon detailed assessment the costs judge would not depart from the approved or agreed budget unless there was good reason to do so.  In MacInnes, Coulson J regarded 10% as the maximum appropriate deduction in a case where there was an approved budget.

In the absence of good reason to depart, the Claimant was ordered to make a payment on account of 90% of the approved budgeted costs.

This rule of thumb does not however apply to incurred costs, which were not subject to approval at the CCMC.  In the absence of any compelling arguments to the contrary, the Claimant was ordered to make a payment on account of 70% of the incurred costs as sought by the Defendant.

The Defendant sought 50% of its budgeted costs for the PTR phase on the basis that the work was done but the Hearing was vacated.  This was considered to be reasonable.

Inclusive of VAT, the Claimant was ordered to make a payment on account of the Defendant’s costs in the sum of £187,121.13.

It is clear from this case, that courts are still very much of the view that in the absence of good reason to depart, 90% of approved budgeted costs should still be payable on account of costs.  What this does however indicate is that this may not be the case if there is a chance that a paying party could successfully argue good reason to depart.  In such circumstances, it may be harder to persuade a court that such a payment on account of costs should be made.  This therefore highlights the need to ensure that budgets are monitored appropriately, and cases are run in line with their costs budgets.

At A&M Bacon Ltd, we have a team of costs experts who have a wealth of experience in dealing with all legal costs issues. Should you have any queries in relation to budgeting or legal costs, please do contact our specialists and award-winning team. You can contact a team member on 01733 350 880 or visit our website www.aandmbacon.co.uk for more information.

Published 19 July 2021

Author – Susie Power

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