Seeking costs from client in excess of approved budget – ST v ZY
Given the Court of Appeal recently adjourned the case of CAM Legal v Belsner, we will have to wait some time for guidance from the higher courts on the issue of informed consent when deductions are made from damages in personal injury cases.
However, that has not stopped important developments elsewhere on the same issue and particularly where costs are incurred in excess of an approved costs budget.
CPR 46.9(3) incorporates an element of informed consent where solicitor/own client costs are being assessed:
“Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed –
(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;
(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;
(c) to have been unreasonably incurred if –
(i) they are of an unusual nature or amount; and
(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.”
In ST v ZY  EWHC B5 (Costs), the Court was dealing with a personal injury case where the successful claimant’s solicitors were seeking to recover a costs shortfall from the claimant’s damages.
At the outset, and during the claim, the claimant had been advised that there would be a shortfall in costs recovery. The claimant had also been given an estimate of the likely level of that shortfall. At the conclusion of the matter, that estimate proved to be broadly accurate. At this stage, it might be thought that the claimant must be taken to have given, at least implied, approval for those costs that were in excess of that which might be recovered from the other party.
The problem for the solicitors was that much of the shortfall was as a consequence of the costs incurred by the solicitors being significantly in excess of the last approved costs budget in respect of a number of phases. During the inter partes detailed assessment, the solicitors were unable to put forward a “good reason” to depart upwards from the last approved budget. This, in part, explained a large proportion of the shortfall in recovery from the other side.
The question was, in the eyes of Senior Costs Judge Master Gordon-Saker, had the claimant been properly advised that costs in excess of the approved costs budget were being incurred and that these were therefore unlikely to be recoverable from the other side? If not, were these costs “unusual” for the purposes of CPR 46.9(3)(c)? In the view of the Master:
“[The solicitors] submitted that ‘unusual’ should be read as being between solicitor and client. However that seems to me to ignore the purpose of the rule. To avoid the presumption the solicitor is required to explain to the client that the costs may not be recovered because they were unusual. ‘Unusual’ must therefore be read in the context of a between the parties assessment. …
Were the excess costs unusual in amount? In my judgment they were. In approving the budget at £53,401.72, rather than at £147,981.50, the court arrived at the figures which it considered would be reasonable and proportionate to take the case to trial. In respect of issue/statement of case, that reasonable and proportionate figure was exceeded by over 100 per cent. In respect of witness statements, the reasonable and proportionate figure was exceeded by over 400 per cent. In respect of ADR/settlement, the reasonable and proportionate figure was exceeded by over 150 per cent. These figures are so far over what they should be, and what the court has already decided that they should be, that they must be unusual in amount.”
The crucial problem for the solicitors was:
“I have found nothing to suggest that [the claimant] was told about the budget or about the effect of the budget.
To avoid the presumption applied by CPR 46.9(3)(c), the solicitor must tell the client that as a result the costs might not be recovered from the other party. That must mean as a result of their unusual nature or amount. Telling the client that some costs might not be recovered from the other side is not sufficient. [The claimant] should have been told that the budget was being exceeded by a wide margin and that, as a result, those costs might not (and, indeed, almost certainly would not) be recovered from the other side.
Accordingly, in my judgment, the costs in excess of the budget and in excess of the caps imposed by CPR 3.15(5) are to be presumed to have been unreasonably incurred.
I should add that I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and that the costs in excess of the budget would not be recoverable.”