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Reduction in costs recovered by successful party due to estimate given in Allocation Questionnaire

09/09/2007

In [i]Douglas Tribe v Southdown Gliding Club and Others (Costs) the Court reduced the amount of costs that the defendants could recover because of the enormous discrepancy between the estimate given in their allocation questionnaire and the actual sum claimed. In the allocation questionnaire the first and third defendants estimated £50,000 for the cost of the action. The same two defendants submitted a final bill of £244,509.72, of which £150,640 was profit costs. The sum awarded to the first and third defendants, after careful calculation by Master Gordon-Saker, was £70,000.

Whilst the Court was keen to maintain that the estimate in the allocation questionnaire should not act as a costs cap, the reasoning in Leigh v Michelin Tyre and the guidance set out in paragraph 6.6 of the Practice Direction to CPR 43 led the Master to hold that in circumstances such as these it was right to reduce the amount recoverable.

The Master held that:

The claimant had reasonably relied on the amount initially given as an estimate. He entered into a CFA with his solicitors and obtained legal insurance with a maximum of £100,000 to cover costs. His solicitors had considered this amount to be a reasonable expectation given the preliminary expert evidence which supported his case, he could easily have taken out insurance to a greater sum had he known it was necessary.

Although the initial estimate of £50,000 was low, it was not so low and unrealistic that the claimant's reliance upon it became unreasonable. This is particularly so given that the claimant's solicitor advised him to take out the insurance in the basis of the estimate.

The defendants were unable to justify the discrepancy between their estimate and the final sum claim. Although the court accepted that the reasons given could account for a modest increase, the "chasm (between the two figures) was not bridged".

The recoverable costs were calculated by taking into account: i) the expected costs of a case of this nature; ii) the original estimate; iii) the fact that it did not proceed to trial; and iv) those additional costs which were reasonable.

The fees that are charged must be proportionate to the level of solicitor that is required to deal with the case adequately. In this case, the Master held that it was not reasonable for the defendants' solicitors to charge "City" rates as this was not a "City" case, notwithstanding that they were indeed located on the fringes of the City.

This case reinforces the importance of realistic and accurately calculated estimates of costs in an Allocation Questionnaire.

It is also clear that if the estimated amount changes, the costs estimate should be updated as soon as possible. This will ensure that the other side can make suitable provision to cover themselves. There may also be important implications at the case management stage, as the Court will use the potential costs as a determining factor in how it is managed.

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