The importance of monitoring and warning the client of budget overspend

The case of JXC v NIS [2023] EWHC 1000 (SCCO) concerned a substantial personal injury claim in which the Claimant was a protected party, having suffered catastrophic head injuries. The Court approved the terms of the settlement in March 2021 and the order provided for the Defendant to pay the Claimant’s costs on the standard basis. As the Claimant was a protected party, the Court also ordered detailed assessment of the costs payable by the Claimant to their legal representatives on the basis provided for in CPR 46.4 and 46.9.

CPR 46.9 (3) specifies that such costs are to be assessed on the indemnity basis and are presumed (a) to have been reasonably incurred if they were incurred with the express or implied approval of the client and (b) to be reasonable in amount if their amount was expressly or impliedly approved by the client.

Such costs are presumed to be unreasonably incurred if they are ‘unusual in nature or amount’ and ‘the solicitor did not tell the client that as a result the costs might not be recovered from the other party’ (CPR 46.9 (3) (c)). The Practice Direction adds that the client should be informed that such costs may not be recovered before the costs are incurred.

The Claimant’s solicitors submitted a Bill of Costs to the Defendant in the sum of £1,300,448.44. It was ultimately agreed that the Defendant would pay £1,050,000 in settlement of the same and this was approved by the Court. The Claimant’s solicitors sought to recover a shortfall of £212,974.69 from their client (allowing for some agreed reductions to Counsel’s fee and no shortfall sought by the previous solicitors).

The key issue in this case was that there had been a significant overspend on the Claimant’s costs budget which exceeded the shortfall sought from the client. The Claimant’s solicitors had advised their client on several occasions that there would be a likely shortfall of 20-30% but had not specified the issues regarding the overspend and the likelihood that this would be irrecoverable from the Defendant.

Costs Judge Leonard considered the information given to the Claimant and concluded that :

“A costs budget sets a figure for recoverable costs. Costs incurred in excess of budget are likely to come straight out of the client's pocket, with no prospect of recovery. It follows of necessity that it is incumbent upon a solicitor to monitor accruing budgeted costs (as IM said they would) and before budgeted figures are exceeded, to advise the client of the implications of doing so and of such options as applying for budget revision or avoiding the overspend.

 “I cannot see how a client who was told nothing whatsoever about the limits on recoverable costs imposed by two costs management orders could properly be said, either expressly or impliedly, to have given informed consent to expenditure in excess of the budgeted figures.

In not advising the client regarding the consequences of the costs management orders, the solicitors could not rely on CPR 46.9(3) (a) and (b) that the Claimant had given consent. The costs were, accordingly, regarded as unreasonably incurred before CPR 46.9(3)(c) was considered, however, the overspend was also found to be unusual in amount in any event.

As the overspend exceeded the base costs shortfall, the solicitors could not recover any part of the shortfall from the Claimant’s damages.

This case highlights the importance of monitoring the costs budget and advising the client of any overspend and the consequences of the same. The full judgment can be found here.

If you have any questions regarding this summary, please contact Helen Spalding here.

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