Mixed News on Costs Estimates

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Recent months have seen some mixed news in relation to the provision of Costs Estimates. 

In Garbutt v Edwards, the Court of Appeal rejected the argument by the paying party that, as the receiving party had not received a Costs Estimate from his Solicitor, contrary to the requirements of the Law Society’s code, the receiving party was not liable to pay costs to his Solicitor and therefore, by the application of the indemnity principle, the paying party was not liable to pay costs. 

After consideration, the Court of Appeal concluded that the non-observance of the code did not make the performance of the retainer unenforceable. 

The Court did however give some guidance for cases where no estimate is given and indicated that the Costs Judge should consider whether, and if so to what extent, the costs claimed would have been significantly lower if there had been an estimate given at the time when it should have been given. 

It should be remembered that the Garbutt case concerned Estimates given to the receiving party by his own Solicitors and it should be distinguished from the case of Leigh v Michellin Tyres which concerned the question of Estimates filed in accordance with Section 6 of the Costs Practice Direction.  That Court of Appeal case has now been followed by the 40th update of amendments to the Practice Directions which importantly has amended Section 6 to include a new Section 6.5A and Section 6.6. 

The first significant amendment is in Section 6.5A(1) which provides that if there is a difference of 20% or more between the base costs claimed and those shown in an Estimate of Costs then that party must provide a statement of the reasons for the difference within his Bill of Costs. 

The Practice Direction does not make it clear whether this applies to the Estimate of Past or Future Costs, but as the Estimate should be substantially in the form illustrated in precedent H, in the costs precedents annexed to the Practice Direction, one has to assume that it will include both past and future base costs. 

It should be noted that Section 6.4(1) indicates that when an Allocation Questionnaire or a Listing Questionnaire is filed a party must file and serve an Estimate of Costs.

Section 6.5A(2) indicates that a paying party must state in his Points of Dispute if he claims that he relied upon an Estimate of Costs filed by the receiving party or if he wishes to rely upon the Estimate to show that the costs are unreasonable or disproportionate. 

The Court can, on an assessment, have regard to any estimate previously filed in assessing whether the costs are reasonable and proportionate and if there is a 20% difference between the costs claimed and those shown in an estimate, no satisfactory explanation has been given and the paying party reasonably relied upon the estimate, the Court may regard the difference as evidence that the costs are indeed unreasonable or disproportionate. 

It can be seen from the above that it will be extremely important to make sure that Costs Estimates, particularly when filed in accordance with Section 6 of the Practice Direction, are accurate and that the estimate is given in the proper format. 

We would also suggest that it would be useful to make a note of some of the assumptions relied upon in support of the future Costs Estimate, for example the number of future medical reports or that it is expected that liability will not be seriously contested etc as this would no doubt assist in giving a satisfactory explanation of any greater than 20% discrepancy in a final bill if those assumptions had turned out to be incorrect.