Costs Management | "Unrealistic And Unreasonable" Costs Budget Leads To Adverse Costs Award

GS WOODLAND COURT GP 1 LIMITED & GS WOODLAND COURT GP 2 LIMITED V RGCM LIMITED & OTHERS [2025] EWHC 285 (TCC)

The case concerns a complex construction dispute involving multiple defendants over alleged defects in student accommodation, with the claimants seeking £11 million in damages against potential remediation costs of £30 million. The High Court conducted a costs management hearing that critically examined the claimants’ proposed costs budget, which initially stood at £8.74 million but was substantially reduced to £4.212 million. The court found the claimants’ original budget “unrealistic both in terms of reasonableness and proportionality.” Following the reasoning of Master Thornett in Nicholas Worcester v Dr Philip Hopley [2024] EWHC 2181 (KB) and Jenkins v Thurrock Council [2024] EWHC 2248, Mr Justice Constable granted the defendants’ application for costs, ordering the claimants to pay the reasonable costs of D2, D3, and D4 and D5 for the hearing “limited to the costs of attendance of counsel and one solicitor” and to bear their own costs.

The traditional view has been that costs generally in relation to costs management are in the case. That, as Ms Packman rightly says, is the appropriate starting point. There have been two recent authorities demonstrating a trend, at least before Master Thornett, that the Court should take a more proactive view in considering the approach of parties in their cost management and the extent to which the way in which they have approached the matter has led to a hearing, or has increased the likelihood of a hearing, which causes the parties to incur costs and, of course, uses judicial resources.

Citations

Samsung Electronics Co Ltd & Ors v LG Display Co Ltd & Anor (Costs) [2022] EWCA Civ 466 Solicitors’ charging rates should align with guideline rates unless justified by substantial and complex litigation. The guideline rates already account for complexity, and an absence of justification for exceeding them will result in downward adjustments. Nicholas Worcester v Dr Philip Hopley [2024] EWHC 2181 (KB) A party advancing an overly ambitious costs budget that necessitates a separate costs management hearing may face adverse cost consequences. Proportionality and reasonableness in cost budgeting are crucial considerations in judicial assessments. Jenkins v Thurrock Council [2024] EWHC 2248 Costs management hearings should not be assumed to result in costs being awarded “in the case.” The court may depart from this default if a party’s approach to budgeting is unrealistic, leading to unnecessary hearings and increased costs.

Track allocation housing disrepair CPR 46.13 settlement sum costs restriction SCCO

MRO fee markup cap 25% detailed assessment personal injury Senior Courts Costs Office

Security for costs refused CPR 25.27 very high probability success excessive estimate King's Bench

IPEC scale costs transfer Patents Court PD 30 para 9.2 costs caps Court of Appeal

Costs budget variation CPR 3.15A promptness significant development unfair prejudice Chancery Division

Costs budgeting inter partes proportionality high hourly rates AI disclosure Patents Court CPR 3E

Beneficiary personal liability section 71(3) Solicitors Act 1974 indemnity costs VAT self-supply SCCO

Summary assessment indemnity costs unless order payment on account disclosure default Chancery Division

Provisional assessment set aside CPR 3.1(7) points of dispute filing duty PD 47 para 14.3 SCCO

Fixed recoverable costs police claims CPR 26.9(10)(e) intentional tort exemption

Key Points

A party that persists with an overly ambitious costs budget at a separately listed costs management hearing should not assume it will avoid adverse costs consequences. The court can take a proactive approach in assessing whether a party’s budgeting conduct warrants a costs sanction. [21-22]
The mere fact that a party secures approval of a costs sum higher than an opponent’s offer does not automatically establish “success” in a costs management hearing. The court must assess overall reasonableness and proportionality in determining whether costs consequences should follow. [20, 22]
A significant and unjustified departure from guideline hourly rates, particularly where no meaningful justification is provided, is likely to result in a substantial downward adjustment by the court. [12-14]

Where a costs management hearing results in a substantial reduction of a party’s initial costs budget, the court can conclude that the original budget was unreasonable and disproportionate, leading to a potential adverse costs order. [24-25]
Courts have discretion to order that a party whose costs budget has been significantly reduced bears its own costs of the costs management hearing and pays the reasonable costs of opposing parties who successfully challenged the budget. [26-27]

In headline terms, the Claimants were seeking -- at least before the reductions that were made this morning -- £8.74 million. Against that, the highest offer they received -- from D4 and D5 - was £3.539 million. The other offers ranged between £2.7 million and £3.4 million. In fact, the sum recovered was £4.212 million. It is readily obvious from the scale of the reduction that the Claimants’ Precedent H was unrealistic both in terms of reasonableness and proportionality.

Key Findings In The Case

The Claimants’ costs budget of £8.74 million, later reduced to £7.37 million, was found to be excessive, unreasonable, and disproportionate, as evidenced by the court’s approval of only £4.21 million after significant reductions. [24]
The Claimants failed to justify the significantly inflated hourly rates charged by their solicitors, which substantially exceeded the guideline rates. The court ruled that a downward adjustment was necessary as the rates were excessive. [12-14]
The court determined that a meaningful and prompt reduction in the Claimants’ budget, including the removal of Reply witness statement and expert report costs, should have been made earlier rather than at the commencement of submissions. This demonstrated an unreasonable approach to budgeting. [16]

In light of the Claimants’ unreasonable and disproportionate costs budget, the court ruled that Defendants D2, D3, and D4/D5 were entitled to recover their reasonable costs of attendance at the cost management hearing from the Claimants, while the Claimants were required to bear their own costs in any event. [27]
The court rejected the Claimants’ argument that costs should automatically be treated as “in the case” and instead applied a proactive approach, determining that the significant reductions to the budget justified an adverse costs order against the Claimants. [26]

The rates are excessive and, in due course, whilst of course I am not going to say anything specific in terms of what the rates should be or the precise calculation, I will take account of a relatively sizeable downward adjustment in each of the phases where there are heavy time costs to reflect the excessive rates. An overview of the extent of that contribution to the overall claim has been provided by Ms Stephens. If one substitutes the guideline rates for those that are claimed, it takes about £1.4 million off the overall budget.

Background

These proceedings concern a complex construction dispute involving multiple defendants related to alleged defects in student accommodation constructed using modular building techniques. The claimants, GS Woodland Court GP 1 and GP 2 Limited, acting as general partners for GS Woodland Court Limited Partnership, brought proceedings against seven defendants involving significant allegations concerning fire safety attenuation and construction defects.

The construction was managed on a construction-management basis, with seven defendants spanning different aspects of the project: the construction manager, architect, cladding contractor, modular unit supplier, developer, fire-stopping works contractor, and installer. The claim involved allegations that numerous fire safety defects had not been properly implemented in the modular accommodation.

A half-day Costs Management hearing was convened to assess and manage the litigation costs, during which an unusual application was made by several defendants for their costs of the Costs Management hearing itself. The total claim against the defendants was approximately £11 million, with potential remediation costs estimated at £30 million.

Costs Issues Before the Court

The primary costs issues before the court included:

1. Assessment of the reasonableness and proportionality of the claimants’ costs budget
2. Evaluation of the claimed hourly rates against guideline rates
3. Consideration of the defendants’ application for costs of the Costs Management hearing
4. Determining an appropriate approach to costs management in multi-defendant construction litigation

The Parties’ Positions

The claimants (represented by Ms Packman KC) argued that the complexity of a multi-defendant case justified their approach. They initially sought a costs budget of £8.74 million, which was subsequently reduced to approximately £7.4 million.

The defendants (particularly represented by Ms Stephens KC) contended that the claimants’ costs were disproportionate and unreasonable. They highlighted significant discrepancies between the claimed rates and the Guideline Rates, with the claimants’ solicitors charging substantially higher rates without meaningful justification.

The Court’s Decision

Mr Justice Constable made several critical observations:

1. Rates: The claimed rates significantly exceeded Guideline Rates, with Jones Day charging rates substantially higher than recommended. The court indicated a potential downward adjustment of approximately £1.4 million solely based on rate reductions.

2. Proportionality: While acknowledging the case’s complexity, the judge suggested the claimants’ costs were potentially disproportionate, particularly when compared with the defendants’ aggregate costs.

3. Costs Management Hearing: Applying recent authorities (Nicholas Worcester v Dr Philip Hopley and Jenkins v Thurrock Council), the court determined that the claimants’ unrealistic initial budget warranted potential cost consequences.

4. Final Outcome: The court approved a reduced budget of £4.212 million for estimated costs and granted the defendants’ application for costs of the Costs Management hearing, with D2, D3, and D4/D5 recovering their reasonable attendance costs from the claimants.

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