Before: MASTER O HARE, COSTS JUDGE Between:

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1 IN THE HIGH COURT OF JUSTICE SENIOR COURTS COSTS OFFICE SCCO Ref: Clifford s Inn, Fetter Lane London, EC4A 1DQ Date: 5 April 2011 Before: MASTER O HARE, COSTS JUDGE Between: PRODEC NETWORKS LIMITED - and - N2CHECK LIMITED Claimants Defendants Mr Shenton (instructed by Pitmans) for the Claimants Mr Carpenter (instructed by Bird & Bird LLP) for the Defendants Hearing dates: 17, 18, 19 January I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic....

2 Master O Hare: 1. This is my decision on the second Point of Dispute which was taken by the paying parties, the Defendants, in this case. The Defendants complain that the bill of costs before me greatly exceeds the estimates of costs which were given to them by the Claimants in the course of these proceedings. 2. In addition to the Points of Dispute and Replies, each side has put in a skeleton argument, and the submissions which were made to me on this point have taken half of the three day appointment which was made for this detailed assessment. In order to do justice to these lengthy submissions, this judgment will summarise each of the following topics: 1) Background facts of the main proceedings; 2) Description of the bill and the decision as to proportionality which I have already made; 3) Law and practice as to estimates of costs; 4) My findings of fact as to the point of dispute I must now decide; and 5) The conclusions I have reached and my reasons for them. BACKGROUND FACTS OF THE MAIN PROCEEDINGS 3. The Claimants are suppliers of computer equipment who were approached by a potential customer, X, who was unknown to them. The Defendants are a credit reference agency from whom the Claimants sought a credit reference in respect of X. That reference indicated that X was a low credit risk and the Claimants then sold goods to X on credit. X defaulted on its debt to the Claimants, who thereupon sued the Defendants alleging that the reference which they had given for X had been prepared negligently. One particular reason advanced was that X had started as an off the shelf company and, at the time the reference was given, it had no credit history to speak of. 4. The Claimants sued the Defendants in the Reading County Court claiming a net loss of about 13,000 plus interest. The claim, including pre-action stages, began in February After the claim form was issued it was allocated to the fast track and was tried in November After a long day s trial before District Judge Henry the Claimants were awarded about 8,000, including interest, and the reasonable costs of the proceedings. 5. The learned District Judge held that the Defendant had been guilty of negligence, and that an exclusion clause limiting liability to the cost of the reference was invalid as unfair. However, the compensation given to the Claimants was limited to their loss of expenditure on the goods which they had supplied. They were not allowed to recover the profits they had hoped to make on this sale. Although the case was on the fast track the costs were not summarily assessed.

3 MY DECISION ON PROPORTIONALITY 6. The bill before me totals just over 300,000. That sum includes an ATE premium of about 31,000 and a success fee on profit costs from mid-september 2009 to the commencement of the detailed assessment proceedings. Stripping these items out, leaves a claim for base costs of about 190, The fact that a claim for about 10,000 which was run to trial within 12 months could generate base costs on this scale would, I am sure, surprise, and indeed appal, most people including many practitioners. The Defendants first challenge was that I should find these costs disproportionate, and therefore should assess them applying the test of necessity, as well as the more usual test of reasonableness. 8. Nevertheless, I ruled that these costs, massive though they seem, did not appear to me to be disproportionate when this case was looked at as a whole. The current law of proportionality does not simply compare the benefit gained with the costs expended. The court also has to take into account the particular features of the case which may explain why the winning party spent a larger sum than is usual. In this case, on the basis of the submissions made to me, and on the basis of my own reading into the voluminous papers lodged in support of the bill, I took the view that the Defendants had caused this case to be run at great speed as if it were a massive multi track action. The reason for this expensive approach appears to be that the Defendants were not simply seeking to avoid liability to pay the sum of about 14,000 plus costs. They were seeking to avoid a ruling against them which this Claimant and other claimants might later invoke as a precedent. Such a ruling could cause them serious damage in reputation, as well as in money. 9. I took the view that the Defendants had aggressively defended these proceedings. In particular they sought unsuccessfully to oppose an order for standard disclosure, they carried on a heavy letter war with the Claimants solicitors, they failed to agree upon a case summary without giving reasons and subsequently filed their separate case summary inviting the Claimants to agree it, and they amended their defence at a late stage (in October 2009, the trial being in November 2009). 10. Despite so ruling against the Defendants, I also criticised the conduct of both parties in the hearing before me as appearing to be disproportionate and I gave notice that I presently took the view that there were two aspects of the costs claimed in the bill which did look disproportionate to me: the documents item for the period September to November 2009 and the costs claimed for the post trial period. COSTS ESTIMATES GIVEN TO THE DEFENDANTS 11. During the course of the proceedings the Claimants solicitors gave the Defendants four accounts of the Claimants total base costs: at allocation (May 2009) when the total given was 71,000 excluding VAT with 10,000 already incurred; at the listing stage (4 September 2009) when the total given was 71,000 excluding VAT with 37,000 already incurred;

4 on 3 November 2009 when serving notice of funding in respect of an ATE insurance premium recently taken out when the total given was 80,000 excluding VAT with 67,000 already incurred; and lastly, just before trial, on 12 November 2009, a statement of costs prepared for summary assessment when the total given was 80,000 excluding VAT all of which had been incurred. 12. As to those four accounts of their costs, the first three described are properly termed estimates, and the last one was a statement of costs for summary assessment. 13. The base costs now claimed exceed 190,000, but they also include all post trial work. Stripping out that element leaves a figure for comparison with the accounts listed above in the region of 133,000 (which is the Claimant s calculation) or 136,500 (which is the Defendant s calculation). The difference between the parties as to this calculation is not material, and, therefore, I took a middle figure of 135, ,000 exceeds the highest estimate given by over 60%. The Costs Practice Direction requires receiving parties to offer an explanation whenever an estimate of costs is exceeded by 20% or more. That being so, the Claimants bill sets out the following reasons by way of explanation of the difference: 1) lower hourly rates (bands of hourly rates are detailed within the CFA) were used to calculate the estimates; 2) discounts had been applied to the estimates for work carried out in relation to funding; 3) further discounts had been applied to the estimates to enable swift settlement of costs at trial and immediately afterwards; 4) the ATE policy had not been entered into, until 6 November 2009, post filing of the allocation questionnaire; 5) the Defendants amended defence and their combative stance, especially towards trial, i.e. increased costs which could not have been envisaged; 6) the matters referred to in the Narrative; 7) the Claimants claim for losses was complex with a vast array of documents having to be obtained and considered. It would have been practically impossible to provide an estimate of future costs at the stages it is compulsory to do so with any degree of accuracy: the best that could be done was to provide a broad estimate. 15. Some of these explanations cannot apply to some of the four accounts of costs which are given. In the course of his submissions Mr Shenton, the advocate for the Claimants, focussed these explanations as follows: reasons (1), (4), (5), (6) and (7) apply to the estimates given at allocation and at listing,

5 explanations (1), (2) and (3) apply to the estimate given in November 2009 and to the Statement of Costs. 16. In the course of his submissions Mr Shenton also advanced an additional explanation in respect of all the estimates and the statement of costs: the bill includes estimates of time made by the costs draftsman in respect of unrecorded time, i.e. time not shown in the ledger sheets which are kept by the solicitors. 17. In the Points of Dispute, complaint was made about each of the four accounts which I have described. In particular, it was alleged that senior officers employed by the Defendants had relied on the estimates when deciding not to appeal the trial court ruling. Subsequently, two witness statements were served, each made by a senior officer in the Defendant s group of companies. In the skeleton argument, if not before, great concern was expressed in relation to reasons (2) and (3), it being said that these were deliberate mis-statements, not accidental errors. It was submitted that if these and the mis-statement of hourly rates, had been done deliberately in order to mislead, I would also have power to impose penalties for misconduct under CPR Allegations of misconduct, unlike allegations of unreasonable conduct, may impugn the reputation of a person found guilty of such misconduct. Whilst Mr Carpenter, the advocate for the Defendants, did not attribute misconduct to either the Claimants or the Claimants solicitors, he submitted that either, if not both, might be guilty of conduct meriting serious censure. In my judgment the reference to possible misconduct in this case in part explains why this Point of Dispute took over 1½ days to argue. At the end of those 1½ days this line of argument was withdrawn. LAW AND PRACTICE WHERE ESTIMATES ARE EXCEEDED 19. The Costs Practice Direction has always required represented litigants to give estimates of their costs to their opposing parties at certain stages of litigation. As originally drafted, the Costs Practice Direction stated the effect which such estimates might later have on a detailed assessment of those costs: the court could treat an estimate as a factor, among other factors, when determining the reasonableness or proportionality of the costs in question. 20. When the Costs Practice Direction was first drafted the practice of serving estimates of costs was new and unfamiliar. Some practitioners failed to comply with the Practice Direction obligations, and some courts turned a blind eye to these failures. In Leigh v Michelin Tyres [2004] 1 WLR 846 the Court of Appeal explained what the obligations to give estimates were, explained the significance of estimates and their importance, and gave guidance as to how the court might give effect to any estimates in a subsequent detailed assessment. The Court of Appeal also invited the Civil Procedure Rules Committee to reconsider the wording of the Costs Practice Direction and to amend it if appropriate. The Costs Practice Direction was subsequently amended, and paragraph 6.6 now provides as follows: (1) On an assessment of the costs of a party, the court may have regard to any estimate previously filed by that party, or by any other party in the same proceedings. Such an estimate may

6 be taken into account as a factor among others, when assessing the reasonableness and proportionality of any costs claimed. (2) In particular, where (a) there is a difference of 20% or more between the base costs claimed by a receiving party and the costs shown in an estimate of costs filed by that party; and (b) it appears to the court that (i) (ii) the receiving party has not provided a satisfactory explanation for that difference; or the paying party reasonably relied on the estimate of costs; the court may regard the difference between the costs claimed and the costs shown in the estimate as evidence that the costs claimed are unreasonable or disproportionate. 21. In my judgment this new wording gives effect to, and does not significantly extend beyond, the guidance given by the Court of Appeal in Leigh. The only two respects in which the new rules differ from the Court of Appeal guidance are as follows: 1) The new wording refers to bills where the base costs claimed exceed an estimate previously given by 20% or more: the Court of Appeal merely referred to cases where there is a substantial difference between the bill and estimate. 2) Where there is a difference of 20% or more, the new wording requires the receiving party to volunteer explanations for that difference. Presumably, this provision was intended to bring estimate excesses to the forefront of the attention of both parties and also the court. 22. The new Costs Practice Direction 6.6 states that, in two circumstances, the court may regard an increase of costs by 20% or more, from an estimate as evidence that the costs claimed are unreasonable or disproportionate. The two specified circumstances are as follows:- where the receiving party has not provided a satisfactory explanation for the increase: and cases where the paying party reasonably relied on the estimate of costs. 23. I heard a great deal of argument as to both of these circumstances in relation to this case, and will summarise my findings later on in this judgment. At this point I want to explain my understanding of the law and practice here. 24. In my judgment the first circumstance (absence of a satisfactory explanation) relates to the guidance given by the Court of Appeal in Leigh to the effect that estimates are

7 intended to provide useful yardsticks of the reasonable and proportionate costs likely to be incurred. If the yardstick is useful a claim for costs in excess of it can be disallowed as unreasonable or disproportionate. Thus, if it is to neutralise this effect of an estimate, the explanation the receiving party must give is one which shows to the court that the estimate given was wrong and therefore is not a useful yardstick. 25. A reason which is frequently given for an increase over an estimate is that the case turned out to be more difficult or time consuming than the estimator had anticipated. In deciding whether to accept that explanation the court will consider whether it is true: were there features in the case which occurred after the estimate had been given which caused more expenditure than the estimator had reasonably anticipated? Whilst every case will have some such features, few will have features likely to lead to an increase as substantial as 20%. If the court takes the view that the features now complained of were not unexpected it will readily find these excess costs were unreasonable or disproportionate. 26. I take the view that an explanation for a substantial difference between a bill and an estimate is a satisfactory explanation if the court accepts it as a truthful statement which persuades the court that the estimate in question is not a useful yardstick. Sometimes the explanation given may only suffice to save part of the costs claimed in excess of the estimate: for example, where the explanation does not justify more than a fraction of the excess costs claimed. 27. Accordingly, I do not accept the submission made by Mr Carpenter, counsel for the Defendant, that no explanation which admits of a culpable error or mistake can be regarded as a satisfactory explanation. If the court believes that, because of some culpable mistake made by the estimator, the estimate given does not amount to a useful yardstick, it will not disallow the excess costs because of it unless the second circumstance (reliance) applies. It may of course disallow any costs incurred in making the mistaken estimate. 28. The approach which I take here is, to my mind, fully in accordance with the approach taken by the Court of Appeal in Leigh, as to which, see paragraphs 26 to What follows is not intended to provide an exhaustive guide as to the circumstances in which a costs estimate may be taken into account in determining the reasonableness of the costs claimed, but it should assist judges in the application of para 6.6 of the [old] practice direction. First, the estimates made by solicitors of the overall likely costs of the litigation should usually provide a useful yardstick by which the reasonableness of the costs finally claimed may be measured. If there is a substantial difference between the estimated costs and the costs claimed, that difference calls for an explanation. In the absence of a satisfactory explanation, the court may conclude that the difference itself is evidence from which it can conclude that the costs claimed are unreasonable.

8 27. Secondly, the court may take the estimated costs into account if the other party shows that it relied on the estimate in a certain way. An obvious example would be where A shows that he relied on the relatively low estimate given by B not to make an offer of settlement, but carried on with the litigation on the basis that his potential liability for costs was likely to be of the order indicated in B's estimate. In our judgment, it would be a proper use of para 6.6 of the practice direction to take such a factor into account in deciding what costs it was reasonable to require A to pay B on an assessment. 28. Thirdly, the court may take the estimate into account in cases where it decides that it would probably have given different case management directions if a realistic estimate had been given. To take a rather crude example: suppose that at the allocation questionnaire stage the claimant provides an estimate of overall costs in the sum of 20,000, and claims 50,000 at the assessment. The court might conclude that, if it had known that the claimant's costs were likely to be of the order of 50,000, rather than 20,000, it would probably have given different directions from the ones it gave, and that these would have had the effect of reducing the claimant's costs. It might, for example, have trimmed the number of experts who could be called, and taken other steps to slim down the complexity of the litigation in the interests of controlling costs in a reasonable and proportionate manner. 29. In our view, para 6.6 of the [old] practice direction gives the court the power to take matters such as these into account in deciding whether, and if so how far, to reflect them in determining what costs it is reasonable to order the paying party to pay on an assessment. We do not, however, consider that it would be a correct use of the power conferred by para 6.6 to hold a party to his estimate simply in order to penalise him for providing an inadequate estimate. Thus, if (a) the paying party did not rely on the estimate in any way, (b) the court concludes that, even if the estimate had been close to the figure ultimately claimed, its case management directions would not have been affected, and (c) the costs claimed are otherwise reasonable and proportionate, then in our view it would be wrong to reduce the costs claimed simply because they exceed the amount of the estimate. That would be tantamount to treating a costs estimate as a costs cap, in

9 circumstances where the estimate does not purport to be a cap. 29. As to the second circumstance justifying the court treating an estimate as evidence of the reasonable and proportionate sum to allow (reasonable reliance thereon by the paying party) I accept Mr Carpenter s submission that the reliance in question need not be such as to give rise to an estoppel. In this I adopt as he did the reasoning given by Morgan J. in MasterCigars v Withers [2008] 1CLR 72 (see para 99 which is set out below). I do not accept Mr Shenton s submission that that reasoning should be limited to cases in which estimates are given by solicitors to their own clients. As a matter of practice the only significant difference between the effect of an estimate on the estimator s client and on the opposing party is that the latter is less likely to rely upon it: an opposing party is more likely to rely upon the advice given by his or her own advisors. 30. In deciding the effect which reliance upon an estimate should have on the amount of costs to be awarded by the court, the first four factors the court ought to take into account seem to me to be as follows: 1) the extent or degree of reliance; 2) the consequences of that reliance; 3) the explanation, if any, given for any excess of costs over the sum estimated; and 4) the extent to which the estimate has been exceeded. 31. Thus, for example, taking into account only the first and the fourth of those factors, heavy reliance upon an estimate which was reasonably placed may defeat even a small departure from that estimate. Huge departures from an estimate may not be allowed even if the reliance placed on that estimate was slight or insignificant. 32. I find authority for these propositions in the decision of Morgan J in MasterCigars (paragraphs 98 to 103) which I now set out. In that case the contest was between a solicitor and his own client. In order to adapt the language used to the circumstances of this case I have added the words [or paying party] after the word client in most places in which it appears. 98. The first part which an estimate can play in the assessment of reasonableness is the way described by Dyson LJ in Leigh v Michelin Tyre Plc at [26] and repeated again in Garbutt v Edwards. The estimate is a useful yardstick by which the reasonableness of the costs may be measured. If there is a modest difference between the estimate and the final bill, because an estimate is not a fixed price for the work, one may be very little surprised by the modest difference. The greater the difference, the more it calls for an explanation. If there is a satisfactory explanation for the difference then the estimate may cease to be useful as a yardstick with which to

10 measure reasonableness. Conversely, if there is no satisfactory explanation the estimate may remain a very useful yardstick with which to measure reasonableness. 99. The decisions of the Court of Appeal do not determine the attitude which a court should take when carrying out a detailed assessment of costs and the client [or paying party] asserts that he relied upon the solicitor's estimate. No doubt, if the client [or paying party] put its case on the basis of an estoppel by representation or a promissory estoppel then that would have to be considered. A client [or paying party] may have difficulty in showing such an estoppel. It might be said that the estimate was not the same as identifying a maximum or fixed price and the client [or paying party] could not rely upon the estimate not being exceeded. Further, in some cases (but perhaps not in all cases) a client [or paying party] may have difficulty in showing that he would have acted differently if the estimate had been for the amount of the final bill. What should the court do where the client [or paying party] does not, or is not able to, contend there is an estoppel but he is able nonetheless to satisfy the court that he took the estimate completely seriously and it is possible he might have approached the litigation differently if he had been given a figure nearer to the figure in the final bill? 100. On the question of reliance, Leigh v Michelin Tyre Plc is authority for reliance being relevant on an assessment of costs between a paying party and a receiving party. Dyson LJ does not spell out in detail what the consequences of such reliance might be but he does not seem to have in mind only those cases where the paying party could show an estoppel. Something less than an estoppel seems to suffice in terms of relevance. Conversely, something more than a belief that the costs are likely to equate to the estimate seems to be needed because Dyson LJ in [31] refers to the question of "how" the paying party relied on the estimate. Further, at the end of the inquiry, the deduction in the costs which is thought to be appropriate is left to the good sense of the court. The decision of the Costs Judge in Tribe v Southdown Gliding Club Limited is an example of the court finding there was reliance by the paying party, finding in what way the paying party relied and then using the estimate to scale down the amount of the recoverable costs Wong v Vizards is an authority at first instance, prior to Leigh v Michelin Tyre Plc, of a case where there was reliance by a client on his own solicitor's estimate. The judge in that case did not approach the matter on the basis of an alleged estoppel. Instead, he indicated that "regard should be had" to the level of costs which the client had been led to believe he would have to pay. The question was then expressed as to whether it was reasonable for the client to pay much more than the estimated costs. In my judgment, the proper response to this decision is to hold that the court in that case was finding that, for the purposes of assessing reasonable remuneration

11 payable to the solicitor, it is relevant as a matter of law to ask: "what in all the circumstances is it reasonable for the client [or paying party] to be expected to pay?" Thus, even if the solicitor has spent a reasonable time on reasonable items of work and the charging rate is reasonable, the resulting figure may exceed what it is reasonable in all the circumstances to expect the client [or paying party] to pay and, to the extent that the figure does exceed what is reasonable to expect the client [or paying party] to pay, the excess is not recoverable The next question to be addressed is whether the addition of a margin on top of the solicitors' estimate constitutes a useful approach in this context. As I have endeavoured to explain, in some cases, the solicitors' estimate will be a useful yardstick with which to measure the reasonableness of the final bill and in other cases the amount of the estimate will be a factor in considering what sum it is reasonable to expect the client [or paying party] to pay. Those considerations, prima facie, cannot be easily converted into an approach which says that the solicitor should be able to recover the estimate plus a margin but, conversely, should not be able to recover more than an estimate plus a margin. The decisions of the Court of Appeal in Leigh v Michelin Tyre Plc and Garbutt v Edwards are not, in my judgment, any authority which gives the solicitor any kind of automatic entitlement to add a margin to the estimate nor are they authority for allowing the client [or paying party] to cap his liability at the estimate plus a margin This is not to say that I would reject altogether the idea that a margin might offer something useful. As I indicated earlier, when saying that an excess of the final bill over the estimate calls for an explanation, this reaction is heavily dependant upon the extent of the excess. A modest excess does not call for much explanation and a substantial excess calls for a great deal of explanation. In some cases it might be useful to say that anything below a norm or margin does not require much if any justification whereas anything above that norm or margin should be expected to be explained in detail. Another function which the notion of the margin might play is in relation to reliance. Because an estimate is not a fixed price or a maximum price, even where a client [or paying party] relies on the estimate, it will often be the case that the client [or paying party] appreciates that there is some room for movement so that he would not be very surprised if the final bill turned out at a figure somewhat above the estimate. A figure somewhat above the estimate might therefore be perfectly reasonable to expect the client [or paying party] to pay. If the final bill is a little above the estimate then a court might routinely hold that the excess does not prevent it being reasonable for the client [or paying party] to be expected to pay the full bill. Conversely, if the final bill is significantly above the estimate, a court might routinely feel that the bill had increased by too much so that it was no longer reasonable to expect the client [or paying party] to pay all of it. The court may then be required to exercise its judgment as to what figure could properly be

12 added to the estimate so as not to exceed the sum which it would be reasonable to expect the client [or paying party] to pay. FINDINGS OF FACT IN THIS CASE 33. By the time of trial the Claimants solicitors had given four accounts of the costs claimed: three estimates and one statement of costs for summary assessment. Subsequently, they have given a fifth account, the bill now before me. In order to make more meaningful comparisons between the previous accounts and the bill now before me, it is necessary for me to adjust the bill in order to exclude costs which were plainly incurred after the date of trial (12 November 2009). I also wish to compare each of the five accounts, when I can, with the number of hours spent by the different grades of fee earner who worked on behalf of the Claimant. This I do in the diagram which follows, the accuracy of which the parties should check and correct if necessary. The diagram omits the estimate given at allocation because I could not locate sufficient information as to that estimate. In any case, both of the first two estimates given arrive at the same total, albeit by slightly different routes. Estimate on 4 September 2009 Estimate on 3 November 2009 Statement of costs for trial Bill of costs (pages 1 to 22) excluding doc items dated after 12 November 2009 Hours at Grade A Hours at Grade B Hours at Grade D Total time in hours Total profit cost , , , , My diagram calculates profit costs only. Disbursement claims in the September estimate and the November estimate are approximately the same (about 7500). A reduced claim is made in the statement of costs (about 6000) and the final bill claims about The diagram shows that the adjusted bill totals for profit costs amount to 196% of the September estimate if counted in pounds, and 182% of that estimate if counted in hours claimed. 35. I also find it convenient to have in mind the estimates of costs and the statement of costs which were produced by the Defendants legal team. These provide me with a form of cross-check as to the accuracy of the Claimants accounts. In the papers delivered to me in support of the Claimants bill I found a note prepared by the Claimants solicitors concerning those estimates. According to the note no estimate was given by the Defendants at allocation. At listing, the total estimate of base costs was 59, This was revised in a new estimate dated 27 October 2009 to the

13 sum of 60,778, about 2% higher. The statement of costs prepared for trial claims profit costs of 55,797 which is slightly less than had previously been estimated. 36. I would also like to make a comparison with the number of hours spent by the Defendants legal team. They involved more fee earners at slightly different grades. Nevertheless, I have grouped them under three sub-headings, grades A, B and D, in order to harmonise with the team used by the Claimants. The total hours claimed at grade A are 7.5, at grade B are and at grade D are The grand total of hours claimed by the Defendants fee earners is 249.7, nearly 200 hours less than is claimed in the Claimant s statement of costs. The gap between the teams is smaller when expressed in pounds sterling because the hourly rates claimed by the Defendants team are greater than the hourly rates claimed by the Claimants team. EXPLANATIONS GIVEN IN RESPECT OF THE SEPTEMBER ESTIMATE 37. The first explanation given for the increase in the costs claimed in the bill (which explanation applies to all of the estimates and the statement of costs) is that these accounts were based on the wrong hourly rates. At the hearing I was shown a retainer letter dated in March 2009 and also the CFA dated September 2009 both of which show hourly rates which coincide with the rates claimed in the bill, and are substantially higher than the rates claimed for the grade A fee earner and the grade D fee earners as shown in the estimates and statement of costs. At the hearing I expressed my disappointment that the Claimants solicitors hade made such crass and troubling mistakes. Mr Shenton explained that this was an internal administrative error made by the fee earners who had set up the first ledger pages and that errors of this nature are, in his experience, every day and universal. According to my calculations if the estimates and statement had been based on the correct hourly rates the profit costs claimed would be about 5,000 greater. 38. The next four reasons given for a subsequent increase in costs after 4 September 2009 (the reasons I have previously numbered 4, 5, 6 and 7) relate to work done in a period which I have previously described as covering work which appears to be disproportionate. However, I have reached the conclusion that the estimate of future costs which was included in the September estimate is not a useful yardstick of that work. 39. As to the eighth reason given (the creative additions made by the costs draftsman in respect of time which was not recorded by the fee earners), several of these items were spot checked during the hearing. As a result of those checks I do not think that additions for unrecorded time are likely to justify any substantial increase in the September estimate or indeed in any of the other accounts. The estimates which the costs draftsman had made for unrecorded time seemed to me to be optimistic in the extreme. 40. Save for the point as to hourly rates, I am left with the impression that the September estimate of costs does appear to be a useful yardstick of the costs reasonably incurred up to September but not for the later period.

14 THE NOVEMBER ESTIMATE AND THE STATEMENT OF COSTS 41. These accounts of costs span a period of about ten days and are very similar, one with another. Both of them show a growth in costs of about 18% or 19% from the September estimate. Obviously, these accounts cover a period which includes the months of September and October which the Claimants have said led to an increase in work which they had not anticipated in the September estimate. Despite this increase Mr Shenton for the Claimants invited me to find that both of the November accounts are substantial under-estimates of costs for the following reasons: the use of incorrect hourly rates; the fact that work done in setting up the CFA and ATE policy had been discounted previously; the fact that further discounts had been applied to the November accounts in order to enable swift settlement of costs at trial ; and the costs draftsman s inclusion of items claimed in respect of unrecorded time. 42. I have already dealt with the first and last of those explanations. It remains the case that the understatement of hourly rates could not justify an increase of more than about 5,000. As to the unrecorded time point, I consider this is unlikely to lead to any or any significant increase in costs. 43. As to the discount in respect of funding costs, there have long been two schools of thought as to whether such costs are recoverable. At the hearing I was told that the fee earner who prepared the estimate took the pessimistic view that these costs were not recoverable, but the costs draftsman subsequently instructed was more optimistic. I have not yet heard argument as to whether that optimism was justified. However, even if it was, I do not think the increase in costs is likely to be more than 1, Should a solicitor who has intentionally under-estimated his costs, that is to say past costs as well as future costs, be allowed to rely upon that under-estimate as an explanation for his subsequent claim of greater costs? Mr Carpenter, for the Defendants, argued that a deliberate mis-statement can never be a satisfactory explanation for a larger claim later. I agree that a deliberate under-estimate is wrong, and should not be made. It is likely to mislead anyone, whether client, opponents or the court who may rely upon that estimate. Paragraph 6.2(1) of the Costs Practice Direction defines the term estimate of costs as an estimate of those costs which a party, if successful in the proceedings, intends to seek to recover from any other party under an order for costs. At the hearing I heard lengthy submissions as to the decision of His Honour Judge Grenfell in Stables v City of York Council (13 October 2008, unreported). Mr Carpenter for the Defendants submitted that the statement of costs in that case was treated in just the same way as an estimate of costs, and that is how I should treat the statement of costs in this case. For the Claimants, Mr Shenton submitted that, properly understood, the District Judge in Stables had made a case management decision to place greater emphasis than he would otherwise have done on the statement of costs, because the time allocated for the detailed assessment before him was insufficient to enable him to complete it in time. Having deliberated on this point I now take the view that Mr Carpenter s

15 submissions should prevail. A statement of costs differs from an estimate of costs only in that, by the time it is drawn, virtually all the costs have already been incurred. It differs also in that it is intended to be used immediately in the assessment of the costs in question. An estimate of costs, although drawn in the form of a bill of costs, is never intended to replace the bill of costs for detailed assessment. Ultimately, I take the view that His Honour Judge Grenfell s decision merely states the problem I am now grappling with: (20) The only question, therefore, is whether there are circumstances under which a receiving party, who has certified his maximum costs recoverable up to a certain point under the indemnity principle, can subsequently be allowed to re-open that statement of costs. Perhaps the most obvious possibility is where a party, before summary assessment takes place, indicates to his opponent and to the court that the statement contains errors. In my view, in such circumstances, the parties should make it clear at the earliest opportunity that there has been an error. If, as in this case, the claim for one reason or another does not proceed to summary assessment, then, if the receiving party subsequently seeks to go behind his certification, he must then explain the basis for his assertion. Then it is a matter for the Costs Judge to determine. 45. Given the meaning I have attached to the words satisfactory explanation I accept that, as a matter of theory, the fact that an estimate was deliberately under-estimated might satisfactorily explain the difference between that estimate and the subsequent bill of costs. However, in this case, the discounting said to have been made does enable me to draw an inference that the fee-earner who made the estimate then took the view that he could not reasonably seek an increase over the September estimate of more than 20%. Whilst the inference is weaker in the case of the statement of costs (that document having been prepared for a summary assessment) it is strong in the case of the November estimate. 46. In this case I do not accept that the deliberate under-estimates which have been made satisfactorily explain the difference between those estimates and the bill now before me. The September estimate shows that 218 hours had been incurred and a further 154 hours were to be incurred in the next 2 months before trial. The hourly total for the November estimate and statement exceed the hourly total for the September estimate by about 68. The hourly total for the bill of costs in this case, up to the date of trial, exceeds the hourly total for the September estimate by 308 hours. Am I to believe that, had no discounting been made, a large part of these 308 hours would have been claimed in respect of the last 2 months in addition to the 154 hours already estimated for those months? 47. I see that some discounting was made in the statement of costs as to counsel s fees and, I accept, to some of the recently incurred profit costs. However, I find it impossible to accept the discounting explanation as a satisfactory explanation for the difference between the November accounts and the bill now before me.

16 RELIANCE UPON ESTIMATES 48. At the hearing the Defendants relied upon two witness statements, one from Gavin Rogerson, a director of Dunn & Bradstreet Ltd and Niall Mitchell, the European Chief Finance Officer of Dunn & Bradstreet Ltd. The Defendants in this case are a subsidiary of that well known company. The Claimants were invited to crossexamine these witnesses, but chose not to do so. It follows, therefore, that the evidence, being uncontested, I must find there was some reliance by these witnesses on the estimates of costs they mentioned. However, I must also evaluate the extent or degree of the reliance they describe. For the reasons I shall now give, I have taken the view that that reliance they placed upon the Claimants estimates and statement of costs was insignificant, bordering upon the non-existent. 49. Both witnesses say that the estimates had had an effect on the Defendant s decision not to appeal against the trial result. Both witnesses refer to a telephone conference which took place on 25 November 2009, that is some two weeks after the trial date, at which there was a discussion whether or not to appeal. Mr Mitchell s statement (at paragraph 9) states that they ultimately made a pragmatic decision not to appeal for three reasons: to avoid wasting further management time and legal costs; because of the limited effect the decision of a district judge would have on their business; and because they felt the costs they would have to pay: would not be particularly significant for us to wrap up the proceedings at that stage and to draw a line under what I saw as an unfortunate matter. 50. In his statement Mr Rogerson refers to Mr Mitchell s statement and agrees with his recollection (statement paragraph 15). Whilst I accept that that evidence shows that costs were an influencing factor in the decision to appeal, they do not show that the costs estimates given by the Claimants were. On the contrary, it is clear to me that each witness was relying upon the estimates they or their lawyers made, not upon the Claimants estimate (see for example Mitchell paragraph 10, 12 and 15: and see Rogerson paragraphs 8 and 16). CONCLUSIONS 51. Mr Carpenter put the Defendant s case in three ways: his primary submission was that, in all the circumstances, I should not allow the Claimants more than they would have recovered had their statement of costs been summarily assessed at the hearing: in arriving at the figure to allow I should assume a recovery of no more than 60% of the base costs claimed. Alternatively, I should limit the totality of the costs claimed (that is to say including post trial costs) at the figure of 100,000, so reflecting what the Defendants reasonably believed to be the worst case scenario for them. A third possibility, offered by way of fallback only, is to use the statement of costs as a cap on base costs up to the date of the trial. 52. I have no hesitation at all in rejecting the Defendant s primary case, which seems to me to be a savage form of palm tree justice. As to his second submission, I consider that it would be illogical for me to value one party s costs according to an estimate made of them by an opposing party. I also reject his third submission, which seems

17 to me to be an invitation to treat the Claimant s statement of costs as a cap on costs up to that time. 53. Turning now to the Claimant s case, I accept that the reliance placed upon estimates by the Defendants is of so minimal a value as not to affect the reasonable outcome I should reach. Nevertheless, the conclusion I reach coincides with the fall back submission Mr Carpenter made to me, albeit I get there by another route. I am satisfied that the claims made in the September estimate in respect of base profit costs already then incurred are a useful yardstick, but the projections of future base profit costs may well be under-estimates because the case did become more complicated later. The November estimate and the statement of costs seem to me to have no value as estimates of base costs save that they do enable me to draw the inference that the reasonable and proportionate costs incurred by the time of trial had not increased by more than 20%. 54. I will therefore allow as reasonable and proportionate base costs a sum arrived at by multiplying the hourly rates I have allowed by the number of hours shown in the statement of costs. This allowance obviates the need for any further assessment of profit costs incurred up to the start of the trial save for any extra costs which may be recoverable in respect of work done in setting up the CFA and the ATE policy. If the Claimants so choose I will also determine what if any sum to allow for such extra costs. The Claimants are also entitled to:- profit costs reasonably incurred during the trial, disbursements incurred at any stage up to the time of trial (whether or not included in the statement of costs), all their reasonable and proportionate profit costs and disbursements incurred post trial, plus further sums in respect of success fees. NEXT STEPS 55. In a draft of this judgment which was circulated some days ago the parties were informed that neither side need attend today but they may do so if they wish. The detailed assessment is already listed for two further days, 13 and 14 June 2011 and I hereby direct that the time for appealing this decision shall not begin to run until the conclusion of the detailed assessment or until further order. At the detailed assessment I shall also hear submissions as to the accuracy of my diagram figures if these are in dispute and as to the costs of these proceedings.