Precedent H Costs – Is the 1% Cap Exclusive of VAT?

Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs)

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Precedent H Costs

Preparation of a Precedent H Costs Budget is an essential part of the costs management process for all Multi-Track cases. A Costs Budget should include details of all incurred costs and anticipated future costs. Precedent H guidance notes can be found by reading our recent article on how to prepare a Costs Budget. Paragraphs 7.2(a) and (b) of Practice Direction 3E set out rules regarding caps on recoverable Precedent H costs, as well as other costs of the costs management process.

There has been some dispute regarding whether the cap on recoverable costs of the costs budgeting process are inclusive or exclusive of VAT. Some clarity on this matter was provided within the judgment in the recent case of Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs) (10 July 2020)where it was held that the cap on recoverable costs of Precedent H costs budgets are exclusive of Value Added Tax.

 

Marbrow v Sharpes Garden Services Ltd

The Claimant in this case was successful in claiming damages for personal injury following an accident at work. Following the successful conclusion of the claim for damages, a Bill of Costs was prepared in which Precedent H costs were claimed.  At detailed assessment, there was a disagreement as to whether the 1% cap of the Budget was inclusive or exclusive of VAT. When considering whether VAT should be included within the figures, Senior Costs Judge Gordon-Saker, referred to Practice Direction 3E. He noted that Paragraph 7.2 of the Practice Direction provides:

“Save in exceptional circumstances—

(a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted costs (agreed or approved); and

(b) all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted (agreed or approved) costs.”

Following a review of the rules stated in Practice Direction 3E, the Judge held that VAT could not be included within the caps on recoverable costs of the Precedent H. In reference to this, he stated:

“To my mind the caps provided by paragraph 7.2 cannot include value added tax because they are expressed as percentages of figures which do not include value added tax. All of the figures set out in a budget exclude value added tax – as Precedent H makes clear. 2% of £100,000 excluding value added tax, would be £2,000 excluding value added tax.”

It was also held that the Claimant could not recover the interest paid under a disbursement funding loan, with the Judge stating:

“In my judgment, it is clear following Hunt [v RM Douglas (Roofing) Ltd [1987] 11 WLUK 221] that interest incurred under a disbursement funding loan cannot be recoverable as costs. Item 481 in the bill must, therefore, be disallowed.”

Was this the Correct Decision?

Senior Costs Judge, Gordon-Saker referred to “Friston on Costs”, in which it was suggested that the Precedent H Costs budget was “designed in such a way as to discourage VAT being recorded therein, so it would seem odd if the costs were payable on a VAT-inclusive basis.”

He also referred to his decision in the case of BP v Cardiff & Vale University Local Health Board to back up his decision in this case. He stated:

“Mr Gibbs described that decision as “brave” because I had imported words into the rule which were not there, presumably, in each sub-paragraph: “excluding value added tax… My decision in BP was not intended to be brave nor did I intend to import any words into the rule, because, quite simply, it was not necessary for me to do so.”

The rules set out in Practice Direction 3E make it clear that the cap on recoverable Precedent H costs should be exclusive of VAT unless the circumstances are “exceptional.” From a common-sense point of view, it is clear that the decision made in the case of Marbrow v Sharpes was the correct decision.

 

How Can ARC Costs Assist?

ARC Costs are a team of highly experienced Law Costs Draftsmen and Costs Lawyers. We are always happy to assist in any costs dispute throughout the litigation process, whether it be in relation to the preparation and negotiation of your Precedent H, preparing a Bill of Costs, Points of Dispute or Reply, or providing representation on detailed assessment

If you require our assistance or advice on any matter, we can be contacted via live chat below, via email at info@arccosts.co.uk, or by telephone on 01204 397302. For more information on legal costs, please find out more about our speciality areas of expertise and our services on our legal costs page.

 

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