A judge has ruled that national firm Irwin Mitchell cannot recover its costs shortfall in a multi-million-pound case from the claimant’s damages.

Costs Judge Leonard, sitting in JXC v NIS, said the firm’s budget overspend was unreasonably incurred and unreasonable in amount. Irwin Mitchell had tried to secure the court’s permission to recover more than £200,000 after falling short of recovering the entirety of its costs from the defendant. The personal injury claim against the Ministry of Defence was settled in 2021 for a lump sum of £5.1m and annual payments of £310,518.

In a ruling from April published this week, the judge found the claimant’s litigation friend was not kept properly informed during the course of the claim.

Standard information was provided years after the event and never applied to the facts of the case. The litigation friend, referred to in the judgment as JXC, was told in 2020 that the court had ‘now’ set a budget, whereas in fact a budget had been set almost five and a half years earlier and was shortly to be revised for the second time.

Leonard said no attempt seemed to have been made at any point to obtain JXC’s authority or keep her [the litigation friend] advised of anything to do with the budget set. She was given no opportunity to authorise the three budgets Irwin Mitchell submitted to the court for approval, or to authorise (or decline to authorise) any element of spending outside the limits set by those budgets.

The judge added: ‘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. None of that happened here.’

The court heard that the total overspend, including VAT, was around £234,000. Base costs claimed by Irwin Mitchell from the claimant significantly exceeded the budgeted figures.

Irwin Mitchell sought to recover around £213,000 from the claimant based on the total difference between base costs recovered from the defendant and the firm’s bill of costs.

The conditional fee agreement with the claimant had explained that he could expect to recover the majority of, but not all, costs and disbursements from the defendant. The same information was given orally to JXC as well as a careful explanation of basic charges, success fees, disbursements and ATE. The judge noted that the solicitor handling the case advised the litigation friend about costs incurred during the course of the claim but did not distinguish between sums that might be irrecoverable.

The firm argued in court that the shortfall was ‘defined and demonstrable’ with the level of informed consent required to make it reasonable. It said that solicitors were not under a burden to set out every possible outcome of any potential cost recovery or disallowance, and that to require an explanation of the intricacies of budgeting would not assist a client or meet any proper test of informed consent.

The firm further argued that the budget overspend was neither unusual in nature or amount, and a shortfall of 20% of the overall costs claimed was at the ‘lower end’ of client contributions.

Irwin Mitchell has confirmed it will not appeal the decision. A spokesperson said: 'Recoupment of costs from damages is clearly still a developing area of law, and none more so than where protected parties are involved. There are still differing decisions on these issues and each case will have to be considered against its individual facts. Unfortunately there is still no appellant authority to help the profession.'