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Amendment to a costs budget arising from a significant development

Since the introduction of costs budgeting in the amendment to the Civil Procedure Rules (CPR) in April 2013, there has been something of a quandary in relation to how best and when to revise one’s costs budget upon a significant development after the advent of a costs management order.

Simply put, paragraph 7.6 of Practice Direction (PD) 3E states that a party shall revise its budget, upwards or downwards, if significant developments in the litigation warrant such revisions. Equally simply put, CPR 3.18(b) states that the court will not depart from approved or agreed budgeted costs unless satisfied that there is good reason to so do. The issue, though, is that the costs management rules and practice direction contain no guidance as to what constitutes a significant development or what constitutes a good reason. There has been little guidance to assist practitioners by way of case law as to what constitutes a significant development or good reason.

The quandary in relation to the updating/revision of Precedent H has caused much debate after sums have been set as going forward for the phases, either by agreement or assessment by the court. The substance of the debate is how one should revises one’s Precedent H and, with regard to the timing of the application, whether it should be revised during the proceedings or left for the assessment to argue good reason.

With regard to the updating of Precedent H, the question was: how one should amend the document? Should a full update be completed, so as to move the estimated costs into the incurred costs, or should the estimated costs simply be increased to account for the significant development? Issues arise with both examples: the former as to the effect on the existing costs management order, which would effectively be set aside; and the latter with regard to where the incurred costs of the significant development should feature, being incurred after the date of the existing costs management order. The writer’s preferred option is that the budgeted sums should be varied with the incurred costs of the significant development included in the incurred costs.

In Elvanite Full Circle v AMEC, Coulson J held that it was too late to increase the costs once the costs had been incurred. In Board of Trustees of National Museums and Galleries on Merseyside v AEW Architects and Designers Ltd, Arkenhead J followed the principles set by Coulson J, but said that the matter was an obvious case for a substantial departure from the approved budget, however best left for the costs judge who could take into account what had been said. In Capital for Enterprise Fund ALP v Bibby Financial Services Ltd, Judge Pelling held that the court did not have jurisdiction to amend an approved budget after trial nor to direct the costs judge to depart from it. Accordingly, it would appear that the field was set, but not so.

Indeed, contrary to the above cases, in Thomas Pink Ltd v Victoria’s Secret, Birss J allowed a substantial increase to the costs budget after the trial, and after the draft judgment had been provided to the parties, but before handing down by which time the costs had been incurred. In Barkhuyson v Hamilton, Warby J similarly increased the approved sums post trial, where again the costs had been incurred due to the conduct of the defendant.

I have first-hand experience of arguments both for and against failing in relation to arguing good reason to recover costs that exceed the budgeted sums.

Thankfully significant assistance can now be found in the case of Sharp v Blank and others. In that case, the court, during the course of the trial, received an application from the defendant referring to seven significant developments to vary its budget in relation to a number of phases. All of the phases were completed, save for the trial, which was on foot. The claimant rejected the application on the basis that the costs were incurred, there were no significant developments and it was too late to amend the budget. The court considered the meaning of “significant development”, the timing of an application to vary one’s Precedent H and how best to include the costs within the Precedent H.

With regard to lateness, the court noted that the defendant had first raised the issue of the costs budget and the need to revise the budgets some months before the application was made. However, despite chasing communications, no response was received from the claimant until just a few weeks before the trial, by which time the defendant had served its revised Precedent H. in those circumstances, the court rejected the claimant’s complaint of lateness (at paragraph 64).

The defendant submitted that there were seven significant developments. The court, at paragraphs 70-93, upheld the defendant’s submissions that there were significant developments arising from the extension to the trial timetable, disclosure of substantial additional documents and additional expert evidence. The court rejected the defendant’s application that additional costs arising from an application for a third party disclosure application, and greater costs than anticipated with regard to questions and answers in relation to the expert evidence, did not amount to a significant development.

At paragraph 62, the court concluded that it had jurisdiction under PD 3E.7.6 to revise a budget, taking the last agreed or approved budget as the base reference point or, where the court had ordered the budget to be prepared to an antecedent date, the relevant date was the date set by the court. Costs which had been incurred since the date of the last agreed or approved budget (or the antecedent date) that related to a significant development were, for the purposes of revision, placed in the estimated columns of the revised Precedent H in one or more phase.

This new decision offers much guidance. However, I would also suggest a degree of caution because the case comprised 5,800 claimants and the trial, which commenced on 9 October 2017, is due to conclude on 2 March 2018.

Kain Knight Andrew Bennetts

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