Bust the costs budget in an action in which the court has made a costs management order (CMO) under Civil Procedure Rule (CPR) 3.15? To be as certain as you can be that any excess above the agreed or last approved costs budget will be recovered at a subsequent detailed assessment under CPR 47.14, what should you do?
The answer, at least until 30 September 2020, is to apply to the court for a revision under Practice Direction (PD) 3E, paragraph 7.6, which provides that:
“Each party shall revise its budget in respect of future costs upwards or downwards if significant developments in the litigation warrant such revisions. Such amended budgets shall be submitted to the other parties for agreement. In default of agreement, the amended budgets shall be submitted to the court, together with a note of (a) the changes made and the reasons for those changes and (b) the objections of any other party. The court may approve, vary or disapprove the revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed.”
What are “significant developments”?
There is no definition in the CPR, but a number of cases are indicative of what they are not. For example, these have included such matters as extra work caused by a Part 18 request (Chalfont St Peter Parish Council v Holy Cross Sisters Trustees Inc) to costs and case management expenditure of £125,548 and group co-ordination worth £249,996 (Hutson v Tata Steel UK Ltd).
As things currently stand, it is not obligatory to revise budgets under PD 3E. An alternative is for the receiving party not to use the PD, but instead to apply to the costs judge at detailed assessment for an upwards variation on the basis that there is a “good reason” to do so under CPR 3.18(b). That is, however, to risk the wrath of the court that the application should have been made to the budgeting judge and not left for the judge carrying out the assessment to deal with. Should he or she decline to entertain the application for that reason, the over-spend will be irrecoverable from the paying party: lost and gone forever.
There is a further difficulty. No definition is given in the CPR as to what is meant by a “good reason”. Indeed the courts have been at pains to go the other way, Davis LJ in Harrison v University Hospitals Coventry & Warwickshire NHS Trust deciding that it was “much better not to seek to proffer any further, necessarily generalised guidance or examples.”
Thus, what to one costs judge may be “good reason”, to another it may be no reason at all.
That all said, it should be safe to say that if, for example, a claim is discontinued against one defendant, that that will be a good reason for a downwards variation in respect of the costs being expended against the remaining defendant. Conversely, if a defendant blames someone else and joins them to the action as a third party under CPR 20, that will be a good reason to allow more for the claimant’s budgeted costs, than the amount authorised by the budgeting judge.
The other alternative is to hedge all bets by deploying both the PD and the rule. It appears that even if the application for revision fails under PD 3E, another bite of the cherry (up or down) is available under CPR 3.18(b). In Tata Steel, Turner J had refused to increase the budget for significant developments. Nonetheless he made it plain that the application for more could be renewed before the costs judge, if and when there was a detailed assessment of the claimants’ costs.
Be aware, however, that it is going to be “all change” from 1 October 2020.
New CPR 3.15A
The Civil Procedure (Amendment No.3) Rules 2020, in force on that date, transfer many of the paragraphs of PD 3E into a new CPR 3.15A. That addresses “variation costs” which means the revision and variation of costs budgets on account of significant developments in the litigation.
Rule 3.15A continues as follows:
“(1) A party (“the revising party”) must revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions.
(2) Any budgets revised in accordance with paragraph (1) must be submitted promptly by the revising party to the other parties for agreement, and subsequently to the court, in accordance with paragraphs (3) to (5).
(3) The revising party must—
(a) serve particulars of the variation proposed on every other party, using the form prescribed by Practice Direction 3E;
(b) confine the particulars to the additional costs occasioned by the significant development; and
(c) certify, in the form prescribed by Practice Direction 3E, that the additional costs are not included in any previous budgeted costs or variation.
(4) The revising party must submit the particulars of variation promptly to the court, together with the last approved or agreed budget, and with an explanation of the points of difference if they have not been agreed.
(5) The court may approve, vary or disallow the proposed variations, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed, or may list a further costs management hearing.
(6) Where the court makes an order for variation, it may vary the budget for costs related to that variation which have been incurred prior to the order for variation but after the costs management order.”
The new PD 3E supplements the rule, providing at B.3(b) that “Precedent T, also annexed to this practice direction, is to be used in the event of variation of a budget pursuant to rule 3.15A.”
Precedent T is mercifully practical and concise: page 1 sets out the current budget for profit costs and counsel’s fees, the required variation for each phase (plus or minus), the aggregate for both and the court’s decision. Page 2 splits the variation between “time” (which appears to include counsel’s fees) and disbursements, with an explanation identifying the significant development for each phase and a column for the opposing party’s brief comments if the variations are not agreed. Page 3 sets out the experts’ fees and the revision thereto (plus or minus) by reference to reports, conferences and joint statements. By using this format and CPR 3.15A, the hope is to codify the procedure for revising budgets, which hitherto have required recourse to the rules, the practice direction and to guidance notes.
There are two other points to note.
First, “variation costs” are not optional as was the case before, in that the parties court could agree the revisions and present the court with a fait accompli, as it was only the extent of that agreement which could be recorded by the judge under PD 7.3. From 1 October 2020, the rule not only will require parties to revise their budgets if there have been significant developments in the litigation and to submit the details to the court using Precedent T, but also will permit the court to approve, vary or disallow those variations, even if the parties have agreed them.
Second, sub-paragraph (6) makes it clear that the variation can be effective for costs incurred from the date of the CMO, thereby clearing up the uncertainty about whether any revision can only be effective from the date on which the application for variation is heard. That point has always been unclear, with the furthest that Turner J had been willing to go in Tata Steel being that:
“…without, however, purporting to reach any concluded view on the issue, I am prepared to assume that the Rules equip the court to exercise such a power.”
It is important also to remember that revisions to costs budgets which engage PD 3E or CPR 44.15A are only required where the court has made a CMO, but not otherwise. All of this counts for nought if the receiving party obtains an order for indemnity basis costs against the paying party. The reason for that is that such an order is a “good reason” under CPR 3.18(b) to depart from the last agreed or approved budget. Put in practical terms, you can tear up that carefully worked out budget and confine it to the bin, as you will be freed from the operation of CPR 3.18 in relation to the budget (see Denton v White at paragraph 43), and, as Coulson LJ put it in Lejonvarn v Burgess when recanting from his previous view to the contrary:
“ …costs on an indemnity basis is not constrained by the approved costs budget…”
That factor, together with the proportionality test under CPR 44.3(5) which applies only to standard but not indemnity costs, means that if you obtain your costs order on that basis, your prospects of having a happy day before the costs judge will be enormously enhanced.
A last word for the depleted PD 3E. Despite the transfer of much of it to CPR 3.15A, depleted it is not. On the contrary, it is now longer, paragraphs having been added relating to documents for budgeting, budget format, assumptions, budget discussion reports, CMOs and, controversially, a paragraph called “oppressive behaviour”. Where that has occurred with one party causing another party to spend money on costs disproportionately, “…the court will grant such relief as may be appropriate.”
“Oppressive behaviour”? “Such relief as may be appropriate”?
Absent any guidance about what on earth that means, and how such behaviour differs from misconduct under CPR 44.11, cunning learned costs counsel will doubtless be licking their lips in anticipation at the opportunities that that will bring for satellite litigation, in order to ascertain the nature of the relief to be given in recompense to those who are victims of such oppression. Watch this space!