Later this month I am delivering a paper at the Law Society in Chancery Lane on costs budgeting and costs management. Accordingly I have been looking at and thinking about the criteria which apply to applications to vary a costs budget/costs management order made in the course of litigation.
There have been surprisingly few cases on the topic perhaps reflecting the fact that such applications are rarely made, during the course of litigation. This can have unfortunate consequences, as the starting point seems to be that it will be easier to obtain a variation to a budget when the litigation is “live”, than to argue that there is a “good reason” to depart from the budget on a detailed assessment.
Consideration of the latest iteration of the Practice Direction states:
7.5 The court may set a timetable or give other directions for future reviews of budgets.
7.6 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.
In the case of Churchill v Boot EWHC 1322 (QB) an application for permission to appeal from a costs management decision was dismissed. The judgment indicates perhaps unsurprisingly, that the appellate courts will rarely interfere with a discretionary decision of this nature. The judgment is significant as an early exposition of what might be a “significant development”.
- The Master then went on to ask himself whether there had been “a significant development so as to justify the amendment of the budget.” He explained that, in his view, there had not been. He stated as follows in paragraph 2:
“The trial has possibly extended from four to five days, but I do not consider that to be significant in a case of this sort. This was always going to be a contested trial. The previous budget allowed £10,000, for example for attendance of the all the experts as needed. It was not at that stage clear or thought that the experts would not be needed. There was provision made for experts’ attendance. An enormous amount of money seems to have been spent above that budgeted for by the claimant on experts’ reports between now and then. At the time of the last budget, disbursements for experts ran at just shy of £15,000 and with a further £8,500 to be spent. I am told that nearly £53,000 has been spent so far.”
He continued in the next paragraph as follows:
“In my judgment, this case has gone out of control and the solicitor managing it, it would appear, had, frankly, no regard to or respect for the budget or what was budgeted or allowed to be spent. The numbers that I am shown in the breakdown prepared by that solicitor, Mr Bennett, proposed to be spent and him wanting budgeting for in respect of experts are ridiculous in my judgment…”
The Master then concluded, in the same paragraph, as follows:
“Putting all this together, I am completely satisfied that this is a budget where there has not been a significant development in any shape or form. What has happened is that this case has taken a course that was predictable and should have been predicted when the original budget was made…”
The High Court judge gave the arguments on appeal short shrift:
- The suggestion is then made by Mr Nugent, on the Claimant’s behalf, that the giving of further disclosure which was ordered by the court in January 2015 amounts to a significant development. I do not regard this as a tenable suggestion in circumstances where it is apparent from the correspondence that the Defendant has sought the further disclosure in February and March 2014, and so several months before the hearing which took place before Master Eastman on 16 June 2014. Mr Lewers makes the observation that, in any event, the type of disclosure which came to be ordered in January 2015 is what might be described as standard for claims of this sort. It included employment records and educational records which, Mr Lewers pointed out, would be expected to be produced. It seems to me, again, that there is force in that submission. Mr Nugent, in fairness to him, was inclined to accept that the giving of the disclosure, itself, would not have amounted to a significant development. His submission entailed a linkage between the giving of the disclosure, when it was given and the effect on the expert evidence which then came to be served. As to that aspect, I again reject the submission that the expert evidence which was served in this case, in any shape or form, amounted to a significant development which was not contemplated or contemplatable when the costs budget was set in June 2014.
An early example of the high hurdle to find a “significant development”.
The issue of “significant development” was revisited in the case of Al-Najar v The Cumberland Hotel  EWHC 3532 (QB):
2 There has been a direction for a trial on liability only. Liability is complex. At a CCMC on 16 November 2017 Master Eastman approved the parties’ budgets for that trial. The claimants’ budget was approved in the total sum of £1,028,197, (only a small reduction from the budget that was submitted). The claimants now, by this application, seek to revise the disclosure phase of that budget.
3 The Guidance Notes appended to Practice Direction 3E on costs management set out standard assumptions for each phase which do not require to be repeated in each party’s budget. So far as relevant, the specific assumptions set out in the claimants’ budget read as follows:
“Anticipated costs include completing claimants’ list and reviewing own documents, considering defendant’s list and presumed to be extensive documents disclosed to include cross-reference of previous disclosure, liaising with counsel on disclosure. Assumes standard and electronic disclosure proceeds in compliance with directions and requests made and that no further applications are required.”
4 The amount that was approved for the phase was £62,626.50. That was, in fact, agreed by the defendants and therefore approved by Master Eastman. I am told and I have no reason to doubt that the claimants’ solicitors were expecting somewhere between 1,000 and 1,500 documents, which they expected would fill twenty to thirty lever arch files. (I will say that it is perhaps not only with the benefit of hindsight that it might have been prudent to have recorded that in the assumptions.) Be that as it may, what arrived comprised 3,250 documents filling fifty-five lever arch files. The scale of that is getting on for double what was anticipated and the claimants further say, (though I do not attach too much importance to this), that they were not forewarned by the defendants that that was the number of documents that would be forthcoming even though, so the claimants say, the defendants must have known that that was the case.
5 The claimants seek an increase in the budget from that figure of £62,626 to a figure of £111,811. That is an increase of £49,185 which in percentage terms is a 78 per cent increase. Most of the increase is in the solicitor hours but the figure allowed for counsel has doubled and the figure allowed for the expert has gone from £1,440 to £9,000, which is an eightfold increase.
It will be noted that the thrust of the issue was that action by the other party to litigation had put the applying party to more work:
8 From the Practice Direction and the decision of Chief Master Marsh I would derive the following broad principles:
(a) Whether a development is “significant” is a question of fact which depends primarily on the scale and complexity of what has occurred.
(b) If what has occurred is something that should reasonably have been anticipated by the party seeking to revise its budget, then that party will probably be unable to label it significant or, for that matter, a development.
(c) However, there is no requirement that the development must have occurred other than in the normal course of the litigation. That is clear from the final sentence of para.37 of Master Marsh’s decision which I have quoted and also from the fact that in that case a revision of the trial estimate, the disclosure of 984 documents and the service of an expert report were all characterised as significant developments.
(d) As a matter of policy, it seems to me that the bar for what constitutes a significant development should not be set too high because, otherwise, parties preparing a budget would always err on the side of caution by making over-generous (to them) assessments of what was to be anticipated.
(e) Lastly, and I think this is uncontentious, if there has been a significant development, then the question is whether the figures in the revised budget are reasonable and proportionate in the light of the development.
The interesting point is that the bar is not a high one: certainly there is no support in this case for the notion of “foreseeability” of the incurrence of costs being a matter which precludes a significant development: the issue may be as simple, as whether an increase is predicated upon a change in assumptions:
9 I have come to the clear conclusion that there has been a significant development. The disclosure has been of a scale and complexity that is much larger than was actually budgeted for, which was not, in fact, envisaged and which could not reasonably have been envisaged. In coming to that last conclusion I ask the question: was the assessment in the original budget a reasonable one? If it was, then ex hypothesi, what has occurred is something that falls outside that reasonable assessment. What is required is a standard of reasonableness. It is no answer to the application to say that disclosure on the scale that has occurred could have been foreseen or anticipated. That would be to impose an altogether unrealistic burden and encourage the sort of bloated, defensive budgets which are to be deprecated. I find that the assessment of the disclosure phase in the original budget was a reasonable one. It follows that disclosure that has come in at approximately double what was then anticipated amounts to a significant development in the litigation.
Some thoughts on good practice. A key point that I think is neglected, at a party’s peril, is the formulation and recording of assumptions and contingencies. The Guidance Notes annexed to practice direction 3E record:
The assumptions that are reflected in this guidance document are not to be repeated. Include only those assumptions that significantly impact on the level of costs claimed such as the duration of the proceedings, the number of experts and witnesses or the number of interlocutory applications envisaged. Brief details only are required in the box beneath each phase. Additional documents are not encouraged and, where they are disregarded by the court, the cost of preparation may be disallowed, and additional documents should be included only where necessary.
Written assumptions are not normally required by the Court in cases where the parties are only required to lodge the first page.
I would suggest that what is required are recording the key drivers of costs, the broad outlines of the case, and not, what I frequently see, which is a reverse engineered bill, masquerading as a set of assumptions. It also follows, that what I suggest you encourage the case management judge to do, is record as a set of recitals to the Order or a schedule to the Order, what those recitals are.
It should be noted that contingencies are only recorded on the basis that they are more likely than not to occur. It follows that if something is not more likely than not to occur, it should not be recorded or allowed, and therefore there is no scope for arguing, in my view, that a significant development is one that must be unforeseeable: it may very well have been foreseeable, but simply discounted from the assumptions and the budget, on the basis that the probability of it occurring was less than 50%.
The ‘contingent cost’ sections of this form should be used for anticipated costs which do not fall within the main categories set out in this form. Examples might be the trial of preliminary issues, a mediation, applications to amend, applications for disclosure against third parties or (in libel cases) applications re meaning. Only include costs which are more likely than not to be incurred. Costs which are not anticipated but which become necessary later are dealt with in paragraph 7.6 of PD3E.
I shall discuss “significant developments” along with “good reasons” in London later this month.