Upward Revision of Costs Budget allowed by the High Court
It was not too long ago that a panel of Judges sat and publicly stated that they had not allowed an upwards revision of a Costs Budget. Indeed of the panel of Judges only a small proportion had allowed any form of departure and that was downwards. This must be placed in context as a number of the Judges had said they had not even received an application to vary a Costs Budget. The case of Al-Najar & Ors v The Cumberland Hotel (London) Ltd  EWHC 3532 (QB) (16 October 2018) may be the catalyst for a culture change as we have finally been given a published example of an upwards departure having been allowed by the Court.
- It is wise for parties to be as precise as possible with their assumptions. For example it is helpful to indicate the size of disclosure budgeted for so it is easier to justify a departure. The Claimants here assumed ‘extensive disclosure’.
- As per Sharp v Blank & Ors significant developments must be considered against the “size, complexity and the manner in which the litigation [had] unfolded”.
- There is no requirement that the significant development must have occurred other than in the normal course of the litigation.
- The bar for what constitutes a significant development should not be set too high, otherwise, parties will be encouraged to prepare larger Costs Budgets.
- If there has been a significant development the question is then whether the proposed revised figures are reasonable and proportionate in light of the development.
- To suggest that disclosure on the scale that occurred could have been foreseen or anticipated would impose an unrealistic burden and would ultimately lead to encouragement of “bloated, defensive budgets”. There has to be a realistic standard of reasonableness.
- Reiterated the guidance that an error in preparation of a budget or failure to appreciate what the litigation entails will usually not allow a party to vary their Costs Budget.
- Best practice remains the making of a proactive application. Monitoring your Costs Budget is key. Your costs specialist should be able to assist with this.
The claim was heard before Master Davison and the case was brought by a number of Claimants who were attacked and seriously injured by a criminal with a violent history at the Defendant’s hotel where they were staying.
A CCMC took place on 16 November 2017 where the Claimants’ Costs Budget was approved in the total sum of £1,028,197.00. The Claimants made an application to seek to revise the disclosure phase of the Costs Budget.
Of note were the Claimants’ assumptions for the disclosure phase which 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.”
The approved amount for the disclosure phase was £62,626.50. This figure had been agreed by the Defendant. The Claimants’ solicitors advised that they were anticipating somewhere between 1,000 and 1,500 documents, which they would have expected to fill twenty to thirty lever arch files. Master Davison stated that it would (with the benefit of hindsight) have been prudent for the Claimants to have included this detail in their assumptions. This should act as a warning to practitioners that varying a Costs Budget is easier where the Court can fully understand the basis of the budgeted amounts. If possible, it would be wise to ask an opposing party the level of disclosure they are anticipating.
Despite this, the Claimants received 3,250 documents comprising of 55 lever arch files. This was almost double what was anticipated and the Defendant had not forewarned the Claimant of this.
The Claimant sought an increase from £62,626.50 to £111,811.00. This was a proposed increase of £49,185.00 (a 78% increase).
PD 3E 7.6 sets out that “each party may revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions.” There has been much discussion as to what constitutes a significant development but a distinct lack of clear guidance on the point.
The High Court looked at the cases of Sharp v Blank & Ors  EWHC 3390 (Ch) and Murray and Stokes v Neil Dowlman Architecture Ltd  3 Costs LR 460 at  and Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd  EWHC 1643 (TCC). It was noted that significance must be considered in light of the claim, specifically its size, complexity and the manner in which the litigation had unfolded. Moreover, it was noted that a mistake in the preparation of a budget, or a failure to appreciate what the litigation actually entailed would not usually permit a party to vary their budget.
Master Davison found that:
(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.
Master Davison found that it was clear that there had been a significant development given disclosure had been of a scale and complexity that was much larger than had originally been budgeted for. It was also found that the scale of disclosure could not have been reasonably envisaged.
The High Court examined the question of whether the assessment in the original budget was a reasonable one. They stated that “it is no answer to the application to say that disclosure on the scale that [had] 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.”
Turning to the amounts, Master Davison equated the solicitor time sought as approximately 3 hours per ring-binder of documents. Notably he suggested that this appeared to be an underestimate. He approved the time sought. He also allowed the doubling of Counsel’s fee (as sought). He did not, however, allow the expert fees sought which had increased ‘eightfold’. Instead he approved the doubling of the expert’s costs.
What it means for litigators
This is an important case as it highlights several important features in Costs Budgeting. The Costs Budget is an important document and a failure to prepare it correctly or to simply not appreciate the normal course of the litigation is no answer. This means if the Budget isn’t right then it is likely that time and disbursements may have to be simply written off. A collaborative approach with your cost specialist is necessary to make sure that the Budget is in tune with the litigation.
The High Court were also clear that thought must be given to the assumptions and whilst the variance was ultimately allowed here, making assumptions too broad could make it more difficult to depart from an approved Costs Budget. It does create an interesting side point about cases with a value of less than £50,000.00 or where the budgeted costs do not exceed £25,000.00. For these cases only the front sheet of the Precedent H is to be filed which no longer provides a space for assumptions. It remains to be seen how the Court would deal with an application in such circumstances. Does Master Davison’s comments insinuate that it would be better to protect your position by filing a full budget in any event to have the benefit of the assumptions in the event an application is made? It ought to be a consideration for parties faced with such cases.
Moreover, the case shows that the bar for varying a Costs Budget should not be set too high. This is welcome guidance. The High Court stopped short of giving any specific examples but, perhaps, this would be unfair. It is clear that any application will turn on the specific facts of the case. The High Court’s concern about setting the bar too high was that it would only serve to encourage defensive budgets. Clearly it is in all parties’ interest to take a reasonable and pragmatic approach. This is not only in the spirit of the over-riding objective but of costs management itself.
It is also welcome that it was recognised by the High Court that there was no requirement that any development must have occurred other than in the normal course of the litigation. It is perfectly acceptable for increased disclosure to be a significant development. The Sharp case also exemplified this with increased disclosure, unanticipated expert evidence and a revision of the trial estimate all found to be significant developments.
Finally, at the heart of costs is proportionality and where there is a variance to the Costs Budget this is no exception. Wherever a departure is sought that increase must still be reasonable and proportionate to the significant development. If it is not then do not expect to get the amount sought. This also exemplifies why a proactive approach is so important. Once you know what your budgeted amount is you can plan accordingly. If it is less than you hoped then if you have not spent the time you have a chance to mitigate costs whether this be in the form of delegation or a reduced input from Counsel or the experts. If the time is already spent then there is a serious risk of losing it.
The disclosure pilot has now been introduced in the Business and Property Courts as of 1 January 2019 and this adds an extra layer of complexity. You can now defer the costs of disclosure until after the Precedent H Costs Budget. This may provide you with the time required to get certainty for this specific issue.
Regardless, of the changes brought by the disclosure pilot (which would require another article to cover in its entirety) the message is clear and that is the Court will allow upwards variation where it is reasonable.
For the best prospects of success be proactive, make any application early. The monitoring of the Costs Budget is key to this. Your costs specialist will be able to help and if they won’t we can. We will actively monitor a Costs Budget throughout the lifetime of the litigation. This means we can advise you when to make an application or warn you if you are going to or have exceeded a phase. This can help limit non-recoverable time and boost recovery. In the wake of the Court of Appeal judgment of Harrison -v- University Hospitals Coventry & Warwickshire Hospital NHS Trust  EWCA Civ 792 where it was held that budgeted costs will not be departed from absent good reason then the benefits are great. Add to this the most recent interim payment guidance (90% of budgeted costs should be awarded) then there is also a benefit of higher payment on account and increased cash flow, if done correctly.
Whilst there is still the fall-back of CPR 3.18 and the ‘good-reason’ test, the retrospective threshold is much higher and you are likely to face questions as to why no application was made during the course of the litigation. The Court provides the 2% cap for costs management to be undertaken. Indeed, even the mandatory Costs Budget guidance note annexed to PD 3E anticipates the “preparation of updated costs budgets” at the PTR stage.
If the rules do not provide the impetus to be proactive with a Costs Budget then the case of Al-Najar & Ors v The Cumberland Hotel (London) Ltd  EWHC 3532 (QB) (16 October 2018) should give greater confidence to litigators. An upwards variation can be done.
If you have any queries following on from this article please do not hesitate to contact Sean Linley who is always happy to assist.
PIC provide in-house training sessions to law firms nationwide. Please contact Kerry Ridley with any training queries.
Sean Linley ~ Costs Consultant ~ Partners in Costs