Amending an approved Costs Budget – when is an incurred cost not an incurred cost?
The recent decision of Master Marsh in the Lloyds/HBOS Litigation has finally offered some clarification on how costs incurred since a Costs Management Order (CMO) are dealt with in a revised budget.
It has always been held that a budget cannot be revised retrospectively and PD3E 7.4 supported this.
‘As part of the cost management process the court may not approve costs incurred before the date of any costs management hearing.’
Given that any hearing of an application to amend a budget would be a ‘costs management hearing’ then how was work unavoidably incurred prior to that application to be dealt with. As we all know, in the majority of cases work can not simply be put on hold when a significant development arises, pending approval of a revised budget to cover the additional costs. We were left with the unenviable choice of undertaking the work required in a timely fashion (protecting a client’s interests) whilst risking the work incurred prior to any approved revision being unrecoverable, or at best having to argue its inclusion at a later detailed assessment.
Master Marsh in his Judgement has recognized the impracticalities of this in the real world and concluded that the last approved budget should be the base point of any revision and any costs incurred thereafter, which relate to a significant development should be included in the estimated costs sections of the budget (and thus receive the protection of being budgeted costs and not subject to the rigors of full detailed assessment along with the incurred costs).
Of course, any application to revise your budget will be subject to the Court deciding that a significant development in the case has occurred. In the aforementioned case the Defendant cited seven significant developments of which Master March only found favour with four. His comments in relation to the three he refused should be noted.
‘It is not appropriate only to take work which has cost more than was originally anticipated and to say that there has been a significant development. There must be something more than merely a modest increase in the anticipated cost of the work to amount to a significant development’
‘A modest adjustment to the Claimants’ case arising in the course of the exchange and consideration of expert evidence cannot properly be characterized as being significant’
Whilst in this instance the costs management hearing took place after the Trial had commenced, it should be noted that the Defendant had raised the issue of revising their costs budget with the Claimant much earlier and they were not held to be responsible for delays in having the matter coming to hearing.
Make sure you know what your approved budget includes and if a significant development arises which falls outside the scope of your budget make sure the issue of revising your budget is raised with your opponent in a timely fashion.
Following on from this article if you are interested in receiving costs budget training at your firm please get in touch.
PIC cover a wide range of training including:
- Cost Budgeting
- New electronic bill, compulsory from April 2018
- An essential costs update
- Any training session required, bespoke to your needs.
If you would like to arrange a training session at your firm, or if you have any queries on this article, please do not hesitate to contact James.