Court decision highlights budgeting miscalculations can prove costly

On 1 April 2013, following Lord Justice Jackson’s review of civil litigation costs, the current cost management rules came into force. In cases where the rules apply, parties are required to file costs budgets setting out their incurred and estimated future costs of the litigation. The implementation of these rules has been strict. Costs budgets need to be filed by the relevant time limit and litigation lawyers will be familiar with the sanctions that might arise from a failure to do so. 

However meeting that deadline is not the only factor lawyers must consider when dealing with costs budgets. Recoverable costs in litigation will generally be limited to approved budgeted figures (unless there is a good reason) and costs must be kept under careful review as the litigation progresses. A recent High Court decision, Persimmon Homes Ltd & Another v Osborne Clark LLP & Another, has highlighted this.

Background

The proceedings arose from a negligence claim brought by the claimants against the law firm defendants (OC). The claimants valued their claim against OC at around £10,000,000 and OC separately brought a claim against the first claimant for unpaid fees of over £400,000. The claims were managed together and, in late 2019, a costs and case management conference (CCMC) took place. Following that, the judge issued case management directions, including in relation to budgeting and providing for a further CMC in May 2020, and the parties’ costs budgets were finalised. 

As the litigation progressed during 2020, the parties encountered various delays in meeting the timetable, particularly in relation to the claimants’ disclosure, and the July 2021 trial dates had to be re-listed for May 2022. The claimants subsequently issued an application in December 2020 to vary their costs budget, seeking to increase their costs by around £1.339m to £2.795m. This more than doubled the provision for estimated future costs that had been approved in December 2019. 

Procedure

CPR 3.15A, which came into force on 1 October 2020, clarifies the procedure to be followed in applications to vary costs budgets. This rule provides that applicants must meet the two following criteria: (i) there has been a significant development in the litigation that warrants a revision to the last approved budget; and (ii) the particulars of any revised budgets have been submitted promptly to the other party for agreement and subsequently to the court. Even if the two tests are satisfied, the court will still exercise discretion, bearing in mind the overriding objective, and the need to deal with cases justly and at proportionate cost.

The High Court Decision

The claimants’ application to vary their costs budget came before Master Kaye earlier this year and was dismissed.

The claimants sought to rely on three significant developments. In dismissing the claimants’ application Master Kaye considered the relevant tests for each one:

RFI/RRFI – OC served a two-page Request for Further Information (RFI) in February 2020 and the claimants served a four-page response (RRFI) in August 2020. While Master Kaye accepted the costs of the RFI/RRFI were not anticipated in 2019 and the RFI was a development, she was not persuaded it was a significant development warranting a budget variation or that the claimants had considered it was when the RFI was served. Further Master Kaye deemed the application in relation to the RFI/RRFI too late, having been submitted 10 months after the RFI was served. 

CMCs – Two further case management conferences took place in August 2020 and January 2021, both of which primarily deal with disclosure related issues. The claimants said these hearings had not been anticipated when they prepared their costs budget in October 2019 and should be considered significant developments. Master Kaye refused this, stating the first further CMC was provided for in the December 2019 directions order. Therefore the costs should have been provided for in the costs budget and the claimants ought to have sought permission in 2019 to include them. In addition the application to vary the budget for these costs had not been brought promptly. In relation to the second further CMC, Master Kaye expressed doubt as to whether it may be significant, having arisen from the first further CMC and been fixed at that hearing, and did not accept the application concerning these costs had been promptly.

Disclosure – Prior to the CCMC the parties disagreed about the scope of disclosure. The claimants wanted more limited, non-search based, disclosure using disclosure Models A and B whereas OC said wider disclosure requests were required, using Model C disclosure. After the CCMC the parties substantially agreed Model C requests for the issues for disclosure and the claimants filed a revised costs budget in 2019. However the claimants said this budget was still based on Models A and B disclosure. Master Kaye did not accept the change in approach on disclosure was a significant development entitling the claimants to vary their budget or the application concerning these costs had been brought promptly. The claimants had known about the Model C approach prior to completion of the costs budgeting and it was “simply not good enough” for them to have not addressed the issue in 2019 or sought to defer costs budgeting in relation to disclosure as permitted under PD51U.

Comment

The decision in Persimmon demonstrates the courts are continuing to take an active role in costs management, ensuring legal costs are kept proportionate and under review. Master Kaye noted that costs and case management is “primarily a prospective not retrospective exercise”. Taking action in relation to costs after the expenditure has already been fully incurred may be too late. Legal representatives involved in litigation must actively manage and review costs and, as Persimmon demonstrates, this obligation continues through litigation. If costs are likely to be higher than expected as a result of a development, parties should consider whether they need to apply to vary their budget and do so promptly.

This decision is not the only recent example of the court’s involvement in costs management. It was reported in March the judge dealing with case management in the widely publicised libel proceedings brought by Rebekah Vardy against Coleen Rooney had declined to assess the parties’ budgets, deeming the costs extremely large, and ordered the parties to file amended budgets later in the year. Senior Costs Judge Gordon-Saker also advocated in a recent decision[1] that a “better solution” in high value litigation where substantial expert evidence is required would be for parties to invite the court to make a costs management order in relation to certain aspects of the case.

However all may not necessarily be lost for parties in litigation if incurred costs exceed budgeted figures. Costs judges undertaking detailed assessment are able to depart from budgets if there is a good reason and parties can seek to persuade costs judges that is appropriate in some circumstances. The judgment in Permission highlighted this point with Master Kaye’s comment that costs budgeting is not intended to “oust the role of the costs judge”. However, it seems likely parties will be better placed successfully applying to vary their budget rather than relying on this provision. Successful parties otherwise might risk finding the shine is taken off their victory by their costs recovery.