High Court comments on "obvious case" for departing from costs budget

In ordering a defendant to make an interim payment on account of the successful claimant's costs, the High Court has awarded a sum considerably higher than the claimant's last court approved costs budget, commenting that this was an obvious case for a substantial upward departure from the approved budget: The Board of Trustees of National Museums and Galleries on Merseyside v AEW Architects and Designers Limited [2013] EWHC 3025 (TCC).

Both parties had filed greatly increased costs budgets in advance of the pre-trial review, but these had not been considered due to an oversight by the parties and the court. Reasons for the increase included the addition of a party, substantial amendments, and the increased complexity of the case. The judge (Akenhead J) said it was likely he would have approved a figure close to the revised budget, if the issue had been addressed, and used that figure as the starting point for assessing the appropriate interim payment.

The decision illustrates that the court may be prepared to allow a departure from the approved budget where there have been significant changes to the course of the litigation since the budget was prepared. In contrast, previous decisions show that the court is unlikely to allow an increase where the case has gone pretty much as expected but there were errors in the original budget (see for example Elvanite Full Circle Limited v AMEC Earth & Environmental (UK) Limited [2013] EWHC 1643 (TCC) outlined here). As ever, each case will turn on its particular circumstances.

Also in contrast to Elvanite, the present decision suggests that there is no need to apply formally to amend a budget where it has been exceeded, as opposed to filing and serving the revised budget for consideration at the next procedural hearing. Both decisions were however in the context of the pilot costs management scheme which applied to cases in the Technology and Construction Court (TCC) before 1 April 2013. The current rules regarding revision of budgets are expressed in different terms, and may be interpreted as requiring a more formal approach. In any event that may be the safest course pending any clarification of the point at appellate level.

Background

This case was proceeding under the TCC pilot scheme for costs management (under Practice Direction 51G). Similar procedures have been implemented more widely as part of the Jackson reforms (see here for more information). The rules provide that when assessing costs at the end of the case the court will not depart from the approved budget unless satisfied that there is good reason to do so.

At the first case management conference in this action, some 14 months before trial, the court approved the claimant's costs budget of approximately £493,000. About a year later, the parties lodged revised budgets for consideration by the court at the pre-trial review. These showed that the claimant's budget had increased to approximately £1,130,000 (and the defendant's to just over £1 million). However, the budgets were not considered at the pre-trial review.

The defendant argued that, in assessing the claimant's costs, the costs judge would not be able to depart from the last formally approved budget (i.e. £493,000) and therefore any interim payment on account should relate only to that figure. The defendant relied on Elvanite in which Coulson J took the view that:

• a formal application to amend the approved budget had to be made as soon as it became apparent that the original budget had been exceeded by more than a minimal amount; it was not enough simply to file the material at court, as the defendant had done in that case; and
• there was unlikely to be good reason to depart from the approved budget since there had been no great surprises in the litigation and it appeared that the original budgets had simply got it wrong.

Decision

In the present case, Akenhead J held that the defendant should pay £700,000 as an interim payment on account of costs. He considered it more likely than not that he would have approved a revised budget figure of at least £1 million, had the issue been addressed at the pre-trial review, and that was an appropriate basis against which to assess the interim payment.

Akenhead J said he saw no reason to disagree with the principles set down by Coulson J in the Elvanite case. However, he observed that PD 51G requires parties, when their previous budgets are no longer accurate, to file and serve budget revisions with the court at the next procedural hearing (in fact the requirement is to file a revised budget "at least seven days before any subsequent costs management hearing, case management conference or pre-trial review, and before trial"). That, he said, "suggests that no formal application needs to be issued by the parties seeking a revision and that the court may of its own motion approve or disapprove the revision, albeit doubtless giving the parties the opportunity to be heard".

Akenhead J said there were important differences between this case and Elvanite, the most prominent being that here there was, simply, an oversight by both parties and by the court to get round to addressing the substantially increased costs budgets at the pre-trial review. There was no hint that either party would have challenged the other's revised budget, and there were some "very obvious reasons" why the budgets had substantially increased. These included that a third party had been brought into the proceedings, substantial amendments had been made to the claimant's case, and the case had become much more complex than previously envisaged.

Comment

This decision illustrates circumstances in which the court may be prepared to allow a party to depart from its court approved budget: namely where, as in this case, there have been significant changes to the anticipated course of the litigation since the budget was prepared. That is consistent with the Court of Appeal's approach in Henry v News Group Newspapers Limited [2013] EWCA Civ 19 (see post). Decisions since Henry have however shown that the court is likely to take a strict approach where there have been no significant developments but merely errors in the original budget.

The decision contrasts with the court's previous approach regarding the procedure the parties should adopt where a budget has been exceeded. Elvanite suggested that a formal application should be made to amend a budget as soon as it is clear that the budget has been exceeded by more than a minimal amount. The present decision suggests that there is no need for a formal application; the relevant party need only file and serve the revised budget for consideration at the next procedural hearing.

This would mean considerably less of an administrative burden for both the parties and the court. It may however be a risky course given the conflicting approaches, and particularly in light of the wording of the current rules (at paragraph 2.6 of Practice Direction 3E):

"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."

This may be thought to indicate the need for a more formal approach.

The present decision considers other issues which are not addressed in this post, including whether the Late Payment of Commercial Debts (Interest) Act 1998 applies to an award of damages for breach of contract and the enforceability of a discounted conditional fee agreement.