Costs Budgets and Significant Developments – The High Court Clarifies the Limits on Revising Costs Budgets

• Provide an overview of the costs budgeting regime
• Summarise the decision, including the Court’s analysis of what amounts to a significant development justifying a revision to a costs budget
• Give practical tips to those engaging in the budgeting process.

BACKGROUND

The costs budgeting rules have been in place since the Jackson reforms in April 2013. The rules were introduced to enable the Court to have supervision and control over the costs being incurred by the parties, ensuring that costs are proportionate to the financial value or significance of the litigation. Budgeting also enables the parties to have early insight into both their own legal costs as well as a degree of certainty over their potential liability in the event of an adverse outcome.

The rules require parties in multi-track cases (subject to some limited exceptions) to file a costs budget (Precedent H) in advance of the first case and costs management conference, setting out (a) actual costs incurred to date and (b) estimated costs to trial. The budgets are then considered and approved, subject to any amendments, by the Court at the hearing. At the end of the case, when the Court is assessing costs on the standard basis, they will have regard to the receiving party’s costs budget and will not depart from that unless there is a good reason to do so.

Once approved, CPR 3.15A provides that a party can only revise its budgeted costs, whether upwards or downwards, where “significant developments” in the litigation warrant such revisions. This is reaffirmed in the commentary in the White Book in relation to this provision, which states “If there has not been a significant development the court need not go further, the jurisdiction in CPR 3.15A is simply not engaged.”

Bassey was a personal injury claim, in which costs budgets for both parties had previously been approved by the Court.

Following a directions hearing at which the Court made orders providing for the exchange of additional witness/expert evidence, the Claimant filed and served a Precedent T seeking an additional £238,350. Although the District Judge recorded in the relevant order that there had been no significant developments in the case, he nonetheless directed a further hearing to determine the value of the requested increase.

Allowing the appeal against this decision, Mr Justice Cavanagh found that the Court did not have jurisdiction to make an order providing for the revision of costs budgets, in circumstances where it had concluded that there had been no significant developments in the litigation.

In reaching his decision, Mr Justice Cavanagh considered the earlier authority of Persimmon Homes Ltd v Osborne Clarke LLP, in which Master Kaye found that the purpose, structure and wording of CPR 3.15 and CPR 3.15A make the existence of significant developments a necessary precondition to varying a costs budget.

The judgment confirmed that in the absence of agreement between the parties, the Court has no discretionary power to revise budgets where no significant developments have occurred.

The judgment also provides useful guidance on what constitutes a “significant development”. Drawing on White Book commentary cited in Persimmon Homes, the Court noted that the term is not defined but encompasses events, circumstances or procedural steps that go beyond those expressly or implicitly contemplated when the budget was approved.

Master Kaye had previously emphasised that costs budgeting is necessarily a broad-brush exercise. Not every change in assumptions or estimates will amount to a significant development, and there should be no scope for constant adjustments to approved budgets. Rather, the test is met only where the development is something that was not, and could not reasonably have been, anticipated when the budget was approved.

In Bassey, the Claimant sought an upward revision of his costs budget on the basis that a newly appointed case manager had recommended further medical reports and rehabilitation treatment following a planned move to alternative accommodation. The Claimant also relied on the fact that the trial window had been extended and that there had been the need for additional disclosure.

Mr Justice Cavanagh held that none of these developments amounted to a “significant development” for the purposes of CPR 3.15A. In the context of a personal injury claim, it was entirely foreseeable that further medical evidence might be required as the Claimant’s condition evolved. Equally, the appointment of a new case manager and a change in accommodation, with the subsequent possibility of additional rehabilitation options, were matters that could reasonably have been anticipated at the time of the original costs budgeting exercise. Mr Justice Cavanagh also held that it could be readily anticipated that the trial window might slip and there would be additional disclosure.

Costs budgeting is a critical stage of the litigation process, and this judgment highlights the importance of basing the budget on detailed and reasonable assumptions, as well as factoring in all of the potential contingencies in the litigation which might apply. Specific points to note include the following:

• The decision is fact specific and made in the context of a personal injury claim. In a commercial litigation claim, the making of an Order providing for further witness evidence may well amount to a significant development justifying a revision to an approved budget. In the context of this particular claim, the Court considered it to be foreseeable that further evidence might be required.
   
• It remains possible for the parties to agree revisions to approved budgets, and where both parties have incurred costs in relation to matters which neither had assumed or foreseen, seeking to agree a revision should be the first option.
   
• A concern has been raised that, following this judgment, parties will consider that they have to factor in any possible developments in the case in their original budget, which could result in the budget being disproportionate and subject to criticism from the Court and/or the opponent. The Court emphasised in the judgment that the foreseeability of the additional work is the key factor, but nevertheless there remains the risk that parties will err on the side of the caution and include every possible contingency in their initial budget, on the basis that this decision confirms that additional witness evidence/disclosure may not, by itself, amount to a significant development.

The judgment highlights the critical importance of costs budgeting in the litigation process. A failure to include in the budget costs arising from developments which were reasonably foreseeable is likely to result in those additional costs being irrecoverable from the opponent.