APPLICATIONS TO VARY A COSTS BUDGET: SIGNIFICANT DEVELOPMENTS, PROMPTNESS AND CPR 3.15A: A JUDGMENT THAT EVERY CIVIL LITIGATOR HAS TO READ

In  Persimmon Homes Ltd & Anor v Osborne Clark LLP & Anor [2021] EWHC 831 (Ch) Master Kaye provides a “cut out and keep” guide for anyone involved in attempting to vary a costs budget.  There are important points made here for applicants and respondents to this type of application.  Further a careful reading of the judgment highlights some important issues in relation to costs management and costs budgeting as a whole.

“I do not accept Ms Barton’s argument that an application to amend a costs budget can be made after all the costs have been incurred and/or retrospectively after the full extent of the effect of the significant development is understood. That is not what the clear wording of CPR 3.15A says nor is it the actual or intended purpose or effect of CPR 3.15A (6). The proposed variations must be submitted promptly after the identification of a significant development said to warrant a revision in the costs budget.”

THE CASE

The claimants bring an action alleging professional negligence.   The action had been costs budgeted. The claimants (referred to as “the Developers” in the judgment) applied to vary the budget on the grounds that there had been

CPR 3.15A AND THE MATTERS AN APPLICANT HAS TO MEET

The Master considered the rules and history of CPR 3.15A.

Revision and variation of costs budgets on account of significant developments (“variation costs”)

3.15A. (my emphasis in bold below)

(1) A party (“the revising party”) must revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions.

(2) Any budgets revised in accordance with paragraph (1) must be submitted promptly by the revising party to the other parties for agreement, and subsequently to the court, in accordance with paragraphs (3) to (5).

(3) The revising party must—

(a) serve particulars of the variation proposed on every other party, using the form prescribed by Practice Direction 3E;

(b) confine the particulars to the additional costs occasioned by the significant development; and

(c) certify, in the form prescribed by Practice Direction 3E, that the additional costs are not included in any previous budgeted costs or variation.

(4) The revising party must submit the particulars of variation promptly to the court, together with the last approved or agreed budget, and with an explanation of the points of difference if they have not been agreed.

(5) The court may approve, vary or disallow the proposed variations, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed, or may list a further costs management hearing.

(6) Where the court makes an order for variation, it may vary the budget for costs related to that variation which have been incurred prior to the order for variation but after the costs management order.”

1. 1. Prior to 1 October 2020 PD3E 7.6 provided:

“7.6 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.”

1. 1. The effect of CPR 3.15A is to clarify the procedure to be followed when seeking to vary an agreed or approved costs budget and to elevate the procedure from a practice direction to a rule. CPR 3.15A (1), (2), (4) and (5) reflect the wording of CPR PD 3E 7.6 with the mandatory nature of the requirements emphasised by the inclusion of “must” in place of “shall”, in CPR 3.15A (1), (2), (3) and (4). In addition, CPR 3.15A makes explicit the requirement for promptness which had been implicit in CPR PD 3E 7.6 by the addition of the word promptly in CPR 3.15A (2) and (4).

1. 1. The applicant must therefore first satisfy the court that there has been a significant development in the litigation since the last approved or agreed budget which warrants a revision (upwards or downwards) to the last approved or agreed budget; and second that the particulars of the variation have been submitted promptly both to the other parties and the court in accordance with CPR 3.15A (2) to (4).

1. 1. It is only if the applicant can satisfy the court that it has met these mandatory requirements – the threshold test – that the court goes on to consider the exercise of its discretion in relation to the variation itself and the incurred costs caught by the application to vary in CPR 3.15A (5) and (6). An application to vary therefore involves a two-stage process.

1. 1. Sub-paragraph (5) provides a discretion to the court which “may” approve, vary, or disallow the proposed variations.

1. 1. In considering the exercise of discretion, the court must have regard to the overriding objective and all the circumstances of the case including the need to deal with cases justly and at proportionate cost. This includes considering the prejudice to both the applicant if the revision (including any relevant incurred costs) is not approved or allowed and the prejudice to the respondent if the variation is approved or allowed. The question of promptness and the nature of the development giving rise to the application may re-emerge as part of this exercise of discretion.

1. 1. CPR 3.15A (6) provides a discretion to the court which “may” when varying the costs budget also vary it in relation to incurred costs since the case management order so far as the incurred costs relate to the significant development between the last approved or agreed budget and the order to vary.

1. In this way CPR 3.15A (6) sought to address the apparent difficulty identified by Chief Master Marsh in Sharp v Blank [2017] EWHC 3390 (Ch) (“Sharp“) in relation to the treatment of incurred costs on an application to vary.

APPLICATION OF THOSE PRINCIPLES IN THIS CASE: PERMISSION TO AMEND BUDGET NOT ALLOWED

The Master considered those principles in relation to the case before them.   The application to revise the budget was refused.

Discussion

1. 1. I have set out above the jurisdiction for an application to vary and the relevant background. When considering any application to vary a party’s last approved costs budget the court’s approach should be to first consider whether there has been a significant development in the litigation since the last approved costs budget.

1. 1. However, even if there has been a significant development, not every significant development in the litigation will warrant a revision to the last approved costs budget. Not every development will be significant even if it has costs consequences. Whether a development is a development at all since the last approved costs budget, and whether it is significant and warrants a revision to the costs budget has to be considered in the context of each case. There may be matters which occur in the course of the litigation that do not justify an application to vary a costs budget or were not considered at the time they occurred to be significant developments, but which may still amount to a good reason to depart from the last agreed or approved costs budget on detailed assessment.

1. 1. As the notes to the 3^rd Supplement to the White Book (2020) make clear at 3.15A.2 [148]:

“An order for variation cannot be made in order to remedy a budget in respect of developments which could or should have been covered at an earlier approval or variation.”

1. 1. If there has not been a significant development the court need not go further, the jurisdiction in CPR 3.15A is simply not engaged.

1. 1. If there has been a significant development that warrants a revision to the costs budget the variations must be submitted promptly both to the other parties and the court (CPR 3.15A (2) and (4)). Promptness is a mandatory requirement and the second part of the threshold test. The purpose of costs budgeting is to enable the court to control the parties’ recoverable costs prospectively not retrospectively. What is prompt will, of course, depend on context.

1. 1. It is only if both these mandatory requirements are met that the threshold test is satisfied – significant development warranting a revision to the last approved costs budget and promptness – that the court goes on to consider whether as an exercise of discretion it should approve, vary or disallow the proposed variations pursuant to CPR 3. 15A (5) including incurred costs (CPR3.15 A (6)). It is at this point that the court will engage in a more detailed consideration of the quantum of the variations sought and to be allowed.

1. 1. In carrying out that exercise, the court must have regard to the overriding objective and all the circumstances including the need to deal with cases justly and at proportionate cost. This includes considering the prejudice to both the applicant if the budget is not varied and respondent if the budget is varied. The question of promptness and the nature of the significant development may come back into consideration more broadly as part of all the circumstances if the court comes to consider the overall exercise of discretion.

1. 1. Costs Management is the process by which the court seeks to ensure that the recoverable costs between parties are proportionate to the steps they have to take. In doing so, the court is looking to manage cases in accordance with the overriding objective, justly, efficiently and at proportionate costs. The primary role of costs management is however to manage prospective costs in the context of the proposed future procedural steps. It is a forward-looking exercise with a glance backwards to ensure overall proportionality.

1. 1. It is not a prospective detailed assessment; it is a high-level exercise in determining what the court considers to be a reasonable and proportionate sum for the parties to incur inter partes on the standard basis for a particular phase of the litigation and overall, in respect of future costs.

1. 1. Costs budgeting is about determining the total recoverable costs to be allowed for each phase. It does not involve descending into the ring and carrying out a granular exercise akin to a detailed assessment on a line-by-line basis. Nor is it for the court to direct how the phase total, once determined, should be spent whatever the detail of the costs budget or its assumptions (CPR3.15 (8).

1. 1. Whilst CPR 3.15 makes it clear that the exercise the court carries out looks at the “to be incurred costs” costs budgets include three types of phases:

i) Completed phases where all the costs have already been incurred. At the CCMC the court does not set any budget for these phases but may comment on the costs incurred and may take them into account when considering overall proportionality.

ii) Mixed phases where there are both incurred costs and “to be incurred costs”. The court only sets the budget for the “to be incurred costs” but has regard to both the incurred costs and the total costs for the phase including incurred costs when carrying out that exercise.

iii) Future phases where the entirety of the phase is still to be incurred. The court sets the budget for these future phases.

1. 1. When carrying out a costs budgeting exercise at a CCMC there is an inevitable risk and likelihood that when the court sets the figures for “to be incurred costs” for each of the mixed or even future phases that some of the “to be incurred costs” may have been incurred since the budget was prepared.

1. 1. The reality is that the parties do not stop all work when costs budgets are filed. Not all the work undertaken after the costs budget has been filed will relate only to the costs of the CCMC. The court has always and continues to “approve” in the loosest sense some incurred costs when agreeing of approving mixed or future phases.

1. 1. The rules and authorities have developed in ways that adjust to accommodate that reality and to ensure that cases are conducted in accordance with the overriding objective.

1. 1. It was against that background that the Chief Master adopted the pragmatic and purposive approach in Sharp in relation to revisions to costs budgets. It is also why any application to vary a costs budget must start from the last approved costs budget rather than actual figures.

1. 1. CPR 3.15A (6) was introduced to clarify that the court could and indeed should look at incurred costs since the last approved costs budget when considering a variation. It was intended to cater for the costs that would be incurred between identifying a significant development in the litigation that warranted a revision to the costs budget and being able to submit a revised costs budget (and subsequent application to vary) promptly, whilst continuing to carry out the work necessary to progress the litigation. It was a recognition that it is not always possible to determine applications instantaneously.

1. 1. In the absence of CPR 3.15A (6) it was argued that a party either could not undertake any work in relation to the significant development until the costs budget was revised or did so at their own risk. Neither position was consistent with either the overriding objective, efficient case management or CPR 3.15(3). The corresponding difficulties that arose on detailed assessment were the existence of slices of incurred costs, which would need to be the subject of detailed assessment that had been incurred between the identification of a significant development and the application for approval of any varied costs budget.

1. 1. The purpose of CPR 3.15A (6) was not and is not to undermine the purpose of costs budgeting and the court’s control of future recoverable costs.

1. 1. Of course, a costs management order and an approved costs budget do not limit the costs which either party can choose to spend on the litigation, but they do so at their own cost and risk where it exceeds the budgeted costs.

1. 1. Parties who want to maximise their recoverable costs need to keep their costs budgets under review. If there is a significant development that means that the basis on which the costs budget was prepared has changed in a way that warrants a revision the parties should follow CPR 3.15A. This case is an example of the difficulties that may arise when that approach is not adopted.

1. 1. Although it depends on the circumstances of each case, some significant developments will be more obvious and easier to identify than others. Clearly, where the proposed variation is to add in a new phase such as expert evidence, where no expert evidence had previously been permitted, and connected to that to vary the trial phase to include, for example, expert costs of attending trial and the additional costs of an extended trial length, the court may require very little supporting information or evidence to be satisfied that the proposed variations to the costs budget relate to the significant development and do not interfere with the original cost budgeting exercise.

1. 1. However, where the significant development is said to be a change to an existing phase, and in particular a mixed phase, such as disclosure it is necessary for the court to look more closely at whether what is contended for is a significant development at all since the last approved costs budget. Do the matters raised by the applicant, in fact, change the overall scope and likely cost of that phase? Were they, or should they have been, expressly or impliedly taken into account when the last costs budget was approved?

1. 1. In such a case the court would need to be confident that the proposed variation related only to the additional impact of what is contended to be a significant development rather than an attempt to carry out a root and branch revision to the phases of the last approved costs budget. Whilst the court should not consider the costs at a granular level nor micromanage the costs it must be able to say that it is not interfering with the discretionary exercise carried out by the Deputy Master who approved the last costs budget. It is for the party seeking the variation to provide sufficient information and evidence with their application to satisfy the court that the variation is not simply an attempt to address a miscalculation or an overspend or to claw back previously disallowed costs. They would have to be able to satisfy the court that the variation only related to the significant development and did not interfere with the exercise carried out by the Deputy Master.

1. 1. Here that is particularly acute given that the Deputy Master approved the DRD on a Model C basis at the same time as he carried out the costs budgeting exercise and the Developers seek to argue that the change to Model C is a significant development since the last approved costs budget.

1. 1. CPR3.15A (2) requires the revising party to submit their particulars of variation to the other party for agreement. There is therefore a requirement both to submit and seek to agree the variations promptly but also to submit any application to vary to the court promptly (CPR 3.15 (4)). It seems to me that there are therefore two linked elements to the mandatory requirement for promptness.

1. 1. In most cases the two aspects of the mandatory requirement for prompt submission in CPR 3.15A (2) and (4) will be closely aligned. However, there cannot be any hard and fast rule. It will depend on the facts of each case; the chronology and the nature of the variations being sought. Consistent with the overriding objective, if the parties are co-operating in narrowing the areas of disagreement in relation to the proposed variations, what constitutes “submitted promptly” may differ from what might be considered prompt submission if no such cooperation or engagement were to take place.

1. 1. This process may give rise to incurred costs in relation to the variation that may fall to be considered under CPR3.15A (6).

1. 1. I approach each element of the application to vary the costs budget having taken into account the broad principles I have identified, and the chronology and background set out above.

RFI/RRFI

1. 1. The costs associated with the RFI/RRFI were not anticipated or included in the costs budget approved by the Deputy Master in December 2019. In principle therefore as they were not, and could not have been, expressly or impliedly taken into account when the costs budget was approved and fall outside the last approved costs budget, the RFI/RRFI and the associated costs are capable of consideration under CPR 3.15A on an application to vary.

1. 1. However, I have considerable doubt as to whether in the context of these proceedings the RFI and the costs associated with it would have constituted a significant development in the litigation such as to warrant a revision to the costs budget.

1. 1. I accept Ms Barton’s broad point that it is not the output but the work that goes into the output that is key. Just because the RFI/RRFI were only a few pages long is not the sole measure for determining whether it was a significant development. The RFI was clearly a development but I have to determine whether it is a significant development which warranted a revision to the costs budget.

1. 1. I was not taken to any evidence that the Developers had considered the RFI/RRFI to be a significant development in February 2020 when it was served that warranted a revision to their costs budget nor that the Developers had indicated any intention to apply to vary their costs budget in relation to the RFI/RRFI prior to December 2020. Indeed, so insignificant was the RFI/RRFI compared to the disclosure issues that it is mentioned only in passing in Ms Barton’s skeleton. Ms Acklam’s second witness statement does no more than set out in one short paragraph how the £72,559.50 is broken down.

1. 1. Further, in the context of the proposed variation of the costs budgets to increase the overall total to £2.795m of which the future costs sought would increase by £1.339m to £2.368m, the costs sought in relation to the RFI/RRFI phase of £72,559.50 are modest. OC say those costs are excessive and that a reasonable and proportionate sum for the RFI/RRFI is only £7,500 which if correct would reduce the costs in relation to the RFI/RRFI to a negligible sum in the context of the costs of these proceedings.

1. 1. I do not need to determine what would be a reasonable and proportionate sum in relation to the RFI/RRFI unless I come to consider those costs at the discretion stage. However, it does seem to me for the purposes of this application that based on the information available on this application, which will differ from that which might be available on a detailed assessment, the figure of £72,559.50 is to my mind, not a reasonable and proportionate sum for the RFI/RRFI. Were I to determine a sum for the RFI/RRFI on the application to vary it would be substantially reduced and I take that into account when considering the nature of the significant development contended for in the context of this application. Beyond that I would not want to fetter the discretion of any judge considering those costs at a future date.

1. 1. I am not persuaded that in the context of these proceedings the RFI/RRFI and/or in combination with the costs associated with them were a significant development in the litigation that warranted a revision to the costs budget.

1. 1. It does not seem to me that the Developers considered the RFI/RRFI to be a significant development at the time it was served. I can well understand why, when making an application to vary their costs budget at a later date, they thought to include it in the application.

1. 1. The costs of the RFI/RRFI were fully incurred by 25 August 2020 when the RRFI was served. Even if the RFI/ RRFI were a significant development that warranted a revision to the last approved costs budget I would have to be satisfied that the application to vary in relation to the RFI/RRFI has been submitted promptly for the threshold test to be met.

1. 1. The Precedent T was not submitted to OC until 3 December 2020 and the application to vary was not made until 21 December 2020. This was four-months after the costs had been fully incurred and ten-months after the RFI was served.

1. 1. I do not accept Ms Barton’s argument that an application to amend a costs budget can be made after all the costs have been incurred and/or retrospectively after the full extent of the effect of the significant development is understood. That is not what the clear wording of CPR 3.15A says nor is it the actual or intended purpose or effect of CPR 3.15A (6). The proposed variations must be submitted promptly after the identification of a significant development said to warrant a revision in the costs budget.

1. 1. Whilst CPR 3.15A (6) specifically recognises that there may be some incurred costs at the point at which an application is made, in respect of which the court may be persuaded to exercise discretion, the purpose of costs management is to provide the court with the ability to control costs not to enable parties to retrospectively adjust for any overspend or miscalculation in respect of budgeted costs. CPR 3.15A (6) was never intended to and is not open season to come back and vary a costs budget after the event.

1. 1. Whilst conceptually I can envisage circumstances in which an urgent significant development might result in the costs the subject of an application to vary being substantially incurred by the time a prompt application is made or heard, I am not currently persuaded that where a phase, including the costs for which a variation is sought, have been fully incurred before the application to vary is made that there would be any jurisdiction to approve a variation to the last approved costs budget for those phases after the event. Thus, if no application to vary is made promptly, and the costs are then fully incurred such costs would, it seems to me, either be subject to the question of whether there was a good reason to depart from the last approved costs budget or the costs would be at large and in either case it would be a matter for the costs judge in due course.

1. 1. The application to vary in relation to the RFI/RRFI is too late. It was submitted 10 months after the RFI was served. Service of the RFI was the development that resulted in the costs being incurred. The application to vary in relation to the RFI/RRFI fails the threshold test and it is not necessary to consider the exercise of discretion.

1. 1. The discretionary consideration of whether to allow any incurred costs since the CCMC Order and any variation order cannot be used to salvage the position if the variations were not submitted promptly, and the threshold test is not met.

1. 1. However, the RFI/RRFI was not an anticipated cost at the time the last approved costs budget. The costs are therefore at large and can be considered by the costs judge on detailed assessment in due course.

CMCs

1. 1. As with the RFI/RRFI, it is not at all clear that the Developers considered either the first further CMC or the second further CMC to be a significant developments in their own right but as with the RFI/RRFI, I understand why they have been included in the application to vary when made.

1. 1. The direction for the first further CMC was included in the CCMC order in December 2019. It appears to me that the costs of the first further CMC ought to have been included in the costs budget in December 2019 and permission sought from DM Linwood to amend the budget to include them.

1. 1. There is no explanation from the Developers for not seeking permission to amend the costs budget at the CCMC or prior to the CCMC Order being sealed. There is no explanation for not seeking permission or agreement to amend the costs budget to cater for those costs at any point prior to the first further CMC nor for the absence of any application to vary the costs budget in August 2020.

1. 1. If, however, it could be argued that the first further CMC was included in the CCMC Order with no prior notice to the parties, they may be able to argue that it was not something that could or should have or was taken into account, whether expressly or impliedly, in the last approved costs budget. It may therefore be susceptible to consideration on an application to vary. There will be occasions when at a CCMC the court imposes an additional requirement on the parties without prior notice, such as a further CMC or a Disclosure Guidance Hearing which was not anticipated or included in the costs budgets being approved by the court at that point. If the adjustments were not made at the CCMC, the parties would be well advised to seek permission to vary the costs budget to take those costs into account prior to filing their approved costs budget or perfecting the CCMC Order. If they do not they may find it harder to seek to vary at a later stage given the threshold test. The court would still need to consider if the change amounted to a significant development.

1. 1. Again, although the issue of quantum is primarily a matter to be considered at the discretion stage it provides assistance in considering the question of whether a development is significant. The Developers seek £99,250 for the two further CMCs whilst that is a substantial sum it does not of itself make the development significant. Assuming c. £50K for each further CMC I compare that to the costs incurred up to the CCMC of £64,316 and the overall costs. As with the RFI/RRFI, the costs are towards the modest end of the scale in the context of the overall costs. The Developers’ own Precedent T notes that the further CMCs were primarily to deal with outstanding disclosure issues. This raises further issues as to whether the further CMCs are significant developments in their own right, in this case, or whether they are simply an adjunct to the issues raised by the disclosure exercise.

1. 1. As with the RFI/RRFI the evidence in relation to the costs of the CMCs is one short paragraph in Ms Acklam’s second witness statement simply breaking the costs down between solicitor time and disbursements.

1. 1. OC say that the first further CMC is not a significant development as it was included in the CCMC Order and make no offer in relation to the costs of it. They say the costs of the second further CMC should not be the Developers’ costs as they relate to disclosure issues. As a matter of costs budgeting that is the wrong approach in relation to the second further CMC.

1. 1. I consider the costs sought in the context of the overall costs when considering whether the first further CMC is a significant development warranting a revision to the costs budget and I consider the purpose of the first further CMC in the context of the issues in this case. I have the advantage, and the Developers the disadvantage of the costs having been incurred at CMCs that took place before me, and after the event we know what was in fact considered at those CMCs. As a consequence, it is possible to say that there is some merit in OC’s contentions in relation to disclosure.

1. 1. Taking those matters into account, it is arguable that the first further CMC and the costs associated with it are not a significant development since the last approved costs budget. However, in any event even if it was a significant development and impliedly not something that was taken into account in the last approved costs budget, the Developers knew at the time the costs budget was approved by the Deputy Master that a first further CMC was to take place. It was something that should reasonably have been taken into account at the time and or an amendment made before the costs budget was finalised.

1. 1. An additional issue that arises from the late submission of the application to vary is that whilst prospectively in December 2019 the first further CMC may have justified some additional costs, I am not persuaded that the level of costs sought would have been considered reasonable and proportionate at that time.

1. 1. In reality, looking at it retrospectively, the first further CMC primarily addressed disclosure issues arising from the Developers disclosure and OC’s disclosure application. It would be difficult to retrospectively untangle those costs and determine a reasonable and proportionate sum to allow for the limited part relating to the first further CMC.

1. 1. For those reasons overall I do not consider the first further CMC can be characterised in this case as a significant development after the last approved costs budget. However, that is only the first part of the threshold test.

1. 1. The application to vary was submitted four months after the first further CMC took place and all the costs were incurred. The application was not submitted promptly. The application to vary in relation to the first further CMC fails the threshold test and I do not need to consider discretion.

1. 1. As the first further CMC was included in the CCMC Order the costs are arguably not at large. The Developers will have to seek to persuade the costs judge in due course that there is good reason to depart from the last approved costs budget. If however, the costs judge is satisfied that the costs of the first further CMC were not costs that should reasonably have been taken into account in the last approved costs budget then the costs will be at large.

1. 1. The second further CMC was listed as a result of the order made at the first further CMC. A second further CMC was not anticipated in December 2019 and neither party will have included an allowance for it in their approved costs budgets. It was a development arising out of the first further CMC and the difficulties that had arisen in relation to disclosure. Its purpose was to address OC’s disclosure application and any other outstanding issues in relation to disclosure and case management following completion of disclosure. It may not be significant in case management terms and in fact, the second further CMC, as set out above, primarily addressed the disclosure application costs.

1. 1. Since the application to vary was made on 21 December 2020 in advance of the second further CMC, it was at least arguable that it was made promptly. However, prompt is contextual. The second further CMC was fixed at the first further CMC. If it was a significant development that warranted a revision to the last approved costs budget, I am not persuaded that the application to vary in relation to those costs made on 21 December 2020 can be said to have been submitted promptly. There is no explanation at all for waiting four months to make the application.

1. 1. The second further CMC was not anticipated at the time the original costs budget was approved. The application to vary although made before the second further CMC took place was not issued until four months after the Order fixing the second further CMC. I do not therefore consider the application to vary to have been submitted promptly. The application to vary in relation to the second further CMC fails the threshold test and I do not need to consider discretion.

1. 1. However, as with the RFI/RRFI it was not anticipated at the CCMC and was not included in the approved costs budgets. The costs of the second further CMC are therefore at large and will be a matter for the costs judge on detailed assessment in due course.

1. 1. The absence of promptness in making the applications not only affects whether the application to vary meets the threshold test but has consequences from a practical perspective. In relation to each of the RFI/RRFI and the CMCs it may have been possible, had an application been made earlier in the year, to identify in advance of incurring all the costs factors which might have persuaded the judge prospectively that they amounted to a significant development that warranted a revision to the last approved costs budget. Prospectively it may then have been possible to persuade a judge that there were additional to be incurred costs said to arise from the RFI/RRFI and CMCs before the costs were incurred thus enabling the court to prospectively manage and control the costs. The very purpose of the variation process.

Disclosure

1. 1. As set out above the Developers knew on 18 November 2019 that they were going to have to undertake disclosure on a different basis to the assumptions set out in their costs budget. On 19 November 2019, they confirmed that they intended to amend their costs budget to take into account the change to Model C and noted that the costs would result in a substantial reduction on the estimated £1m for Model C and D disclosure. This was two weeks before the resumed CCMC at which the Deputy Master undertook the costs budgeting exercise. Ms Barton says there was no time in that two-week period to fully assess the implications of the change to Model C from a costs budgeting perspective and prepare a revised costs budget.

1. 1. The Developers say that the costs budget approved by DM Linwood was still based on Model A and B assumptions. This fails to appreciate the effect of CPR 3.15 (8).

1. 1. Ms Barton argues that the change to Model C was a significant development which was expressly or impliedly a change of such a size or nature that it went beyond the events taken into account when the costs budget was approved. She seeks to persuade me that as a consequence a substantially retrospective, increase to the last approved costs budget of c. £1m, should be approved.

1. 1. I do not agree. The change to Model C was expressly known about (the Developers had said in clear terms on 19 November 2019 that they were going to file an updated costs budget to take it into account) and could and should have been taken into account by them in time for 3 December 2019. At that point the onus switched to the Developers to make their position clear to both OC and the Deputy Master rather than allowing the Deputy Master to cost and case manage, on their case, on the wrong basis.

1. 1. The Developers’ evidence is therefore that they knew of the significant development two weeks before the costs budget was approved. They knew it would have significant costs consequences. And yet, they allowed the Deputy Master to complete the cost budgeting exercise on the basis of an approved DRD based on Model C without telling him or OC that their costs budget had not been updated to take into account that significant development.

1. 1. The purpose of the CCMC was to prospectively manage both the costs and the case in accordance with the overriding objective, on the basis of the claims as they were before the Deputy Master in 2019. The Deputy Master was determining the costs budgets on the basis of an agreed and approved DRD based on Model C.

1. 1. On 18 November 2019, he had already made it clear that the case was one where some measure of search-based disclosure was required. He adjourned to allow the parties to seek to agree the Model C requests. It would have been surprising if he had then been prepared to costs budget on a different basis and one at odds with the basis he had indicated and the basis on which OC had prepared a costs budget.

1. 1. Costs and Case Management are carried out together to ensure that consistent with the overriding objective the court manages cases so that there is some proportionality between the value and complexity of the case and its importance to the parties, the steps that need to be undertaken to ensure that it is ready for a trial and the costs associated with those steps.

1. 1. Unless it had been specifically drawn to the Deputy Master’s attention that the costs he was approving were for an entirely differently structured and simpler case, the court must proceed on the basis that the costs budget he approved reflected the case he understood he was case managing. It would undermine the entire purpose of combined costs and case management to conclude otherwise and it would potentially undermine or interfere with the Deputy Master’s CCMC Order.

1. 1. The fact that the assumptions set out in the costs budget had not changed does not seem to me seem to assist Ms Barton. During a CCMC, it is not unusual for assumptions and costs to be adjusted as the judge determines the case and costs management. For example, a change to trial length, limiting the number or length of witness statements, limiting expert costs, removing a PTR and consequent costs adjustments made during the CCMC. The assumptions the parties included in the costs budget as filed will not have changed but the approved costs budget would have been adjusted and approved on a different basis. It is difficult to understand why the Developers say the situation is different in this case.

1. 1. It is simply not good enough for the Developers to say that not only did they not have time to address the revision to the costs budget in advance of the CCMC on 3 December 2019 but they did not tell the Deputy Master or OC that they had not done so. They did not seek to use the procedural tools available to them to postpone costs budgeting in light of what they say was a significant development either in its entirety, so they had time to amend or simply by deferring consideration in relation to disclosure under PD51U.

1. 1. PD51U explicitly provides for the situation in which the Developers found themselves. If they were unable to amend their costs budget to include an estimate of future costs for the Model C disclosure exercise, they could and should have sought permission to defer costs budgeting in relation to at least disclosure.

1. 1. Ultimately, they could have sought to defer the entire cost budgeting exercise if, as they now contend, they anticipated the change to Model C having such a significant impact on the overall costs. However, no application to vary the budget was made at the time (nor did the Developers seek to appeal or apply back to the Deputy Master either before or after the CCMC Order was sealed) and the additional costs, certainly in relation to the disclosure phase itself, have now been incurred.

1. 1. This only serves to emphasise why CPR3.15A only applies to a significant development since the last agreed or approved costs budget. It further emphasises the need for the parties to keep their costs budgets under review and to use the tools available to them.

1. 1. Given the chronology and the evidence, I find that the application to vary the last approved costs budget based on the change to Model C prior to the approval of the costs budget at the CCMC is not a significant development for the purposes of CPR 3.15A.

1. 1. I need to consider in the alternative whether the Developers’ argument that it took time for the full implications of the Model C disclosure exercise to become clear gives rise to a later significant development in the litigation which warrants a revision to the costs budget.

1. 1. If it were only in February 2020 or even April 2020 that the Developers could say that the full implications of the Model C disclosure exercise were known can that amount to a significant development in its own right warranting a revision of the costs budgets in either February or April 2020?

1. 1. Given the knowledge the Developers already had by the time of the CCMC, I have considerable doubts that the additional information obtained by February 2020 or April 2020 can properly be characterised as a significant development in the litigation that warranted a revision to the costs budget.

1. 1. Even if one accepts the Developers’ argument that it took time to understand the full extent of the universe of data, which would have to be searched, the size of the disclosure exercise was known by February 2020. By then the Developers knew that the pool of documents was likely to be c 2.2m. By April 2020, not only was the scope of the exercise known but further work had been undertaken by TransPerfect to refine and reduce the size of the review pool of documents to some c.105K.

1. 1. It does not appear to me that the clarification of the review pool in February or April 2020 was a change of such a size or nature that it went beyond the change to Model C disclosure in November 2019 or the events taken into account by the Deputy Master when setting the Model for disclosure and the costs budgets.

1. 1. The Developers say that the impact of the change to Model C was very significant. Yet the Developers had sufficient information and knowledge to be able to scope out a Model C and D exercise at c£1m by 25 October 2019 based on a larger universe of data of c. 3TB when they submitted their original costs budget.

1. 1. By the time this application was made the Developers had incurred the majority of the additional £581K said to relate to the expanded disclosure exercise and anticipated that and additional £585K would be incurred on the future phases as a consequence of the expanded disclosure. Plainly, the costs consequences of the expanded disclosure exercise were significant. So significant that as I set out above, had the Deputy Master been made aware of the likely costs at the time of the CCMC, I have no doubt it would have affected his approach to the CCMC.

1. 1. Here however, I am simply not persuaded that it can be said that the clarification of the implications of Model C was itself an independent significant development on which to base an application to vary. For the reasons I have given it follows that albeit Ms Barton argues that it would have been difficult to cost budget prospectively, the greater understanding of the full implications of the disclosure exercise in February and April are part of the same significant development i.e. the change to Model C, which occurred in November 2019.

1. 1. However, if I am wrong and it is arguable that the information identified in February and April 2020 was of such a quality that it could be said to amount to a significant development in the litigation that warranted a revision to the costs budget (or even if the change to Model C could be said to be a significant development since the last approved costs budget) that is only the first part of the threshold test and I would need to go on and consider the question of promptness before considering the question of discretion.

1. 1. Before addressing promptness, I address briefly one further issue. There were further issues that arose as part of the disclosure process. The Developers would argue that all the problems that arose as part of their disclosure process were unanticipated at the CCMC because the costs budget assumed no search-based exercise at all. I am not persuaded that once the search-based exercise had been directed that problems that subsequently arose in relation to the conduct/execution of that disclosure exercise would amount to a further significant development warranting a revision to the costs budget on a recoverable basis. I do not therefore consider that any of the disclosure issues that arose later in 2020 can be said to be a significant development. They either relate to the conduct or execution of the Model C disclosure exercise or they may relate to the OC disclosure application in which case they may be addressed by the costs orders made in respect of that application.

1. 1. Turning to the question of promptness if the change to Model C were to be considered a significant development over which the court had jurisdiction it does not seem to me that a 12-month delay until 3 December 2020 before making an application to vary can be considered prompt. Neither do I consider that an application to vary made either ten or eight months after the implications of the change to Model C were said to be fully understood can be considered prompt.

1. 1. Ms Barton sought to persuade me that the application was prompt because it was made relatively promptly after the full implications were understood in October 2020. She argued that to have made the application earlier would potentially have resulted in an additional application to vary the costs budget. However, this is the wrong way round and as set out above CPR 3.15A (1) and (2) and (4) are clear about the mandatory requirement for promptness. Costs and case management is a prospective not retrospective exercise.

Conclusions in relation to Disclosure:

1. 1. The change to Model C in November 2019 was likely to have amounted to a significant development which may have warranted revisions to the costs budget prior to the CCMC or a deferral of part or all of the costs budgeting exercise until the effect of the change to Model C could be clarified if sought. It would not have justified delaying the costs budgeting exercise for disclosure for 12 months or until after the costs had been incurred.

1. 1. The Developers did not seek to adjourn or defer any aspect of the costs budgeting exercise at the CCMC. The Deputy Master made a CCMC Order by reference to a DRD based on Model C and costs budgeted accordingly.

1. 1. The change to Model C was not a significant development since the last approved costs budget.

1. 1. The application to vary was made over 12 months after the change to Model C. It was not prompt. It fails the threshold test, and this court has no jurisdiction in relation to the change to Model C and there is no need to consider discretion.

1. 1. If the significant development is said to be the expanded scope of the disclosure exercise, which was said not to be fully understood until either February 2020 or April 2020, I still have considerable doubt as to whether on the facts of this case that amounts to a separate significant development in the litigation for the reasons set out above.

1. 1. However even if it were a separate significant development the Precedent T was not submitted to OC until 3 December 2020 and the application to vary was not made until 21 December 2020 and was not prompt. The application to vary based on the expanded scope of the disclosure in either February or April 2020 would also fail threshold test and there is no need to consider discretion.

1. 1. The Developers will need to seek to persuade the costs judge in due course that there was a good reason to depart from the last approved costs budget and/or that the costs are at large.

1. 1. Although the application to vary seeks to vary the later phases of the costs budget, those are parasitic on there being a significant development in respect of disclosure. Although therefore the subsequent phases remain future costs which have not yet been incurred the court does not have jurisdiction to amend the last approved costs budget in respect of them for the same reasons.

1. 1. Finally, if I were wrong in relation to the questions of significant development or promptness such that the application to vary had to be considered as a matter of discretion all the factors identified above re-emerge as part of the balancing exercise.

1. 1. I have considered the nature of the significant developments contended for, the reasons why the costs budget was not amended earlier, the delay in making the application and the significance of the variation sought.

1. 1. I balance the prejudice to the Developers in not permitting the application against the prejudice to OC of allowing the application. Costs management is intended to provide the parties with certainty and to enable the court to control costs and manage the litigation proactively and prospectively in a reasonable and proportionate way and in accordance with the overriding objective, balancing the costs of taking a particular step against the benefits of doing so.

1. 1. Had the Developers provided a costs estimate of £750K for disclosure on Model C against £181K on Models A and B and an overall increase in the costs budget of in excess of £1m that might well have influenced the way in which the Deputy Master approached both the DRD, costs budgeting and overall case management. It is likely that it would have influenced the approach to both the CCMC, and the parties’ conduct thereafter and may have affected any decisions about settlement.

1. 1. Mr Hatt points to the advantages of prospective predictability that come with costs budgeting whilst Ms Barton argues that the need for such certainty and predictability is in favour of allowing the application to amend retrospectively.

1. 1. The Developers have not acted promptly; they have delayed applying to vary until December 2020 over a year after they acknowledged that they would need to do so. There is no satisfactory explanation for that delay. It is not the function of an application to vary to enable the Developers to address any overspend or miscalculation after the event and after a large part of those costs are incurred. I agree with Mr Hatt that the prospective predictability and control of costs outweighs the retrospective correction of costs in terms of the exercise of discretion. It is here that the issues of promptness and significance of the development re-emerge in particular as part of the exercise of discretion.

1. 1. The prejudice to the Developers in having to seek to persuade a costs judge after the event to allow them to vary their costs budget or to determine the costs that are at large is far outweighed by the prejudice to OC. OC have been entitled to conduct their defence of the claim on the basis of the costs budget approved in December 2019 and on the understanding that that included the costs of a Model C disclosure exercise.

1. 1. As part of the exercise of discretion, I also consider the effect of the application to vary in costs terms. As I set out above the effect of the application to vary if permitted would be to double the future costs since the last approved costs budget and would add £1.339m to the overall costs. This is a very significant increase. It would after the event affect significantly the position between the parties. Although I do not intend to consider the question of quantum in any detail having reviewed the costs sought by the Developers and considered both Ms Acklam’s evidence and NRF’s letter of 24 December 2020 it seems to me that the increases in costs sought by the Developers and said to be referable to the change to Model C are excessive and would fall to be substantially reduced were a costs budgeting exercise to be undertaken. They do not appear to me to fall within a range of costs which I consider to be reasonable and proportionate inter partes on a standard basis.

1. 1. OC should have the opportunity to challenge the increased costs on a detailed assessment in due course if the opportunity arises. For the Developers a detailed assessment in due course may provide them with an opportunity of justify any increase in costs.

1. 1. However, it seems to me on balance and taking all these matters into account that it would be inconsistent with the overriding objective to manage cases justly and efficiently and at proportionate cost to exercise discretion in favour of the Developers in relation to the application to vary in respect of disclosure. For the reasons set out in this judgment, I would not exercise discretion in favour of the Developers.

1. 1. Cost budgeting is about setting prospective costs and CPR3.15A is to enable the court to approach the question of variations and amendments in a practical and purposive way not to oust the role of the costs judge.

1. 1. I note that there are some limited aspects of the variations such as those relating to the hosting of the disclosure, which OC accept, are additional costs as a consequence of the relisted trial date and/or some expert costs for an experts meeting. The parties should seek to agree such of those types of variation as they reasonably can failing which those too will have to be addressed on detailed assessment in due course.

1. 1. It follows that the application to vary the costs budget should be dismissed.

1. I invite the parties to seek to agree an order including in relation to costs.