COST BUDGETS, VARIATIONS AND “SIGNIFICANT DEVELOPMENTS”: JUDGE REFUSES TO REVISE THE BUDGET AFTER TRIAL

In Rahman v Hassan & Ors (Re Consequential Matters) [2024] EWHC 2038 (Ch) HHJ Paul Matthews (sitting as a High Court Judge) refused the claimant’s application that the budget be revised after the trial.  The judge held that the matters relied upon by the claimant were not “significant developments” so as to warrant an amendment to the budget. However, as the judge had, because the defendants failed to beat a Part 36 offer, ordered that costs from the expiry of the offer be on the indemnity basis, this may be of little practical relevance.

“I do not regard any of these five matters as a “significant” development in the litigation which should justify a variation of the budget. The use of the word “significant” in the rule is deliberate. It is not every development that requires variation in the budget. Otherwise large amounts of pre-trial preparation time would be taken up with making applications for budget variations.”

THE CASE

The claimant had been successful in obtaining certain declarations as to the transactions made in anticipation of death. After judgment he applied for variations in his costs budget.

WAS AN APPLICATION TO VARY THE BUDGET NECESSARY? (THE BENEFIT OF HINDSIGHT…)

The judge refused the claimant’s application.  However this was a case where the claimant had made a successful Part 36 offer and the defendant had been ordered to pay costs on the indemnity basis from the 14th February 2023 on the indemnity basis, see the previous post.  Cost budgeting is carried out on the basis of costs on the standard basis.  CPR 3.18 only applies where costs only applies where costs are being assessed on the standard basis. See the observations of the Court of Appeal in Lejonvarn v Burgess & Anor [2020] EWCA Civ 114

1. 1. “The figure produced by an approved cost budget mechanism (CPR r.3.12-r.3.18) is a different thing to the final assessment of costs following the trial. The former is prospective; the latter is retrospective. True it is that, in many cases, the approved costs budget will be the appropriate starting point for the final costs assessment. But that does not detract from the underlying proposition that they are different figures produced by different considerations with different purposes.

1. 1. If there is an order for indemnity costs, then prima facie any approved budget becomes irrelevant. In Denton and Others v TH White Limited [2014] EWCA Civ 906, Lord Dyson MR and Vos LJ said at paragraph 43:

“If the offending party ultimately loses, then its conduct may be a good reason to order it to pay indemnity costs. Such an order would free the winning party from the operation of CPR r.18 in relation to its costs budget””.

1. 1. A similar comment can be found in the more recent decision of Warby J in Optical Express Limited and Others v Associated Newspapers Limited [2017] EWHC 2707 (QB), a case where indemnity costs were ordered after a Part 36 offer had been accepted out of time. Warby J said at paragraph 52:

“52. In any case, it is legitimate to describe the claimants’ conduct as highly unreasonable and such as to justify an order for assessment on the indemnity basis. The continued pursuit of the pleaded claim after time for acceptance of the Part 36 offer expired can properly be characterised as wholly disproportionate to the value of the claim. It is fair to say that the claimants have forfeited their right to the benefit of a proportionate assessment of the defendant’s costs, and to the benefit of the doubt on reasonableness.”

1. The absence of an overlap between the cost budgeting regime on the one hand, and an order for indemnity costs on the other, was explained in detail by HHJ Keyser QC (sitting as a judge of the High Court) in Kellie v Wheatley and Lloyd Architects Limited [2014] 5 Costs LR 854; [2014] EWHC 2886 (TCC). “

THE APPLICATION IN THE CURRENT CASE

It was, of course, sensible for the claimant to make the application in this case because the defendants were arguing that CPR 36 had no relevance to the case.

THE JUDGMENT ON THIS ISSUE

1. 1. Although judgment has now been handed down, the claimant has made an application to vary his originally approved costs budget, under CPR rule 3.15A, which reads:

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

1. 1. As the claimant notes in his submissions, this obligation is not a matter of choice. Either significant developments warrant this revision or they do not. If they do, the revising party must then serve particulars of the variation proposed on the other parties (rule 3.15A(3)) and submit them promptly to the court (rule 3.15A(4)). The court may approve, vary or disallow the proposed variations, or may list a further costs management hearing (rule 3.15A(5)).

1. 1. The claimants cost budget as originally approved on 23 August 2023 was in the sum of £320,648.50, plus any applicable VAT. The application seeks an increase in that sum of £134,931.55, again plus any applicable VAT. In making the application to vary his costs budget, the claimant relies on five matters. I summarise these as follows:

(1) I was involved in a road accident after the close of evidence and before closing submissions in the trial. The latter were postponed by just under a week.

(2) The claimant’s particulars of claim were amended during the trial and additional costs were incurred.

(3) The defendants made written submissions on 8 January 2024 (in accordance with directions given by me at the end of the trial), and additional costs were incurred by the claimant.

(4) There was an interval of some 5 1/2 months between the end of the closing submissions of the circulation of the draft judgment, and additional costs were incurred by the claimant once that draft judgment was circulated.

(5) Work on the judgment in the period 29 May 2024 to 14 June 2024 resulted in additional costs being incurred by the claimant.

1. 1. The defendants oppose the application. They say that no formal application has been made, and no evidence has been served in support of it. The budget originally approved was for representation of the claimant at trial by solicitors and counsel. In the event, the claimant was represented by counsel alone. The defendants say that there have been no significant developments sufficient to justify an increase in the original cost budget (approved three months before trial) by approximately 40%.

1. 1. As to item 1 (the accident) they say that this was not a significant development in the litigation. It did not lengthen the trial, and, although it may have led to my decision that written closing submission should be supplied, such written submissions would have been contemplated as a possibility at the time of the original budget.

1. 1. As to item 2 (amendment to particulars of claim), the defendants say, first of all, that this was an application which failed. Secondly, they say that the facts and matters relied on in support of the application to amend did not arise after the approval of the costs budget, and could not therefore be a development in the litigation.

1. 1. As to item 3 (the defendants’ further submissions), these were caused by the claimant’s amendment of his claim during his closing submissions. But there was no need for the claimant to respond to the defendants’ submissions. In any event, this was not a significant development.

1. 1. As the item 4 (draft judgment), the need for counsel to refresh his memory of the case by reason of a lapse of time between reservation of judgment and circulation of a draft arises often, and cannot be said to be a significant development in the litigation.

1. 1. As the item 5 (consequential matters), this would have been in the contemplation of the parties at the time that the costs budgets were approved. The nature of the claim was known and the need for consequential matters to be dealt with was foreseeable. It is not therefore a significant development.

1. 1. I am not concerned about the lack of a formal application. I am more troubled by the lack of any evidence to support the application. The scale and extent of the extra work said to have been caused by the developments is something which could well have been the subject of a short witness statement. In the event, in the present case it does not matter.

1. 1. I accept that all of the five matters referred to by the claimant can be regarded as “developments” in the litigation. And I accept that all of them may have had an impact on the costs incurred by the parties. But some of them are matters which arise frequently in litigation, and can properly be regarded as within the contemplation of the parties at the time that costs budgets are being formulated. Costs budgets are not limits on costs being incurred. Assessment is a different process which takes place later. There is nothing to stop the claimant seeking to recover the extra costs to which he says he has been put when it comes to assessment.

1. More importantly, I do not regard any of these five matters as a “significant” development in the litigation which should justify a variation of the budget. The use of the word “significant” in the rule is deliberate. It is not every development that requires variation in the budget. Otherwise large amounts of pre-trial preparation time would be taken up with making applications for budget variations. Accordingly, I dismiss the application for a variation of the costs budget.