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Costs Budgeting – After The “big Bang”

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It has been some months since the introduction of costs budgeting to the CPR and now is the time to review where we are following this major change in costs management.

The first time that the Court has looked specifically at costs budgets in the post Jackson environment

Costs budgeting in libel cases under the new regime has already been tested in Andrew Mitchell MP’s ‘Plebgate’ battle against The Sun publishers, News Group Newspapers.

This should have been a relatively straightforward libel case in the High Court, but costs budgeting was a requirement before the case could be heard.  Mr Mitchell’s legal team failed to file a costs budget with the Court seven days before the CMC and as a consequence the Court imposed sanctions.The sanctions imposed by Master McCloud resulted in Mr. Mitchell being restricted to a budget consisting of only the applicable court fees.

Mr. Mitchell’s lawyers returned to Court to implore the Judge for relief from sanctions but the Judge took what is clearly a stringent pro-reforms stance and dismissed the application.The Judge would not ignore the fact that Mr Mitchell’s lawyers knew what was expected of them under the new regime and refused to alter her decision. 

Mr. Mitchell’s lawyers will now look to the Court of Appeal.It is probably no coincidence that such a high profile dispute has been made an example of and will no doubt be the blueprint for the costs budgeting era.This should be a stark warning to all practitioners that non-compliance with the costs budgeting rules may lead to catastrophic financial losses.

Other decisions

There have been other cases to note, which while they relate to matters under the pilot schemes, do provide further indications of the stance that Courts will adopt under the new regime.

Kim Murray (1) Jean Stokes (2) v Neil Dowlman Architecture Ltd [2013] EWHC 872 (TCC) dealt with the subsequent revision of an approved budget.The Claimant’s budget was approved by the court at £82,500, however it was later noticed that the budget did not state that it excluded the ATE premium and success fee and therefore relief from sanctions was sought.

In this case the Court allowed the budget to be revised, taking into account that Precedent Form B assumes that additional liabilities may often be excluded from budgets.Essentially it was found that the Claimant was guilty of nothing more than failing to tick a box.However, Mr. Justice Coulson made it clear that the outcome was likely to be an exceptional one, stating that “In an ordinary case, it will be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a costs budget, which is then approved by the court, should be subsequently revised or rectified….”

It was also emphasised that the absence of prejudice alone would be unlikely to justify revision of an approved budget.Overall, although revision of the budget was allowed, the impression given by the Court is that such revisions will be extremely rare in the future and therefore it will be imperative that budgets are as accurate as possible when submitted.

Mr. Justice Coulson also handed down judgment in the case of Elvanite Full Circle Limited v AMEC Earth & Environmental (UK) Limited [2013] EWHC 1191 (TCC) which, among other issues, dealt with the procedures to be followed when seeking approval of a revised costs budget.This included when a party should make an application for approval and what test the court would apply on such an application.

In this case the court made a Costs Management Order that approved the parties’ budgets. he Defendant sent to the Claimant a revised budget from £264,708 to £531,946.18 which was opposed by the Claimant who notified its opponent that its own budget should be revised from £212,533.25 in respect of costs and £104,800 for the ATE premium to £372,179.53.

Neither side formally applied to revise their costs budgets either prior to the Trial or Judgment being handed down.The Defendant successfully defended the claim and sought costs in line with the increased budget.The Judge disallowed the increase on the basis that the Defendant had not formally sought approval from the Court and as a result the Court had been unaware of the increase pre-Trial.The Judge also took the view that an application post-Trial would be a contradiction as it would no longer be a budgeting exercise but would be based on actual costs.This could encourage parties to ‘wait and see’.

The case of Slick Seatings & Anor v Adams & Ors [2013] EWHC (Mercantile) highlights how accurately budgeting costs between phases lead to those budgeted costs being awarded by the court.The case involved a damages award of £4.4m and costs were summarily assessed in full to be paid in 14 days, where the approved budget was £359,000 and costs claimed were in the sum of £351,267.35.HHJ Brown allowed the Claimant’s claimed costs as in his view the Claimant had laudably kept within budget and exercised control and expenditure in an exemplary fashion and that the sum claimed for each phase was within the set budget.In this case a realistic and accurate costs budget saved the Claimant the cost and time of assessment proceedings.

Finally, a battle is about to rage concerning the exemption of mandatory costs budgeting in high value commercial cases.The City of London Law Society has called for the 2m exemption for costs budgeting to be retained in the rules and a sub-committee of the CPR committee has completed a consultation process looking to remove those exemptions suggesting that they may be unnecessary and inappropriate.A decision is expected in the autumn.

It is very clear that Courts will take a very firm line as to costs budgeting and that it is imperative that costs budgets are prepared as accurately as possible from the outset.Costs incurred must also be regularly monitored to ensure that any variances in the costs budget are dealt with by way of a formal and prompt application to the Court.

We will watch with interest the developments in the law regarding costs budgeting and if you have any questions regarding this new procedure please feel free to contact us.

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