New Costs regime: Court guidance on amending budgets

The TCC has considered the potentially important question of the circumstances in which a costs budget, which has been approved by the court as part of a costs management order, can subsequently be revised or rectified. The judgment provides a useful reminder of the courts' approach, in particular its reluctance to permit amendments where an approved cost schedule is later found to contain mistakes, omissions or under-valued items.

Background

The case concerned proceedings in the TCC, which (prior to 1 April 2013) was one of the courts participating in the costs management pilot scheme. Prior to issuing proceedings, the claimants entered into a Conditional Fee Agreement (CFA) and obtained the benefit of After The Event (ATE) insurance. Form N251 was served, giving notice to the defendant of both the CFA and the ATE insurance; a fact that was not disputed by the defendant. The first Case Management Conference took place on 1 February 2013, at which the court considered the costs budgets filed by each party. The claimants’ costs budget was not in Form HB, an omission that was the subject of adverse comment by the judge. However, because the court considered that the claimants' costs budget appeared to be “substantially” in the right form, it was approved.

Due to the failure by the claimants to file a costs budget in Form HB, the defendant’s solicitor pointed out to the claimants’ solicitor that their approved costs budget failed expressly to exclude a success fee and an ATE insurance premium and, accordingly, the defendant intended to argue on an assessment of costs that the claimant should not be permitted to recover those sums over and above the approved costs budget.

The claimants consequently issued an interim application pursuant to CPR 3.9 for relief from sanctions, notwithstanding that what the claimants actually sought was revision / clarification of their approved costs budget pursuant to the costs management provisions of PD51G. From 1 April 2013, the relevant costs management provisions are at CPR 3.12 – 3.18 and 3EPD.1. Although the wording of these rules is not the same as PD51G, it is very similar, and allows the court to “approve, vary or disapprove [any proposed] revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed".

Decision

The court considered that the facts of the case were exceptional; the claimants had failed to tick a box in Form HB indicating that success fees and ATE insurance premiums were excluded from the costs budget. Further, such a box would not be included in the costs budget form (Precedent H) to be used from 1 April 2013. As a result, the court was persuaded to allow the rectification of the claimants’ costs schedule to clarify the position on funding. However, because the application arose as a result of a mistake by the claimants and the defendant had acted properly and fairly throughout, the claimants were ordered to pay the defendant's costs of the application

The Honourable Mr Justice Coulson's written judgment additionally provided some guidance on the court's approach to applications regarding costs budgets and the appropriate manner in which such rectifications should be sought.

The judge stated at paragraph 17 of the judgment 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”. He clearly reminded parties that “the courts will expect parties to undertake the costs budgeting exercise properly first time around, and will be slow to revise approved budgets merely because, after the event, it is said that particular items had been omitted or under-valued... any other approach could make a nonsense of the whole costs management regime”.

The judge also clarified that the absence of prejudice to the other party alone will not be sufficient to justify the revision of an approved budget and stated that the whole basis of the recent amendments to CPR3.12 – 3.18 and 3EPD.1 is the emphasis on the need for parties to comply with the CPR, and the court orders made under it. The judge’s view was that “it will no longer be possible in the ordinary case for parties to avoid the consequences of their own mistakes simply by saying that the other side has not suffered any prejudice as a result”.

Comment

Whilst the claimants were permitted to revise/rectify their costs budget in this instance, Mr Justice Coulson provided valuable clarification of the way in which such applications will be dealt with by the court under the new costs regime implemented on 1 April 2013. In the ordinary course, once a costs budget has been filed by a party and approved by the court, exceptional circumstances must exist for the court to allow a subsequent application to revise the approved budget. The omission or under-valuation of items, mistake or absence of prejudice to the other party will not be sufficient. The case highlights the importance for parties of submitting an accurate and realistic cost budget to the court in advance of the first Case Management Conference.

Further reading: Murray and Stokes v Neil Dowlman Architecture Ltd [2013] EWHC 872 (TCC)

The Defendants in the above claim were represented by CMS Cameron McKenna LLP. Should you require any further information on the issues arising from this judgement, do not hesitate to contact Cheryl Gibson or Joanna Owens on the contact details below.

CMS is running a series of events focused on the Jackson reforms in the week beginning 29 April 2013. There are still some places remaining for the session on Tuesday, 30 April 2013 from 3-6pm (“Briefings designed to ensure you understand the changes and their impact on your business”) and on Wednesday, 1 May 2013 from 4-6pm (“Sharing the risk, whether it be pain or gain – the future of third party funding for commercial disputes”). Please email [email protected] if you would like to receive more information or attend these events.