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Once a Costs Budget has been approved at a Costs and Case Management Conference, it is easy to view the budgeting exercise as finished and turn your attention back to progressing the claim.
In reality, litigation rarely unfolds exactly as anticipated. Directions change, new evidence emerges and additional work often becomes necessary. An approved Costs Budget should therefore be treated as a live document and reviewed throughout the life of the case.
Leaving it until the end of proceedings to consider whether the budget still reflects the work being undertaken can be an expensive mistake. If a significant development is missed, there is no guarantee that any resulting overspend will be recoverable.
Why should you monitor your Costs Budget?
Under CPR 3.18, when assessing costs on the standard basis, the Court will have regard to the receiving party’s last approved or agreed budgeted costs for each phase and will not depart from those figures without good reason.
Regularly revising the budget allows you to compare the work being undertaken against the assumptions and sums originally allowed. It also helps identify, at an early stage, whether the litigation has changed in a way that may justify a revision.
When does a significant development justify revising a Costs Budget?
Under CPR 3.15A(1), a party must revise its budgeted costs upwards or downwards where significant developments in the litigation warrant a revision.
There is no fixed definition of a “significant development”. Whether the threshold is met will depend upon the nature, scale and complexity of the particular case. Potential examples include:
A material amendment to the pleaded case;
Permission for additional expert evidence;
The addition of a new party to the proceedings;
A significant increase in the trial estimate; or
Further directions required work which was not contemplated when the budget was drawn and approved.
Ultimately, what matters is whether the development changes the work and likely cost of the relevant phase, and whether it was already taken into account when the budget was drawn/approved.
However, a key point to note is that a revision cannot be used to simply rectify an issue with the original budget and cater for additional costs which should have been reasonably foreseeable at the point of preparing the initial the budget.
Sharp v Blank & Ors [2017] EWHC 3390 (Ch)
In Sharp, the Court considered a number of alleged significant developments, including an extended trial timetable, substantial additional disclosure, and further expert evidence. The Judgment confirmed that significance is a fact-sensitive question which must be considered against the size, complexity and overall shape of the litigation. A development that is significant in one matter, may be relatively routine in another matter.
Seekings & Ors v Moores & Ors [2019] EWHC 1476 (Comm)
In Seekings, the Defendant sought to increase its budget by more than £130,000 by reference to matters including additional disclosure, requests for further information and increased expert costs.
The Court refused a substantial budget increase because the additional work either should have been anticipated when the original budget was prepared or resulted from the Defendant’s own conduct of the litigation. The case is a useful reminder than the variation procedure cannot be used to repair an unrealistic budget after the event.
BDW Trading Ltd v Lantoom Ltd [2020] Costs LR 1597
BDW Trading provides a practical example of a development affecting more than one phase. The original budget had anticipated fewer than 50,000 documents, with no more than 15,000 requiring individual review. More than 250,000 documents were subsequently identified, around 70,000 of which required review.
The increased disclosure burden was accepted as sufficiently significant to justify additional costs. The Court also considered its consequential effect on other phases, including witness statements and expert evidence, although it did not allow all the sums sought. The decision demonstrates that establishing a significant development does not mean the requested increase will automatically be approved in full; the revised figures must still be reasonable and proportionate.
What is the procedure for revising a budget?
Once a potential significant development is identified, its effect on the approved budget should be considered without delay.
Persimmon Homes Ltd and Taylor Wimpey UK Ltd v Osborne Clarke LLP [2021] EWHC 831 (Ch)
Persimmon Homes makes clear that there are two mandatory hurdles. There must be a significant development warranting revision, and the proposed variation must have been submitted promptly.
The applicants sought substantial increases arising from matters including changes to the disclosure model, further requests for information and additional case management hearings. The application was refused because the relevant developments did not justify the revisions sought and, in any event, the application had not been made promptly. The Court emphasised that costs budgeting is a forward-looking exercise and should not be approached by waiting for actual expenditure to become clear before seeking approval.
Khokan v Nirjhor (Re Costs) [2024] EWHC 1873 (KB)
The more recent decision in Khokan underlines how strictly promptness may be applied. Although the Court accepted that there had been significant developments, the variation was refused because the issue had not been raised soon enough. In particular, there was no satisfactory explanation for failing to address the position at an earlier hearing.
The decision does not impose a fixed time limit for serving a Precedent T. It does, however, show that a delay of only a few months may be fatal where the need for a revision was apparent and no good reason for waiting has been provided.
The first step is to review the last approved or agreed budget and identify which phases are affected. The additional work and costs arising specifically from the development should then be calculated. A variation must be confined to those additional costs; it is not an opportunity to revisit unrelated parts of the budget.
The proposed revision should be set out in Precedent T, which is the prescribed form for variations under CPR 3.15A. The revising party must certify that the additional sums have not already been included in an earlier budget or variation.
The Precedent T must be submitted promptly to the other parties with a view to reaching agreement. Although the form is relatively concise, it is often helpful to provide a clear explanation of:
The development relied upon;
When it arose or became apparent;
The phases affected; and
How the additional costs have been calculated.
Where agreement cannot be reached, the variation must be submitted promptly to the Court together with the last approved or agreed budget and an explanation of the outstanding points of difference. The Court may approve, vary or disallow the proposed revisions, or list a further costs management hearing.
CPR 3.15A does allow the Court to approve costs incurred after the original costs management order but before the variation is determined. That does not remove the requirement to act promptly or turn the process into a means of seeking retrospective approval once the work has been completed.
How can Peak Costs help?
At Peak Costs, we work with solicitors throughout the life of litigation. We can review your approved Costs Budget against current expenditure and developments in the case, advise whether the test under CPR 3.15A is likely to be met, and identify the phases affected.
Where a revision is appropriate, we can prepare the Precedent T and supporting calculations, assist with explaining the significant development, deal with negotiations and provide support through any subsequent application or Costs Management Hearing.
Obtaining advice early can make all the difference. Addressing potential revisions while the development is still current gives the best prospect of obtaining approval before substantial additional costs have been incurred.
For advice on monitoring or revising your Costs Budget, please contact Laura McAlister at laura.mcalister@peakcosts.com.
