A watchful eye

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Michelle Walton, Victoria Square Chambers, advises on the importance of keeping an eye on your budget at all times – and always update incurred costs wherever possible.

We recently attended a CCMC where our client’s ‘Liability Only Budget’ was more than double that of an earlier approved ‘Liability AND Quantum Budget’.

The incurred costs alone in the ‘Liability Only Budget’ were greater than the total sum approved (incurred and estimated) for the Liability and Quantum Budget.

This case serves to highlight the fact that incurred costs should be updated whenever possible but also serves as a warning of how costs can spiral upwards from that originally envisaged,when an initial Budget is drafted or indeed approved by the Court.

The Case

The circumstances of the matter were that Full Trial Budgets (liability and quantum) had already been drafted by the parties, with a Costs Management Order being made in relation to the same at a CCMC. The Claimant’s Budget total was approved in the region of £80,000.

As proceedings progressed the Court decided that the matter would be better dealt with by way of a split trial and gave directions as such. The Court also therefore ordered that all parties were to file and exchange amended Budgets dealing with liability costs only.

Two further CCMCs came and went, both concluding without the parties’ Budgets being considered due to time constraints. Prior to each CCMC all parties updated their Budgets as they were entitled to.

The final CCMC took place over a year after the initial Order for ‘Liability Only Budgets’ and a year and a half after the initial costs management order (CMO) in relation to ‘Full Trial Budgets’. Once again, all the parties updated their Budgets prior to the CCMC. The Claimant’s ‘Liability Only Budget’ now stood at around £200,000 with approximately £90,000 incurred costs.

Both Defendants made submissions that as the Claimant’s ‘Full Trial Budget’ had been approved at £80,000, this figure had been considered by the Court to be reasonable and proportionate for a full trial. Therefore, it could not be reasonable to allow a figure above this for a liability only trial which had been directed to potentially reduce costs.

Whilst the Defendants’ submissions seemed logical, there was one main issue – the Claimant had already incurred £90,000, £10,000 more than the Defendants were offering for the entire ‘Liability Only Budget’.

Submissions were therefore made on behalf of the Claimant that to accept the Defendants’ submissions was simply not within the Court’s power. This is because CPR PD 3E para 7.4 clearly states: ‘As part of the costs management process the court may not approve costs incurred before the date of any budget.’

Irrespective of the fact a CMO had already been made in the case restricting the Claimant’s costs to £80,000, the Court itself had utilised PD 3E para 7.5 and given directions for amended Budgets dealing with liability costs only. As the wording of paragraph 7.4 states that it applies to any Budget, it therefore applied to the ‘Liability Only Budget’ before the Court. It was not therefore within the Court’s power to restrict the Claimant’s Budget to £80,000 where the incurred costs were in excess of this sum.

After much deliberation – and despite openly sympathising with the Defendants – the Court begrudgingly accepted the Claimant’s submissions that it could not approve the Budget at less than the figure claimed for incurred costs.

The Defendants then submitted that the Budget should therefore only be approved at the incurred costs figure, something that was within the Courts power. The result of this would leave the Claimant with £nil for future costs.

As such, the Claimant reminded the Court of the other Overriding Objective which always seems to be forgotten about in favour of its seemingly more popular sister Proportionality; that is, that the courts must deal with cases justly.

It was submitted on behalf of the Claimant that to allow the Claimant £nil going forward would be in breach of the Overriding Objective. To not allow the Claimant any costs to finalise its case, prepare for and attend trial would clearly be unjust and would not result in a fair trial. These submissions were accepted by the Court.

Importance of the Decision

This example, whilst unusual in its factual chronology, confirms that – no matter how much incurred costs have increased since any previous Budget – if the opportunity presents itself to update a Costs Budget, the incurred costs should always be updated as they cannot be touched by the Court under the current rules.

It is also a reminder that when considering Costs Budgets, although the courts must consider proportionality, they must also ensure that any reductions do not result in an unjust outcome.

Further, whilst the courts can consider the incurred costs when considering a suitable allowance for estimated costs under CPR 3E para 7.4, the current trend when CMOs are being made is for parties to ensure a statement is included that the incurred costs are not agreed.

Therefore, no matter the extent of incurred costs, they are still exposed to the risk of being reduced at assessment. To reduce estimated costs on the basis of the level of incurred costs claimed (when incurred costs could be reduced on assessment) can also result in an unjust outcome.

A word of warning

The above case is a prime example of how costs can unexpectedly increase over and above what was originally envisaged when a Costs Budget was first drafted. In this example £80,000 was initially allowed by the Court for a full trial. A year and a half later, it was envisaged that nearly £200,000 would be necessary for a split liability trial only.

This case therefore also serves as a warning as, if amended Budgets had not been ordered by the Court in this matter, the Claimant would have found itself in a tricky situation when it came to assessment; its costs would have far outweighed those allowed by the Court in its original Budget.

It is therefore imperative that a close and constant eye is kept on costs as a claim is progressed. As soon as it is apparent that a matter is more complex than originally thought or issues arise which were not envisaged at the outset, an application should be made under CPR 3E para 7.6 to revise any previously agreed or approved budgets.

To not do so and to arrive at assessment with a Bill of Costs greater than a Budget subject to a CMO can spell disaster. Whilst the courts do have the power to depart from an approved Budget, they will only do so where there is ‘good reason,’ something which is notoriously difficult to show. Parties can therefore find themselves awarded costs far below what has been incurred and potentially even far below what would be considered reasonable had a CMO not been made (as in Henry v Newsgroup Newspapers Limited [2012] EWHC 90218 [Costs]), simply because they failed to keep an eye on their Budget.

Michelle Walton, is an Advocate at Victoria Square Chambers.
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