New Developments in Cost Budgeting
Ben Williams QC, Rob Marven QC and Benjie Fowler consider the changes to cost budgeting introduced in October 2020.
Another year, another set of changes to the cost budgeting regime. The focus is on varying the budget – not only have the rules changed, there is a new precedent form to get to grips with, Precedent T.
Rule 4 of the Civil Procedure (Amendment No.3) Rules 2020, SI 2020/747 introduces a series of changes to CPR Part 3 which came into effect on 1 October 2020.
The amendment includes the following changes, though they do not seem to be major changes of substance:
- An express power in the new CPR r 3.13(3) for the court to order parties to file cost budgets even if the rules do not otherwise require this. The court always did have a power in r 3.12 to order budgeting where the regime did not automatically apply, so this is more by way of encouragement than a new power.
- The new CPR r 3.13(4) provides expressly that the court may in a “substantial case” direct that budgets are limited to particular parts of the proceedings and extended later to cover the whole proceedings.. This is really the rule catching up with what has become familiar (and, it is suggested, sensible) practice in substantial matters in particular heavy commercial litigation and group litigation.
- The rules on the costs of budget preparation (the £1,000/1% cap for completing the Precedent H and the 2% cap for the budgeting process) have been moved from PD 3E to the new CPR r 3.15(5).
- Confirmation (in the new CPR r 3.15(8)) that cost management orders concern the totals for each phase of the budget, but they do not fix or approve the underlying detail, including hourly rates. This is also something that has been moved from the PD to the rules; but spells out more fully the role of the underlying detail “for reference purposes to assist the court in fixing a budget”.
- The new CPR r 3.17(3) states that the court may not approve costs incurred “before the date of any costs management hearing”, but it may record comments on those costs. This too has been brought across from the PD, but with a slight change to the wording from “up to and including the date of the costs management hearing”. As such, the estimated costs of the CMC hearing itself can be subjected to budgeting, as they were before the previous revision to the PD.
- The new CPR r 3.17(4) provides that the court may treat the costs of an interim applications as additional to the approved budgets, if it was reasonable not to have included the application in the budget. This is pretty clearly directed to the court assessing costs; and once again it is something which has been transferred from the PD to the rule.
The one addition to the PD concerns “oppressive behaviour”: the new para 13 provides that “Any party may apply to the court if it considers that another party is behaving oppressively in seeking to cause the applicant to spend money disproportionately on costs and the court will grant such relief as may be appropriate.”
Perhaps surprisingly, the threshold of “seeking to cause” could be read as suggesting that the behaviour must be deliberate; but this may not be intended, nor how the PD will be construed. That aside, this new provision could not have been more widely drawn. It will surely give rise to disputes in the future both as to whether it is engaged, and what an appropriate sanction should. Whether it will result in a decrease in oppressive behaviour surely remains to be seen.
New rules on revision and variation of cost budgets
A new rule 3.15A has been introduced containing a much more detailed procedure for the revision and variation of cost budgets. This is the most substantial aspect of the amendments, and the one likely to generate the greatest amount of interest.
The old regime for varying and revising budgets was set out in paragraph 7.6 of PD 3E; this required parties to revise budgets upwards or downwards where they are warranted by significant developments in the litigation, and required the amended budget to be submitted to the other parties for agreement, failing which it should be submitted to court with a note of (a) the changes made and reasons for them; and (b) the other parties’ objections. The court would then be permitted to approve, vary or disapprove the revisions.
The change from the wording in the PD that “Each party shall revise its budget…” to the wording in the new r 3.15A(1) that “A party … must revise its budgeted costs” may not be a change of real substance, but it underlines the mandatory nature of the revision regime.
The new rule maintains the threshold test of “significant developments”. No further guidance has been provided on what will amount to a significant development warranting a change. There will therefore remain plenty of scope for argument though many masters and judges may continue to adopt the approach taken by Master Davison in Al-Najar v The Cumberland Hotel  EWHC 3532 (QB) where he set out a series of 5 principles – the essential conclusion being that the touchstone is not that the costs were unforeseeable at the time of the CMO or that the litigation took an abnormal course, rather a change in the assumptions leading to more than minimal change in cost.
Related issues will also continue to arise in the context of detailed assessment, where parties will be debating whether or not there is “good reason” to depart from a budgeted phase, where there is similarly no guidance whatsoever as to what amounts to a good reason. If there was no significant development warranting a revision, will there ever be good reason to depart upwards? Will a receiving party be less likely to persuade a judge that they should be able to do so if they have failed to comply with the revision procedure?
The rule keeps the reference to downward revisions from the PD. Amending the budget downwards is rare; there is no obvious benefit in doing so and no clear sanction for failing to do so. Nothing in the new rules suggests that this is likely to change.
As to the procedure itself, the revising party must complete Precedent T. On the first page of this precedent, the revising party must state the amounts of the variations and must certify that the additional costs are not included in any previous budgeted costs or variation. In later pages the party must identify the significant development, and then give explanations for each phase where the variation exceeds £10,000 (though a party might want to give an explanation even where the phase’s variation is less). Then the other party/parties must add their comments including a brief explanation (per phase) where the amount of the variation is not agreed, and the document is then sent to court to rule on that point.
Timing – when to submit the Precedent T?
CPR r 3.15A(2)&(4) require a party to submit a variation “promptly” first to every other party and then to the court. There is a helpful clarification is the provision in r 3.15A(6) that the variation can include costs incurred before the order for variation was made. However the requirement in the rule for promptness (reflecting the position articulated by Coulson J in Elvanite Full Circle Ltd v AMEC Earth & Environmental UK Ltd  4 Costs LR 612 that parties should seek to revise immediately it becomes apparent that the original budgeted costs had been exceeded by more than a minimal amount) means that at least on a cautious view a party is in danger of having its variation disallowed if it does not get on with the revision process as soon as the significant development becomes apparent.
The Court’s decision
CPR r 3.15A(5) provides that the court may approve, vary or disallow the proposed variations, having regard to any significant developments, or may list a further costs management hearing, That last proviso of course implies that (as before) often the court will decide the matter without a hearing.
Overall there has to be a concern is that a more detailed procedure with a prescribed form will escalate or prolong disputes about variations. For example, where the revising party has set out sub-optimal reasoning on the proposed change in the Precedent T, other parties may well seize the opportunity to oppose the application. On the other hand these reforms provide considerably more guidance, particularly as to how parties are supposed to go about justifying, or opposing, proposed revisions.
Disclaimer: this article is not to be relied on as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.