Attention litigators – a key case regarding an application to amend a costs budget – the Threshold Test

Costs and case management is a prospective not retrospective exercise. This article is a must read for all litigators involved in costs management. There are important decisions made in this case regarding the revision of costs budgets and the importance of prompt applications.

The case of Persimmon Homes Ltd & Anor v Osborne Clark LLP & Anor [2021] EWHC 831 (Ch) (12 April 2021) is a professional negligence claim relating to the drafting of two option agreements and ancillary advice for the development of land, the value of this claim is in the region of £10million.  Running alongside this claim, is the case brought by Osborne Clark against Persimmon Homes Limited (the Developers) for unpaid fees of approximately £400,000.00. Both claims are being case managed together and the court has approved combined costs budgets.

An application was made on 21 December 2020 by the Developers to vary their costs budget. The application was supported by a witness statement and Precedent T which set out the requested variations.

The Developers’ application was considered in the High Court by Master Kaye. CPR 3.15A was the main test considered for the application. A party must revise its budgeted costs either upwards or downwards if there has been a significant development in the litigation to warrant the revision and it must be made promptly. This is now known as the “Threshold Test”. The variation must be in the form of Precedent T in accordance with PD 3E and confined to the costs occasioned by the significant development. The Precedent T must be submitted to the court with the last approved budget and with any explanation if the difference has not been agreed. It is then the Court’s decision whether to approve, vary or disallow the proposed variations.

The Threshold Test.

The Threshold Test is a two-stage mandatory test.

  1. The party making the application must satisfy the court that there has been a significant development in the litigation which warrants a revision, either upwards or downwards, to the last approved or agreed budget;
  2. The particulars of the variation must be submitted promptly both to the other parties and the court.

If there has not been a significant development; then the court does not need to go any further. If there has been a significant development; then the court will consider whether the application was made promptly.

If the court is satisfied the mandatory requirements have been met, the court can then use its discretion under CPR 3.15A (5) & (6) in relation to the variation itself and the incurred costs to vary the budget. It is at this point that the court will undertake a more detailed consideration of the amount of the variations sought and to be allowed.

Master Kaye stated: ‘the court must have regard to the overriding objective and all the circumstances of the case including the need to deal with cases justly and at proportionate cost’. This included considering the prejudice to both parties if the revisions were or were not allowed.

Variation sought.

The Developers’ last approved costs budget was in the total sum of approximately £1.4million, with approximately £1million being future costs.

The Developers sought to increase their costs by approximately £1.3million, which was more than double the future costs approved at the CCMC in December 2019.

The Developers relied on three significant developments to support their application to vary, and Master Kaye applied the “Threshold Test” to each one.

  1. Requests for further information (RFI)

A RFI consisting of two pages was served on 25 February 2020 and a four-page response was served in August 2020. Master Kaye found at the time the budget was approved in December 2019, that the costs and associated costs of the RFI was not anticipated or included in the Developers’ costs budget. She therefore turned to the “Threshold Test” and applied the same. She noted that the application to amend the budget was made 4 months after the costs had been incurred and 10 months after the RFI was served.  Master Kaye found that the RFI was not a significant development, and that the application was not made promptly. Consequently, the Developers failed the “Threshold Test” and the request for additional costs was refused.

  1. Further CMCs

The Developers sought an additional £99,250.00 to cover the costs of two further CMCs, which primarily dealt with disclosure related issues. The Developers submitted that the further CMCs had not been anticipated when they prepared their costs budget on 25 October 2019. Master Kaye did not agree and found that despite the CCMC Order providing a direction for the first further CMC, neither party had asked at the CCMC for permission to amend their budgets. Master Kaye found that both parties knew about the first further CMC from at least 3 December 2019, and therefore because of that, this was deemed not to be a significant development to the litigation.

Furthermore, the application had not been made until 12 months after the CCMC and four months after the first further CMC took place and therefore Master Kaye found the application was not made promptly.  Consequently, the Developers failed the “Threshold Test” and the request for additional costs was refused.

  1. Disclosure

The parties had been unable to agree the approach to disclosure prior to the CCMC in November 2019. The Developers sought to limit their disclosure to non-search-based Models A and B, whereas the Defendants sought Model C and D search-based disclosure. At the CCMC the Deputy Master encouraged the parties to focus on Model C request-led search-based disclosure and relisted the CCMC for 3 December 2019. Between 18 November 2019 and 3 December 2019, the parties considerably agreed Model C requests for the issues for disclosure. No application to vary the costs budget was made at or in advance of the first further CMC in December 2019, despite the Developers’ budget previously being approved on the assumption of Models A and B.

It was the Developers’ position that the change to Model C in November 2019 was a significant development in the litigation that warranted a revision to their costs budget, and it was so significant that it affected every subsequent phase of the costs budget. The Developers stated this was not anticipated at the time when the costs budget was approved.

Master Kaye did not agree and held that the Developers knew that disclosure was to be request-led search-based disclosure from 18 November 2019. Therefore, the change to Model C should have been anticipated as well as the costs associated with this.

Master Kaye was not persuaded that the clarification of the implications of Model C was itself an independent significant development and therefore the first part of the “Threshold Test” was not met.

When considering the second part of the “Threshold Test”, Master Kaye held that a 12-month delay before making an application to vary was not prompt. The request for additional costs was refused.

Things to note.

  • Master Kaye said: “The purpose of costs budgeting is to enable the court to control the parties’ recoverable costs prospectively not retrospectively” and parties should be well used to providing costs for future phases.
  • A significant development has to be considered in the context of each case and with proportionality in mind. A costs management order and any approved costs budget does not mean a party has to limit the costs which they spend on the litigation, it will however be at their own cost risk if the budgeted costs are exceeded. The costs which are incurred that are in addition to the budgeted costs are at risk of being disallowed if a good reason to depart from the budget cannot be demonstrated.
  • Costs budgets should be kept under review throughout the litigation. If there is a significant development and a revision to the budget is required, the parties should follow CPR 3.15A as this is the test which will be applied when considering any application to amend a costs budget.
  • Master Kaye provided an example of where a significant development in the litigation is likely to be allowed. The example provided was where there is a proposed variation to add in a new phase such as expert evidence, where no expert evidence had previously been permitted. She accepted that this would impact the other phases and that a variation to the other phases was also required, for example, amendments to the trial phase to include the expert costs of attending trial, as well as the additional costs of extending the trial length.
  • Master Kaye also provided questions for litigators to consider where the significant development is said to be a change to an existing phase. These questions are whether the matters raised by the applicant, change the overall scope and likely cost of that phase? Were they, or should they have been taken into account when the last costs budget was approved?

Comment.

Litigators must actively review and manage their costs during the course of the claim. If a party considers the costs involved will be higher than anticipated and there is a significant development to warrant the increase in costs, then an application needs to be made and promptly.

If costs exceed the budgeted figures, then all may not be lost as you may be able to persuade a Costs Judge at detailed assessment that there is a good reason to depart from the costs budget. However, leaving this to the last minute is not advised and successfully applying to vary a costs budget will be better practice.

One point to note is that the CPR includes a provision for parties to review, monitor and revise budgets and allows parties to recover 2% of the approved budgeted costs for work undertaken in relation to this.

How A&M Bacon Ltd can help?

We have experts who will be able to assist with all your costs management requirements, including preparing costs budgets, negotiations, budget monitoring, updating costs budgets and making applications to amend a costs budget.

Please do get in touch if you need any assistance with any of your costs management requirements.

Nicola Magrath, Costs Solicitor, A&M Bacon Ltd

www.aandmbacon.co.uk

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