A decision handed down last week further indicates the strict approach the courts are likely to apply where costs budgets are exceeded: Elvanite Full Circle Limited v AMEC Earth & Environmental (UK) Limited  EWHC 1643 (TCC).
The judge (Coulson J) refused to entertain an application to amend the approved costs budget after judgment, saying this would be a “contradiction in terms”. The judgment highlights the need to make a formal application to amend as soon as it becomes apparent that the original budget has been exceeded “by a more than minimal amount”.
On the question of whether the successful defendant could recover more than the budgeted costs, Coulson J said that whether there was good reason to depart from the budget was primarily a matter for the costs judge on detailed assessment. His view, however, was that there was no good reason for the principal increase, relating to expert’s fees.
This case proceeded under the pilot costs management scheme which applied to cases in the Technology and Construction Court (TCC) before 1 April 2013. Similar procedures have now been implemented more widely as part of the Jackson reforms (see here for more information). The rules provide that when assessing costs at the end of the case the court will not depart from the approved budget unless satisfied that there is good reason to do so.
In this case the court had approved the successful defendant’s costs budget of £268,488, but the defendant sought total costs of £497,594.
About a month before trial the defendant had sent the claimant and the court a revised costs budget, which doubled the previous estimate to £531,946. However, this had not been included in the trial bundle and had not been seen by the judge. There had been no application to the court to revise the costs budget before or during the trial.
The court considered whether the defendant could recover more than its budgeted costs, either by seeking to amend the costs budget after judgment, or by establishing good reason to depart from it.
In considering the proper approach toward costs budgets, Coulson J referred to Moore-Bick LJ’s comments in Silvia Henry v News Group Newspapers Ltd  EWCA Civ 19 to the effect that the court will place particular emphasis on the function of the budget as imposing a limit on recoverable costs (see post) and his own comments in Murray v Neil Dowlman Architecture Ltd  EWHC 872 (TCC) that, in an ordinary case, it will be extremely difficult to persuade a court that mistakes in a court-approved costs budget should subsequently be rectified (see post).
On the question of whether the budget could be amended, the judge held that an application to amend an approved budget after judgment was “a contradiction in terms”. An application must be made before trial, as soon as it becomes apparent that the original budget costs have been exceeded by a more than minimal amount. Further, a party that wishes to make significant changes to its costs budget must formally seek the court’s approval. It is not enough simply to file the material at court, as the defendant had done in this case.
On the question of whether the defendant could establish good reason to depart from the approved budget, Coulson J said that this was primarily a matter for the costs judge on detailed assessment. However, he expressed his views briefly, which were in summary:
- This was a case that had gone pretty much as might have been expected from the outset. There was therefore limited scope to argue that there was good reason to depart from the costs management order.
- Given the scope of the overspend it must follow that something went wrong in the original estimate. As he had said in Murray, it was doubtful whether a mistake in a costs budget would, of itself, amount to a good reason for a later departure.
- Whether there was prejudice to the claimant was much less relevant under the new rules, and in any event the judge did not accept that there was no prejudice in this case. The claimant had fought the case on the basis that its potential exposure to the defendant’s costs was relatively modest, as it had taken out ATE insurance up to a limit of £250,000. It had therefore relied on the costs management order.
- The most significant increase related to expert’s fees (£30,500 budgeted and more than £200,000 incurred). This appeared to have resulted from an under-estimation, and because the defendant had initially failed to prepare its expert evidence in accordance with the court’s directions. Save in relation to one issue which arose late, the judge’s view was that there was no good reason to depart from the budget for expert’s fees.
Accordingly, the judge said that whilst he could not rule out an application to the costs judge that there was good reason to depart from the approved budget, he considered that the principal increase, in relation to expert’s fees, was not justified by any good reason.
This decision is of interest as a further example of the court’s strict approach toward departures from approved costs budgets.
The judge’s view that a costs budget cannot be amended after trial is perhaps unsurprising. However, parties should take note that an application to amend should be made as soon as it becomes apparent that the original budget has been exceeded by a more than minimal amount, and that this must be by way of a formal court application.
The judge also made interesting comments regarding the relevance of a costs management order to an assessment of costs on an indemnity basis, although they were obiter (as the court rejected the defendant’s application for indemnity costs in this case). The judge recognised that, prima facie, the costs management rules are relevant only to an assessment of costs on the standard basis but added that “as a matter of logical analysis” the costs management order should also be the starting point for assessment on an indemnity basis “even if the ‘good reasons’ to depart from it are likely to be more numerous and extensive if the indemnity basis is applied”.
This seems surprising. Although (as the judge notes) the costs budgets as prepared by the parties represent their estimate of all the costs they think that they will incur, the costs budgets as approved by the court are limited to what the court considers reasonable and proportionate for each stage of the litigation. Given that considerations of proportionality are not relevant to an assessment of costs on the indemnity basis, it seems surprising that the court-approved costs budgets should be used as the starting point in that context.