With the aim of reducing costs in litigation, a key element of the Jackson reforms is accurate costs budgeting. A recent case highlights the importance of getting cost estimates right first time. The case was proceeding under the costs management pilot scheme and whilst the Claimants were allowed to revise their budget to rectify an error, the Court warned that this was due to the special circumstances of the case, and that it will normally be extremely difficult to persuade the Court that mistakes in an approved budget should be rectified - even where there has been no prejudice to the other party.
Murray and another v Neil Dowlman Architecture Ltd (2013) was part of the costs management pilot scheme for cases in the Technology and Construction court (TCC). The rules of the pilot scheme, which have now, with little difference, become part of the new post-Jackson regime (further detail on the Jackson reforms can be found here), required parties to exchange detailed costs budgets to be approved by the court. According to the rules, when assessing costs at the end of the case, the court should not depart from the approved budget unless satisfied that there is a good reason to do so.
In March 2013, the Claimants' solicitors entered into a Conditional Fee Agreement ("CFA") with the Claimants, which provided for a success fee. The Claimants also obtained after the event ("ATE") insurance, and notification of both the CFA and the ATE insurance was given to the Defendant. In line with the rules, the parties exchanged costs budgets and at the first case management conference the Claimants' budget was approved in the sum of £82,500.
One month later, however, the Defendant notified the Claimants that their approved budget had not specified that it excluded the CFA success fee and ATE insurance premium. As a result, the Defendant intended to argue on assessment that the Claimants should not be permitted to recover that sum, if it were over the approved budget. The Court considered whether the Claimants should be permitted to revise the budget to clarify that the success fee and ATE insurance premium were excluded.
It was held that the budget could be revised. However, Coulson J emphasised the unusual facts of the case and stated that in ordinary circumstances it would be extremely difficult to persuade the court to allow a revision to the budget to correct mistakes. It was relevant that the Defendant was notified of both the ATE insurance and CFA; there could be no argument that they were misled or confused by the Claimants' actions. However, the Court did not consider that the absence of prejudice alone would be enough to justify the revision of the approved budget. Particularly in light of the emphasis in the new rules on compliance with the CPR and with court orders, parties will no longer be able to avoid the consequences of their mistakes on the basis that the other side has suffered no prejudice as a result.
The critical factor in this case was Form HB, which was the costs budget form the Claimants should have completed for the Case Management Conference. This contained boxes to be ticked to indicate what was excluded from the budget - including success fee and ATE insurance premium. Coulson J described the Claimants' mistake as a failure to complete the correct form and to see that there was a box to be ticked, and held that they should not be penalised simply for failing to tick a box. Moreover, Precedent H, the form which should be completed for costs budgeting as part of the post-Jackson regime, has dispensed with such tick boxes and expressly excludes success fees and ATE insurance premiums. If the Claimants had prepared their budget in April, using Precedent H, there would have been no mistake. Their difficulties arose out of the costs management pilot scheme and the particular form that was used as part of the pilot. Consequently they were allowed to revise the approved costs management order.
This case is the first reported case since the Jackson reforms went live in which a court has considered the proper approach to granting permission to revise or rectify an approved costs budget. Although the Claimants were successful, the decision makes clear that in future such permission will not be granted lightly. Coulson J commented that:
"The courts will expect parties to undertake the costs budgeting exercise properly first time around, and will be slow to revise approved budgets merely because, after the event, it is said that particular items had been omitted or under-valued. I also agree that any other approach could make a nonsense of the whole costs management regime."
These comments follow the strict approach to case management advocated by Jackson, and demonstrate that the burden is on parties to submit accurate cost budgets in the first place, given that there may be little, if any, room for error.