The recent decision of the Technology and Construction Court (TCC) in Elvanite v Amec has provided a clear warning to parties to prepare their costs budgets carefully and keep an eye on fees as matters progress. The decision also provides interesting commentary on how the costs management scheme may be used when assessing costs other than on a standard basis.

With a sub-committee of the Civil Procedure Rules Committee considering whether to dispense with the current value based exception (the costs management regime currently does not apply to claims over £2million) and also considering the extent to which the regime should apply to Part 8 and Judicial Review applications, it is clear that an understanding of the approach the courts are taking to costs management will be highly valuable for all users of the TCC and other specialist courts.

Background

In May 2011, the claimant took out after-the-event (ATE) insurance against the risk of having to pay the defendant’s costs. The limit of the cover was £250,000. Proceedings were commenced in July 2011 and the claimant duly notified the defendant of the limit of its cover.

The parties submitted their costs budgets in accordance with the rules of the TCC costs management pilot scheme. On 31 May 2012, the court made Costs Management Orders approving the claimant’s costs budget of £317,333.25 (this included £104,800 in respect of its ATE Insurance premiums which, since 1 April 2013, are no longer recoverable, but were for the purposes of Elvanite v Amec) and the defendant’s costs budget of £264,708.

One month before trial the defendant sent an updated costs budget to both the claimant and the court, with a revised figure of £531,946.18. Although the claimant objected to the revised budget, neither party sought approval from the court to amend the original costs budgets which were the subject of the Costs Management Orders.

At trial, Mr Justice Coulson dismissed the claimant’s claim in its entirety, and awarded the defendant £3,500 (plus VAT and interest) in respect of one aspect of its counterclaim. It was not disputed that the claimant was liable for the defendant’s costs, however, the question when the parties came before the court again in June 2013, was whether the claimant was to be liable for the amount in the approved costs budget, or the defendant’s actual costs which were nearly double the approved figure.

Decision

Mr Justice Coulson referred to the earlier decisions of Henry v News Group Newspapers Ltd [2013] EWCA Civ 19 (click here for more detail) and Murray and Stokes v Neil Dowlman Architecture Ltd [2013] EWHC 872 (TCC) (click here for more detail) and confirmed that the courts would need a good reason to depart from an approved costs budget.

The defendant argued that it was entitled to indemnity costs on the basis that the claim against it was “speculative and grossly exaggerated”. While the judge found that indemnity costs were not appropriate in the circumstances, he noted that, although both PD 51G and CPR 3.18 refer to the costs management order as being relevant to the assessment of costs on a standard basis, “as a matter of logical analysis, it seems to me that the costs management order should also be the starting point of an assessment of costs 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.”

The judge noted that any application to revise an approved budget should be made as soon as it becomes apparent that the original budget has been exceeded by an amount that is more than minimal, and in any event, the application must be made before trial. For the court to allow an application to be made after trial would be contrary to the clear intention of PD51G, and would make a nonsense of the entire costs management regime.

The judge also observed that the claimant would be prejudiced if the defendant was allowed to revise its budget. In making that observation, the judge drew attention to the fact that the claimant had fought the trial knowing that, due to its ATE cover, and on the basis of the defendant’s original costs budget, it would only be liable for a maximum of £18,488.

Finally, the judge considered that, if he was wrong in the view that an application to amend a costs budget should not be allowed after trial, the defendant would be required to show good reason why the application was made so late, as well as good reason to depart from the approved budget. Although the judge did not consider that the reasons raised by the defendant justified a departure from the approved budget, he did note that where expert evidence was required on a subject that neither party had considered would be the subject of expert evidence, that may give rise to grounds for a departure from the budget.

Comment

The decision in this case not only provides further valuable insight into the TCC’s approach to costs management and budgeting, it also heralds a warning to those who may have thought that a claim for indemnity costs would be a way around the limitations of an approved costs budget. Mr Justice Coulson’s comments in respect of ATE insurance are also particularly noteworthy and it will be interesting to see whether this will be the beginning of a trend in which one party’s insurance (for pre 1 April 2013 claims) becomes a barrier to its opponent’s application to revise an approved costs budget.

Reference: Elvanite Full Circle Ltd v Amec Earth & Environmental (UK) Ltd [2013] EWHC 1643 (TCC) click here.