Introduced in April 2013 as part of the Jackson reforms, Costs Budgets and Costs Budgeting are an important part of the new regime whereby the parties’ costs are actively managed by the court from an early stage to ensure the costs of the case are proportionate.
Budgeting only applies to prospective costs. Whilst the court may record comments about incurred costs and factor incurred costs into the budgeting of future costs, para.7.4 of Practice Direction 3E makes it explicitly clear that the court may not approve incurred costs. CPR rr.3.15(4) and 3.18(c) make clarify that the court’s recorded comments on incurred costs will be taken into account on assessment. However, this is of course outside the budgeting process. The recent amendments were in response to, and in effect overturn, SARPD Oil International Ltd v Addax Energy SA  EWCA Civ 120.
Over the summer, the courts have made several decisions on cost budgeting cases. For those who may have missed the latest updates from the court whilst on leave, here is a brief rundown.
JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev  EWHC 1853 (Ch)
Summary: The court granted an application by the twelfth to fourteenth defendants to increase their costs budget, because the length of the trial had expanded.
The facts: The court was required to deal with an application by the twelfth to fourteenth defendants (P), who were infant children, to increase their costs budget having regard to the fact that the trial had expanded in length.
The time for the trial was originally estimated for 8.5 days. It would now take a total of 10 days. P’s counsel estimated that that would necessitate three more days of preparation by him and two days of closing, along with three days of preparation by junior counsel and further work by the various solicitors. The extra total costs came to £84,000.
The claimants argued that the sum of £84,000 was too much, and that all the work that needed to be done should be covered by the existing budget.
Held: Application granted.
Although the figure of £84,000 seemed high, it had to be borne in mind that the budget for P was £1.8 million. The existing budget would not cover all the extra work that needed to be done. The extra work would ultimately assist the court in coming to a just resolution of the proceedings. An increase to P’s budget should be approved. The hourly rates being charged and the daily rates by counsel and the solicitors for P were reasonable and proportionate, at least for the purposes of approving a budget.
Mott v Long  EWHC 2130 (TCC)
The Facts: The defendants, whose solicitors had filed their costs budget 10 days late, sought relief from sanctions.
The costs budget was due to be filed by 11 July 2017, 21 days before the case-management conference. It was not filed until 21 July.
Held: Application granted.
It was necessary to apply the three-stage test set out in Denton v TH White Ltd  EWCA Civ 906,  1 W.L.R. 3926.
First, the court had to consider whether the breach was serious or significant. The answer was that it was, with the emphasis perhaps on “significant”. Lateness in serving a costs budget had the capacity to prejudice the very process of co-operation in the costs-budgeting process which the rules were designed to achieve.
Second, regard should be had to the reason for the default. The defendants’ solicitors had referred to “IT difficulties” but no detail about those difficulties had been given. The defendants had not established that there was good reason for the default.
Third, the court should consider all the circumstances of the case, including the need for litigation to be conducted efficiently and at proportionate cost and the need to enforce compliance with rules, practice directions and orders. Of relevance in the instant case was the fact that the defendants’ solicitors had in fact served a costs budget and had done so some time before the case-management conference. Further, the court had today made directions relating to expert opinion evidence and the estimated length of the trial which had given rise to the need for the defendants to file and serve a revised costs budget.
Accordingly, the parties were now in precisely the same procedural position in which they would have been so far as the process of costs budgeting was concerned had the defendants served their costs budget in time. That was a highly significant circumstance. It was appropriate to grant relief from sanctions, although the defendants should pay the claimants’ costs of and occasioned by the application.
Jagdish Lakhani & Anor v Ibrahim Sheikh Abdullah Mahmud & Ors  EWHC 1713
Summary: A judge had been correct to restrict the defendants’ recoverable costs to court fees only under CPR r.3.14 where they had served their costs budget late without a reasonable excuse. Although the decision was on the tougher end of the spectrum as to substance and on the leaner end as to analysis, the defendants had not been deprived of a trial altogether.
Facts: The claimants had sought an injunction to require the defendants to restore car parking spaces on specified land, which they contended should be done pursuant to a legal transfer. A district judge made an order which provided that the parties should file and serve updated costs budgets 21 days before the scheduled costs and case management conference to enable the parties to communicate with each other in good time prior to the conference to limit disputes over costs. The claimants served their costs budget on the correct day and the defendants served theirs a day late. The automatic consequence of the breach of the order was that, unless relief from sanctions was permitted, the defendants would not be able to recover any more than court costs if successful in the claim. The defendants initially disputed that the service was in fact late and the application for relief was only made just before the hearing.
Held: Appeal dismissed.
The judge had been entitled to take the factors into account that he considered particularly relevant to determining whether the breach was serious or significant and he was not obliged to treat the fact that costs budgeting could be done as the overriding one. The instant case was on the borderline of sufficient seriousness to warrant refusal of relief from sanctions but the court could not properly interfere on that basis, having regard to the approach required.
In applying the test laid out in Denton v TH White Ltd the court stated that some factors might be considered at more than one stage of the three-stage test. In the instant case, even if the judge had concluded that the breach was not serious, he would have been entitled to conclude at the third stage of Denton that the manner in which it was sought to be remedied, including the dispute over whether there was a breach and the lateness of the application, meant that relief from sanctions should not be ordered. It was therefore artificial to criticise his judgment on the footing that factors which had legitimately been considered at the first stage but which might better have been considered at the third stage also came in at the first.
The decision was on the tougher end of the spectrum as to substance and on the leaner end of the spectrum as to analysis. But the defendants had not been deprived of a trial altogether. Had that been the consequence, the situation would have merited more detailed scrutiny than the judge gave it. His decision operated to deprive the defendants of their budgeted costs if they succeeded at trial. Had this occurred, the decision would have a limited adverse impact on the defendants other than enabling the claimants to litigate without significant risk of having to pay the defendants’ costs. It was hard to criticise it as disproportionate. It could not be shown that the claimants were using the rules as a tripwire and their solicitors had promptly pointed out that without an application for relief from sanctions the consequences of CPR 3.14 would follow.
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