“Cost budgeting is about setting prospective costs and CPR3.15A is to enable the court to approach the question of variations and amendments in a practical and purposive way not to oust the role of the costs judge”
Master Kaye provides guidance on what constitutes a ‘significant development’, providing a threshold test to determine the court’s discretion to allow a variation focusing on the development, promptness of any application (in context allowing time for engaging in discussions with the other party) and what happens when it comes to the incurred costs in line with CPR 3.15A; ensuring not to step on the toes of detailed assessments and ensuring “good reason” for departure is still open to challenge where an application is not made in time.
The recent case of Persimmon Homes Ltd & Anor v Osborne Clark LLP & Anor  EWHC 831 (Ch) saw Master Kaye provide some clear and concise guidance on seeking revisions to an already approved/agreed costs budget. This is a must-read judgment for all those with a litigation or costs interest, and the most significant case since the introduction of the Precedent T last year.
In this professional negligence claim, the applicants sought to vary their previously agreed costs budget on the basis of a change to the Request for Information (RFI), Costs Budgets, additional CCMC’s, and disclosure phase; this resulted in an increase sought of double the sums previously allowed. Master Kaye’s judgment in this matter, explores in comprehensive detail providing some much-needed guidance surrounding revisions to an approved costs budget.
The Master considered the rule and history of CPR 3.15A; Revision and variation of costs budgets on account of significant developments within the judgment making his own emphasis on points (refer to para 17).
What variations were being sought?
In addition to the RFI/RRFI and additional CCMC’s for which variations were sought, the main crux of the Applicants reason to vary their budget was based upon the change of “Model” in terms of the disclosure review documents; changing from Model A/B disclosure, to Model C; thus affecting all future phases within the budget for which variations were now sought (estimated costs). The immediate issue lay in the application for variation being made in December 2020; four months after considerable costs being incurred. In supporting the reason for the arguably late application the Applicant stated “…had the Developers applied to vary speculatively in November 2019, February or April 2020, before they knew the actual costs it was likely that they would have had to make a further application…
Master Kaye commented that this was “approaching costs budgeting from the wrong direction. Cost budgeting is primarily a prospective exercise and parties should by now be well used to providing costs for future phases based on the best information available. … She [for the Applicant] submits that promptness is only one of the balancing factors the court considers when exercising its discretion. I do not agree. Promptness is a mandatory requirement although it may also come into account at the discretion stage”
The submissions for the Respondent were brief in challenging the variation, summarised as follows and outlined at paras 86-95 to the judgment;
- None of the developments in the litigation were significant enough to warrant variation
- The Applicants were aware of the changes to the DRD Model prior to the approval of the budget at the first CCMC (03/12/19), and subsequently advised they would amend their costs budget in November 2019 to account for the change; the reasoning for change had not altered a year on
- Change to the Model occurred therefore prior to the last approved budget
- Disclosure costs had simply exceeded the Applicants’ initial budget; which alone does not constitute “good reason”
- Correspondence referred to of 3 April 2020 did not include new information
- “…the first further CMC was a significant development as it was included in the CCMC Order”
- The second CMC related to disclosure issues – therefore perhaps some justification for increase resulting from the FRI/RRFI (request for information) but not at the level of sums now sought
- Respondents’ positions remained that “the application is just too late…is simply not prompt and the court’s jurisdiction is not engaged”
- The purposes of costs budgeting is not to take a retrospective approach as appeared adopted by the Applicants’
- If the budget has been put forward on the wrong basis, that should now go against their application (PD51U para 22 referred relating to costs surrounding Disclosure Review Document)
When will a variation be considered?
In order to invoke the Court’s jurisdiction under CPR 3.15A, a significant development has to be established. This is broken down further by Master Kaye into whether and what constitutes a ‘development’, and whether it is “significant and warrants a revision to the costs budget…has to be considered in the context of each case”. It was acknowledged, however, that whilst significant developments may not have occurred during the litigation, this will not prevent “good reason” being shown for a departure from an approved costs budget; it is welcoming to see that separation reaffirmed in this judgment.
If a significant development cannot be supported, the application need not proceed. If however a development can be supported, the next stage will be to determine whether the development is so significant to warrant variation from the approved/agreed budget. And only then, whether the application made has been done so promptly as mentioned above. Master Kaye states;
“It is only if both these mandatory requirements are met that the threshold test is satisfied – significant development warranting a revision to the last approved costs budget and promptness – that the court goes on to consider whether as an exercise of discretion it should approve, vary or disallow the proposed variations pursuant to CPR 3. 15A (5) including incurred costs (CPR3.15 A (6)). It is at this point that the court will engage in a more detailed consideration of the quantum of the variations sought and to be allowed.” (para 101)
Of course, any review of sought variations upon satisfaction of these points must be made with consideration to the overriding objective; which may take considerations back toward significant developments and promptness.
Master Kaye was very clear in his judgment also, that costs budgeting is not an exercise to delve into the realms of carrying out a detailed assessment, and that it should not be done with retrospect but is a “forward-looking exercise” and must always approach variations from the last approved budget. Sharp v Blank  taking the lead in setting these early parameters on budget variations and as referenced in the judgment.
CPR 3.15A(6) was implemented to accord with the overriding objective and allow consideration of incurred costs necessary to be incurred whilst consideration of development and applications to revise costs budgets were considered and made.
Master Kaye highlights the key considerations when variations, within a phase (as opposed to new phases) are introduced.
- “…Do the matters raised by the applicant, in fact, change the overall scope and likely cost of that phase?
- Were they, or should they have been, expressly or impliedly taken into account when the last costs budget was approved?”
Master Kaye also highlights that there is a link between CPR3.15A (2) and (4) promptness which will be considered against agreement to vary and the level of work/costs incurred between the parties and the time between these events when fulfilling the promptness of an application submitted to the Court.
Having considered the relevant factors, Master Kaye went onto apply them in this case. The following summarised determinations were made in relation to this specific application;
Costs were not anticipated or included in the budget previously approved and were therefore capable of consideration under CPR 3.15A; however, it is not accepted that the costs resulting from would be a “significant development” for revision purposes, and in fact relate to just a modest level of costs in terms of this variation sought overall, the sums sought were not ‘reasonable or proportionate’ in any event; to explore the costs here further would also impact any future detailed assessment which Master Kaye did not wish to step on given the purposes of costs budgeting separated from assessment. Simply, the application to vary in respect of the RFI was made too late and did not satisfy the threshold of being made promptly. Some interesting comments from Master Kaye concluded; “… CPR 3.15A (6) was never intended to and is not open season to come back and vary a costs budget after the event.”
Master Kaye repeated his understanding as to the reason for the inclusion of these costs at this stage, whilst however confirming that they did not arise following “significant developments”. Costs of the first further CMC, arguably should have been considered within the budget of December 2019, and therefore the question arose as to the reasoning for not making a request to amend the budget at that stage, or file an application in August 2020.
Master Kaye was keen to point out, however, where no prior notice of an addition CMC was made putting more requirements on a party, parties would be advised to seek permission to vary to account for those costs, albeit they would still need to satisfy the initial threshold tests. Master Kaye proceeded to confirm that whilst the additional sums sought were substantial, these did not alone render the development significant, and overall the costs remain modest comparatively against the totality of the variations sought.
The main point raised herein however, was whether further CMC’s are ‘significant developments in their own right’? Referring to this specific matter; it was confirmed that the further CMC would have been part of the litigation that would have been reasonable to anticipate at the time, had it not have been, it would have been reasonable to seek an amendment prior to finalising the costs budget in 2019, irrespective of whether the further CMC would be construed a ‘significant development’. Master Kaye was unable to determine the first further CMC in this matter as having satisfied the first test.
The second test of promptness was then considered in relation to CMC. The application was made 4 months post the CMC proceeding; simply, Master Kaye determined the application was not submitted ‘promptly’ outlining that in this respect, whether or not an application is made promptly is “contextual” and therefore, discretion has no place with regard to this part of the Applicants application; again leaving the costs incurred to be determined at detailed assessment under “good reason to depart”; if upon assessment it is accepted it was reasonable for the further CMC costs not to have been included in the budget, then these costs will be “at large”.
Finally, the main reason for the budget variation sought almost doubling, resulted from the disclosure phase. It was determined that the change to “Model C”, which was made in November 2019 (prior to the approved Budget/CMC in December 2019) was not a ‘significant development’ in accordance with CPR 3.15A. The application was made more than 1 year following the change to the Model used, and was simply, “not prompt” and on that basis, the court had no jurisdiction in relation to the change.
Consideration was given as to whether the scope of the change was not fully understood until early-mid 2020, even in this scenario, Master Kaye was still unconvinced this would amount to a “separate significant development”. Notwithstanding stage 1 being ascertained, the element of promptness remained in doubt. On that basis also, Master Kaye declined to consider discretion. It was made clear that the remaining phases where increases were sought, resulted from the proposed significant development to the disclosure phase (change of Model) and whilst these were estimated costs, there was still a lack of evidence that this was a ‘significant development’ since the last approved budget. The Master provided some guidance on potential alternative ways that the variation could have been sought – which provides for some guidance to costs experts when seeking revisions including again, recommending that the Applicants seek to rely on “good reason” at the point of detailed assessment of costs.
In summary, Master Kaye has provided an eloquent summary of the threshold concerning significant developments, promptness and the Court’s discretion to allow variations alongside consideration of incurred costs. Whilst determining in relation to the RFI/RRFI and CMC, it was not accepted that either amounted to a ‘significant development’ or that the application in respect of either variations was made promptly, he also commented that the sums sought were unreasonable and appeared disproportionate but stopped short at pre-assessing the costs, making it abundantly clear that costs remained open for the applicant to challenge the inclusion and therefore recovery of the costs at any eventually detailed assessment. Master Kaye made similar comments with regard to disclosure, but ultimately addressing the fact here that the significant development did not occur since the last approved budget. When addressing the incurred costs which now do play a role in costs budgeting, Master Kaye was keen to reiterate that the purposes of costs budgeting is to case manage and forward plan the anticipated future costs, which will include incurred costs if the first stage (evidencing a ‘significant development’) and second stage (promptness – taken in context with filing the application and seeking agreement with the opponent) is established whilst ensuring the overriding objective of a reasonable and proportionate level of costs is maintained.
This judgment seeks to highlight that the prejudice will fall toward the paying party where a costs budget has been approved, and they have continued to defend the case on the basis of that approved budget. By coming to this decision, Master Kaye made it clear that the level of costs sought by way of variation were also disproportionate and leaving the costs to be claimed under “good reason” would allow the Respondent the opportunity to fairly challenge the costs at that later date.
“Costs management is intended to provide the parties with certainty and to enable the court to control costs and manage the litigation proactively and prospectively in a reasonable and proportionate way and in accordance with the overriding objective, balancing the costs of taking a particular step against the benefits of doing so…
… It is not the function of an application to vary to enable the Developers to address any overspend or miscalculation after the event and after a large part of those costs are incurred. … It is here that the issues of promptness and significance of the development re-emerge in particular as part of the exercise of discretion.”
If you are therefore seeking a variation to your costs budget, and hope that the inclusion of CPR3.15A(6) for incurred costs will allow some flexibility as to allowing retrospect inclusion of missed costs, we would advise you seek these as “good reason” if you are unlikely to meet the threshold for consideration of variation. Master Kaye provides this stark reminder to those seeking to increase their costs budget, and what to consider before making that application;
“It is not the function of an application to vary to enable the Developers to address any overspend or miscalculation after the event and after a large part of those costs are incurred”
This judgment makes some extremely important points with regard to costs management and costs budgeting as a whole for both applicants and respondents making this type of application. If we can assist you with your costs budgeting, or reviewing your cost budget to ensure you remain on track, or perhaps you have overspent and need to seek the best recovery possible in your Bill of Costs relying on “good reason” – get in touch with one of the team here at R Costings and we will help you navigate your costs through the case management process.