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Budget revision warning as new rules comes into force

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Green: Solicitors urged to act conservatively

New rules requiring lawyers to update their costs budgets in the wake of “significant developments” in the litigation came into force today with a warning that they should not take any risks.

A new rule 3.15A introduces a formal procedure to revise budgets in the event of significant developments in the litigation, whether upwards or downwards. It says this must be done “promptly”.

Parties will need to submit the new Precedent T first to the other parties for agreement, and then to the court with an explanation of the points of difference if they have not been agreed. Previously court approval was not required if the parties agreed the revisions.

The Association of Costs Lawyers said that surveys it has conducted over several years have shown low, if rising, numbers of costs lawyers reporting that solicitors always stick to their budgets – 24% in the most recent survey, in late 2019.

However, 21% said solicitors always exceeded what was budgeted, and a further 45% said they sometimes went over. Judges have frequently complained that they never receive applications to revise budgets.

The survey found that 27% of Costs Lawyers had seen more applications to revise budgets but 19% said they had still never seen one since the regime was introduced in 2013.

A successful party that has gone over budget and wants to claim the extra sum from the paying party has to argue at detailed assessment that they had ‘good reason’ to do so. ACL chair Claire Green said: “This new emphasis means that the court is unlikely to look favourably on a party that went over budget without trying to revise it.

“The rule committee is sending out a strong message with this change. Budgets are not rough estimates set in aspic at the time they were drawn up and only of limited use come the end of the litigation.

“Rather, they are living documents which parties are expected to keep up-to-date in the expectation that the sums in the approved budget are what they will receive in the event of success, however much they actually spent.”

Ms Green said the phrases “significant developments” and “promptly” are not defined in the new rule, and so a series of court rulings will likely be needed to bring some certainty to them.

“An earlier draft of the new rule said the application to revise should be made ‘without delay’, which indicates the way the rule committee was thinking. So we would urge solicitors to act conservatively at this stage and not take any risks.”

At the Costs Law Reports Conference last week, held virtually, Queen’s Bench Master Victoria McCloud warned that “prompt” was likely to be interpreted strictly. “There’s not much of an excuse for a delay once there’s been a significant development,” she said.

She also stressed the importance of the revising party giving the other side sufficient time to consider and respond before approaching the court.

The master said she would be “quite unsympathetic” if a party applied for a revision before having a discussion with their opponent, but acknowledged that deciding when to apply could be tricky if the other side did not engage or was slow in responding.

Master McCloud said she preferred to see costs lawyers handling revisions, adding that “one hopes people won’t be winging it” by having the fee-earner without specialist costs knowledge handling the application.

She stressed too that it was important for parties to revise budgets downwards where appropriate, so that the opponent “knows what they’re on the hook for”. It might also encourage settlement, she suggested.

Asked what a party should do if they only expect to go over budget by a small amount because of a significant development, the master said the rules indicate that you should still vary it.

If the opponent refused to agree to the change, the varying party should seek a costs order for the hearing, she advised.