17 June 2013Print This Post

High Court rejects post-trial bid to double costs budget

Cut: no good reason to depart from budget

The High Court has rejected a bid by a successful defendant to nearly double its approved £270,000 costs budget after the case had concluded.

Mr Justice Coulson also ruled that there was, in the main, no good reason to depart from the approved budget, and provided other important guidance on costs management.

Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1643 (TCC) was run under the pilot costs management scheme for the Mercantile Courts and Technology and Construction Courts. The claim was dismissed, with the defendant succeeding on one small element of its counterclaim.

The defendant’s budget had been set initially in March 2012 and then was increased slightly in January 2013 to £268,488. In February, the defendant sent the claimant and court a revised budget of £531,946 but did not make an application to amend it. The trial took place in March and the defendant sought costs of £497,593.

Coulson J said the defendant should have sought formal court approval of the new budget and that such an application “ought to be made immediately it becomes apparent that the original budget costs have been exceeded by a more than minimal amount”.

Under the rules of the pilot it was clear that the application should have been made before the trial, he said. “Furthermore, in my judgment, an application to amend an approved costs budget after judgment is a contradiction in terms. First, it would mean that the exercise would no longer be a budgeting exercise, and would instead be based on the actual costs that have been incurred.

“Secondly, it would encourage parties to ‘wait and see’; only applying to increase the budget costs if it was in their interests.

“Thirdly, it would make a nonsense of the costs management regime if, at the end of the trial, a party could apply to double the amount of its costs budget. The certainty provided by the new rules would be lost entirely if the parties thought that, after the trial, the successful party could seek retrospective approval for costs incurred far beyond the level approved in the costs management order.”

Though doubtful of the relevance of prejudice, Coulson J added that the claimant would have been prejudiced by the exercise given that it had after-the-event insurance cover of £250,000 and so proceeded on the basis that its extra liability on losing would only be £18,488.

“If I am wrong to conclude that an application to amend the costs management order should not be entertained after judgment, then I consider that, at the very least, the defendant would need to demonstrate good reason why the application was made so late. In my judgment, the defendant has not done that here.”

The judge went on to consider whether, in any case, there was a good reason to depart from the budget. The overrun was mainly down to experts’ and counsel fees. With the exception of one element of the spend on experts, Coulson J found there was not good reason, in particular because the case was not one “which somehow lurched off track after its commencement, or where the issues ended up being very different to those which had originally been canvassed in the pleadings.

“Everything went pretty much as it might have been expected to go. In those circumstances, it seems to me that the general scope for alleging in this case that there is good reason now to depart from the costs management order is relatively limited.”

The ruling also touched on the impact of indemnity costs on a costs management order. Though he declined to make an order for indemnity costs, the judge considered whether the order would have been rendered irrelevant if he had.

Prima facie, whether under PD 51G paragraph 8, or CPR 3.18, the costs management order (with its approval of the costs budget) is expressed to be relevant only to an assessment of costs on a standard basis. However, 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.”

He pointed out that a budget is not an estimate based on any particular form of costs assessment and that to rule otherwise would encourage successful parties to argue for indemnity costs every time, introducing unwelcome uncertainty.

This is Mr Justice Coulson’s second warning over budgeting. In April, he ruled that it will usually be “extremely difficult” to persuade a court to revise a costs budget that contains mistakes, even if the other party has not been misled or suffered prejudice.

By Neil Rose

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