CPR 3.15A: Doubling of Agreed Budget Not Justified

 

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In the recent case of Simpsons (Preston) Ltd & Anor v MS Amlin Underwriting Ltd [2023] EWHC 1370 (Comm), the High Court ruled that an increase in the scope of disclosure was not a justifiable development to warrant the doubling of an agreed budget.

 

What are the rules under CPR 3.15A?

CPR 3.15a deals with “revision and variation of costs budgets on account of significant developments (“variation costs”).”

Under CPR3.15A:

“3.15A.

(1) A party (“the revising party”) must revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions.

(2) Any budgets revised in accordance with paragraph (1) must be submitted promptly by the revising party to the other parties for agreement, and subsequently to the court, in accordance with paragraphs (3) to (5).

(3) The revising party must—

(a) serve particulars of the variation proposed on every other party, using the form prescribed by Practice Direction 3D;

(b) confine the particulars to the additional costs occasioned by the significant development; and

(c) certify, in the form prescribed by Practice Direction 3D, that the additional costs are not included in any previous budgeted costs or variation.

(4) The revising party must submit the particulars of variation promptly to the court, together with the last approved or agreed budget, and with an explanation of the points of difference if they have not been agreed.

(5) The court may approve, vary or disallow the proposed variations, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed, or may list a further costs management hearing.

(6) Where the court makes an order for variation, it may vary the budget for costs related to that variation which have been incurred prior to the order for variation but after the costs management order.”

Put simply, a party must apply to depart from the last agreed or approved costs budget, expressly or downwards, if significant developments in the litigation warrant such revisions.  This should be borne in mind in the event that you look to deal with any overspend at the end of a case, as this could be considered a blatant disregard for CPR 3.15A, and could undermine any argument for “good reason” to depart from an approved Budget.

In the event a variation is required, a party can apply to have their costs budget updated or varied using a Budget Variation Notice, also known as a Precedent T.

 

What is a “Significant Development” under CPR 3.15A?

A significant development for a costs budget will be an event during litigation that effects the future course of work to be completed, and could not have been foreseen at the time of preparing the initial Costs Budget.  

 

Simpsons (Preston) Ltd & Anor v MS Amlin Underwriting Ltd [2023] EWHC 1370 (Comm)

Simpsons (Preston) Ltd & Anor v MS Amlin Underwriting Ltd was a claim in relation to the scope of business interruption insurance during the Covid 19 pandemic, brought by two car dealers.

The Claimant’s budget was originally agreed at just less than £60,000. The budget included fees for fee earner time at £34,100 and disbursements, in the form of an external disclosure provider, which amounted to £25,565.

Following the discovery of two unanticipated network drives containing 2 terabytes of material, the Claimants applied to nearly double their budget to £118,000. This was calculated as £9,142 extra in disbursements and £49,000 more for fee earner’s time.

The Claimants argued that the disclosure process had been made more costly and extensive than they had originally anticipated due to the fact that they expected a few thousand documents; however, there were now 362,074 documents which included close to 10,000 spreadsheets.

The Defendants argued that this did not represent a ‘development’ in the legal proceedings; instead, it reflected the Claimants’ recognition that the extent of their information sharing exceeded their initial expectations.  Importantly, it was argued that the increased disclosure fell within the scope of the Claimant Budget’s original assumptions, which did not specify any number of documents to be considered, but rather sources of information from which disclosure was expected.

HHJ Pearce stated that, although the discovery could be seen as a development within the case, he could not see how it could be considered “significant” enough to warrant a doubled costs budget.

“I turn to whether the Claimants are able to show that they fall within this definition on the facts before the court. The discovery of the two previously unknown drives is clearly a discovery that is likely to affect the scope and therefore the cost of the disclosure process. To this extent, I am satisfied that it can properly be called a “development.”..Whether it is “significant” is more difficult. There is relatively little information before the court to enable an assessment of this. Paragraph 30 of Mr Lewis’ statement is the closest that the material comes to explaining why the discovery of the drives was significant. But, as the Defendant points out, the development did not lead to any change in the nature of the stated assumptions for the disclosure process. “

He also stated:

“I agree with the comment of Master Davison in Al-Najar that the bar for what is a significant development should not be set too high. Otherwise, a party risks being unable to recover costs that it incurs of which it could only have been aware had it engaged in an investigation of its own case considerably beyond that which is anticipated by the scheme of the disclosure rules in the Business and Property Courts contained in PD57AD.”

Part of the issue in the case appears to be that the applying party did not adequately address why the development was considered “significant”.  As an example, was it explained to what extent the contents of the disclosure were relevant to proceedings, and it was not explained why enquiries had not been made previously to determine the volume of disclosure to be considered.  In essence, this appeared to be an error in the original budget assumptions.

The success of the application was also dependant upon what was initially forecast in the assumptions of the original Budget.

The Disclosure Review Document relied upon for budgeting purposes did not actually specify the documents to be considered as part of the assumptions, and therefore any significant change in the number of documents did not actually deviate from the contents of the assumptions.

Any party preparing a Costs Budget should therefore be as specific as possible as to what their phases cater for, and the description accompanying the same.  Overly vague phase descriptions may lead to unwanted consequences later in the litigation.

How can ARC Costs Assist? 

 

The ARC Costs Lawyers and Costs Draftsman team are always happy to assist with the preparation of any Cost Budget and negotiation of the same. We can also provide guidance and assistance in updating your Costs Budget under the current procedure set out in CPR 3.15A.

We can further assist both claimants and defendants in the legal costs process by drafting bills of costspoints of dispute, and replies to points of dispute. Our Costs Lawyers can also provide representation at detailed assessment hearings if you are unable to agree your costs.

We can be contacted via email at info@arccosts.co.uk, or by telephone on 01204 397302. For more information on legal costs, please find out more about our speciality areas of expertise and our services on our legal costs page.

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