Costs budgets – now with sharp teeth. If you want more than your budget, apply.

17 June 2013 by David Hart KC

Elvanite Full Circle v. AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1643 (TCC), Coulson J read judgment

The Jackson reforms, which are designed to stop lawyers spending too much of their clients’ or their opponents’ money, are still but young, and therefore not yielding much in the way of decided cases. But there were some pilot schemes which are very similar, and this case about one such scheme (in the Technology & Construction Court) is an interesting, and tough, example of why costs budgets must be taken seriously.

Elvanite claimed that AMEC had given them negligent planning advice about waste management. Coulson J dismissed the claim. AMEC sought and got their costs. But, from the judge’s judgment on costs, it seems unlikely that they will recover more than 50% of their actual costs. Why?

Prior to starting proceedings, Elvanite took out After The Event Insurance against the risk of having to pay AMEC’s costs, limited to £250,000. Once proceedings has started, Costs Management Orders were made approving Elvanite’s costs budget of £317,333 (£212,533 in respect of costs and £104,800 for the ATE premiums), and the AMEC’s costs budget of £264,708. Apart from a minor increase authorised in January 2013 (to £268,488), no application was made to the court to increase AMEC’s’s costs budget.

About a month before trial, AMEC told their opponents and the court that their present estimate of costs was £531,946- double the sum ordered. But AMEC did not apply to raise its budget.

AMEC then emphatically wins the case – for those, like me, who are interested in the ins and outs of an alleged planning negligence case, see judgment, but I am not expecting a rash of clicks on this particular link.

There is not much learning on such costs budgets. In Silvia Henry v News Group Newspapers Ltd [2013] EWCA Civ 19, the Court of Appeal considered a failure in another pilot scheme (defamation) to keep the other side informed about increases in budget, but on the unusual circumstances of the case (and reversing the judge below) decided that it would be unjust to hold the litigant to her budget.The CA added

However, it will rarely, if ever, be appropriate to depart from the budget if to do so would undermine the essential object of the scheme.

Grist to Coulson J’s mill, who had reached a similar view on the issue of principle in Murray and Another v Neil Dowlman Architecture Ltd [2013] EWHC 872 (TCC)

There was a certain amount of debate before Coulson J about whether an order for indemnity costs (as sought by AMEC) might make a difference to the outcome of such an application. The judge said that it might be a good reason for varying the budget, but the question did not arise because he did nor order indemnity costs anyway.

The real issue was – what was the effect of the notified increase in budget – where AMEC had not applied to the Court to increase their budget before the end of the case.

Coulson J said that AMEC had to apply to the Court.

if the defendant wanted the court to approve the significant changes to its costs budget, then it had formally to seek such approval. It was not enough simply to file the material at court. As I have said, coming late to this case, I was entirely reliant on the parties to provide me with the information that I needed properly to manage the trial. I was wholly unaware of the fact that the defendant’s estimate of costs had almost doubled in the weeks before trial. Had I known, I would have put the defendant to its election at the outset of the trial.

And when should a party apply for such an increase

immediately it becomes apparent that the original budget costs have been exceeded by a more than minimal amount.

There was some further debate about whether the other party need show prejudice in response to such an application. The judge was doubtful about this, but found prejudice in Elvanite going into the trial believing that its ATE insurance cover was essentially adequate, only to be told that it was potentially £250,000 short. This of course depends where you start. Should Elvanite have sought more cover when it received the pre-trial increase in budget from AMEC – or was it entitled, as the judge found, to await AMEC’s application and then respond?

The judge went on to find that there was no good reason to allow the increase in budget and that in any event AMEC could not justify the massive increase (from £30,000 to £200,000) in experts costs.

So a cautionary tale. It will be interesting to see whether other courts are as stern as Coulson J was about the need to apply for an increase, and whether good reason may be found in a wider class of case, where there was not the specific consideration of Elvanite being under-insured.

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