It has been almost four years since costs budgets were introduced and we are still awaiting definitive answers to many outstanding questions about them. One such question at the forefront of many practitioners’ minds is justifying an overspend in one or more phases of a budget once the claim has reached trial. Unsurprisingly the answer is not a simple one and it appears that the success in pursuing such an argument may be determined by the ears upon which it falls.
While indemnity based costs may remove the restraints costs budgeting imposes (Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd  4 Costs LR 612) it can be difficult to surpass such a high bar. Let’s not forget that the other side’s conduct must be seriously lacking to illicit an award of costs on the indemnity basis for that reason (Siegel -v- Pummell  EWHC 195 (QB). It can often be the case that the other side’s conduct does not fall short enough to justify the awarding of indemnity based costs but nonetheless their actions have inadvertently or otherwise increased the costs required by the other side to litigate a claim.
The following three cases demonstrate the inconsistency of the court’s approach when considering revisions to budgets late in the day.
In Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd  4 Costs LR 612, Justice Coulson was asked to allow an increase in the budgeted sum for trial. In his Judgment he refused the request on three grounds.
1) 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.
2) It would encourage parties to wait and see and only apply for an increase in the budget if it suits them.
3) It would make nonsense of the cost budgeting regime if a party could retrospectively seek approval for costs incurred far beyond the approved costs management order.
In Barkhuysen V Hamilton  6 Costs LR 1217, Justice Warby was asked to consider increasing the Claimant’s budget following multiple changes to the litigation of the claim. In what some would argue is a reasonable judgment, which takes into account the practicalities of running a claim as well as the limitations of a practitioner’s foresight, Justice Warby accepted the Claimant’s argument that they had justifiably exceeded their budget.
All in all Warby J allowed increases to three phases for five different reasons. He commented that ‘These points may not result from unreasonable conduct on the part of the defendant, but they were reasonably not budgeted for’.
In Sony Communications International AB v SSH Communications Security Corporation  6 Costs LR 1141, Mr Wyand QC was asked to undertake a summary assessment based on costs budgets. In doing so, the winning party requested permission to depart from three of the phases. Mr Wyand QC accepted that such an action could be undertaken in theory (Henry v News Group Newspapers Ltd  EWCA Civ 19). But in Practice, Mr Wyand QC referred to the judgment in Elvanite Full Circle Ltd whereby Justice Coulson stated that any amendments to the budget ‘ought to be made immediately when it comes apparent that the original budget costs have been exceeded by more than a minimal sum’
In this case, no application to increase the budget was made by the winning party and it was not suggested that the winning party was taken by surprise as to the level of costs to be incurred. However, Wyand QC allowed such an increase in any event. Practitioners however, should take this judgment with a pinch of salt, as the facts of the claim are somewhat unique when it comes to budgeting. Primarily, the sums in issue were valued at in excess of 10 million and it appears that Wyand QC took that into account when handing down his judgment.
These cases highlight the confusion caused by the courts in providing guidance as to when a budget can be increased. While it is hard to argue with Coulson J’s rational in Elvanite,
Surely it’s not lost on the courts that the budgeting exercise is meant to reduce costs and bring them in line with proportionality. It seems therefore counterproductive to require what in all likelihood will be a contested application to allow for such an increase, especially in low value claims.
Best practice would suggest that a fee earner should make an application to increase the budget at the earliest opportunity. Not necessarily once the phase has been exceed but once the fee earner is aware of conditions that now exist which are likely to cause the phase to be exceeded. 'Of course, one does then have to tackle the further question of what justifies a development significant enough to warrant an increase in the budget; for more information on this please see Rebecca Peters' article - Significant Developments and Costs Budgets - Are there any developments? In any event, there is now a trench of case law that can be relied upon if the request to increase the budget is made at the end of a trial and depending on the Judge, the argument might just succeed!
The moral of the story therefore seems to be, think long and hard about what goes in your Precedent H assumptions as a well thought out budget can be the difference in recovering what is 'proportionate’ and what has been budgeted.