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The dangers of exceeding approved cost budgets

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Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013]EWHC 1643 (TCC)

The High Court on 14 June 2013 rejected a bid by a successful defendant to nearly double its approved £270,000.00 costs budget after the case had concluded. Although this case was part of the Cost Pilot Scheme in the Mercantile and Technology and Construction Courts, it is evidence that the same interpretation would apply to the Costs Management Scheme introduced on 1 April 2013.

The background to the claim was that Elvanite had claimed that AMEC had given them negligent planning advice about waste management.  The matter was listed for trial in March 2013.  In January 2013 the Defendant’s approved budget was £268,488.00, one month later the Defendant sent the Claimant and the Court a revised budget of £561,946.00, an application to amend the budget was not made.  The matter proceeded to trial and the Defendant successfully defended the claim at trial and sought costs of £497,593.00.  Issues arose thereafter as to whether the Defendant would be held to its approved costs budget or whether the court would allow a departure in line with its amended, but unapproved, costs budget.  Lord Justice Coulson ultimately held that the Defendant would be held to its budget.

The judgement dealt with the following important issues:

Is it enough to just file an amended budget?

The court made it quite clear that the Defendant should have sought formal court approval of the new budget“…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” and that such an application "ought to be made immediately it becomes apparent that the original budget costs have been exceeded by more than minimal amount."

Can a budget be amended post trial?

Again the court made it clear that it was inappropriate for an application to amend a budget be made post trial, “an application to amend an approved costs budget after judgment is a contradiction in terms…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”

Court’s discretion to depart from approved budget when assessing costs

It appears evident that receiving parties are going to have difficulty to prove ‘good reason’ to persuade the court that they should depart from the approved budget.  In this case the budget’s increase was mainly in relation to expert and counsel's fees; Lord Justice Coulson held that "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.”

If costs are ordered on the indemnity basis can a court make reference to the cost budget when assessing costs?

Practitioners will be aware that in accordance with the costs management rules when assessing costs on the standard basis the court will have regard to the approved budget and not depart from such budget unless there is good reason to do so – CPR 3.18.  It has been presumed therefore that if an order for indemnity costs is made the court will not make reference to the costs budget when assessing costs.  Although Lord Justice Coulson did not make an order for indemnity costs in this matter he made the following, and some would say surprising obiter comments, “…the costs management order 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."

This judgment again highlights the importance of seeking formal court approval of any significant adjustment to a costs budget and practitioners should not be thinking that they can easily rely on CPR 3.18; it is clear that proving a 'good reason' to depart from the budget will not be simple.  The profession will wait with interest to see what happens with indemnity costs order and costs budgets.

For advice or more information, contact Fiona Carroll.