Simpsons (Preston) Ltd & Anor v MS Amlin Underwriting Ltd [2023] EWHC 1370 (Comm) and the variation of costs budgets when the issue is self-imposed
Background
The First and Second Claimant each operate motor vehicle businesses. The Second Claimant sells second-hand vehicles, supplied to it by the First Claimant. Each Claimant was party to an insurance policy underwritten by the Defendant providing business interruption cover arising from the COVID-19 pandemic.
The Claimants gave notification of a claim and argues that they are entitled to be indemnified for a period of 12 months from 5 March 2020. The Defendant considered that loss covered by such an interruption would be covered, but only up to 1 June 2020, when Covid regulations ceased to apply to the Claimants’ premises. The value of the claim was clearly highly dependant on the documentation about the Claimants’ respective businesses. Therefore, it was expected that the majority of disclosure would come from the Claimants. A CMC was held and it was recorded that £59,665 had been agreed for the Claimants disclosure, as the Claimants had only estimated that they would need to review a few thousand documents.
The Claimants’ Application
During the process of uploading the Claimants’ data onto the disclosure platform, it became apparent that there were two network drives that had previously been disregarded. One contained around 1.04TB of potentially relevant data, with the other containing over 1TB of potentially relevant data. The total number of documents identified was far in excess of what had been anticipated.
The Claimants made an application to vary the costs management order. The Claimants were seeking to increase the figure allowed for disclosure by a further £58,142.56, for a total of £117,807.56. The breakdown of the increase was calculated as a £49,000 increase in profit costs, and additional disbursements of £9,142.56.
The Parties positions
In line with CPR 3.15A, the relevant test for the Court to allow a variance in the budget is that that there has been a significant development in the litigation since the last budget, which warrants a revision and the request is submitted to the Court promptly.
The Claimants were of the view that the discovery of the two network drives has lead to a more extensive and costly disclosure process than had been anticipated in the budget. The Claimants relied upon the test for a significant development, as found in the judgement of Al-Najar v The Cumberland Hotel.
The Claimants also suggested that the proper approach to litigation has taken place, as budgeting is intended to take place in the early stages of the disclosure process and it is inevitable that the time the budget is prepared, a party cannot have detailed knowledge of what the disclosure process will entail. Only limited enquires is required in the Business and Property Courts and the documentation in question would not be expected to arise during the initial search carried out.
The Defendant raised that the Claimants assumptions in their original costs budget still apply. The data sources, file types and date ranges remain the same, therefore there has been no development. The Defendant suggested that the additional documents are not a development at all, rather it s the Claimants’ realisation that the scope of disclosure they are obliged to give is much greater than what
was previously expected. The Defendant went on to suggest it was an internal development, rather than an external one and if this was allowed to be considered a significant development, this could cause the floodgates to open to any party that has not understood its own case at the costs budgeting stage. The Defendant sought to differentiate an internal development, which is a development in a parties’ understanding, and an external development, which is a development outside of the party’s knowledge or control.
In the alternative, the Defendant suggested that the Claimants had not discharged the burden to provide sufficient information and evidence to satisfy the Court that the variation is not an attempt to address a miscalculation, overspend or to claw back previously disallowed costs. No evidence has been provided to demonstrate what the Claimants were anticipating before the additional drives came to light. The Claimants also failed to adequately explain how the network drives were not identified prior to the original budgeting process
The Court’s findings
HHJ Pearce considered various pieces of case law in order to determine whether the issue encountered by the Claimant could be classed as a significant development and applied the test found in Sharp v Blank. The test in Sharp v Blank drew a distinction between circumstances that come to light making the litigation more complex and costly but could not be reasonable anticipated and mistakes, where a party could have reasonably identified and anticipated the circumstances by proper and proportionate investigation of the case. Applying this test, HHJ Pearce was satisfied that the discovery by a party that its own disclosure is far more substantial than initially realised is capable of falling within the definition of a significant development as per CPR 3.15A.
HHJ Pearce also considered the discovery of the two additional drives is a discovery that is likely to affect the cost and scope of the disclosure process, so was satisfied that it met the definition of a development.
However, issues were encountered by the Judge as to whether the development could be considered significant. HHJ Pearce considered the available information to be limited and noted the Defendant’s argument that the development did not lead to any change in the nature of the stated assumptions for the disclosure process. Insufficient evidence was provided to the Court to explain whether the increased number of documents to review is a consequence of the previously unanticipated drives or is simply an aspect of all other parts of the disclosable documents. HHJ Pearce also considered it unclear why the de-duplication problem has been so time intensive, or why bulk emails greatly increased the burden of the process.
HHJ Pearce found that the Claimants failed to discharge the burden of proving a significant development in order to justify a revision to the budget. It was acknowledged the need to avoid setting the bar too high by excluding matters that could not have reasonably known, this needed to be balanced with the need for the bar to be sufficiently high to encourage a rigorous approach to costs budgeting from the outset as otherwise, a potentially paying party cannot have reasonable assurance that a costs budget is supposed to bring as to its potential liability in the event of an adverse costs order. The application was therefore dismissed.
Analysis
This case does demonstrate that the Court is willing to consider issues considered internal to the party seeking the variation as a potential significant development however, sufficient evidence needs to be provided by the party making the variation to discharge the burden of proving a
significant development, especially as the burden may be much more challenging to meet when compared with an ‘external’ development. Had the Claimants adequately explained why the disclosure of drives was significant, the Claimants would have had a much greater chance of persuading the judge that the issues they encountered in relation to disclosure met the test of a significant development.
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