Revising cost budgets: 'The importance of being prompt

The importance of promptly applying to revise a cost budget where there is a change in circumstances has again been thrown into sharp relief by the recent case of Venus Asset Management Ltd v Matthews and Goodman LLP [2015] ?EWHC 2896.

The claim related to allegations of professional negligence on the part of the defendant, who was acting ?as the claimant’s surveyor regarding compensation following the compulsory purchase of land for the 2012 Olympics.

At the initial case management conference (CMC), directions were given for disclosure and the exchange of witness statements, with a stay for alternative dispute resolution to take place thereafter. The parties presented cost budgets totalling £231,000 for the claimant and £218,500 for ?the defendant, which were approved by the court. The court then made a direction for a further CMC at which it would ‘consider any application to revise the costs budgets’.

Incurred and future costs

Both claimant and defendant submitted applications to increase various phases of ?their budgets in respect of ?both incurred and future costs, which Chief Master Marsh accepted, directing that revised budgets be filed detailing the future work to be performed. ?In relation to costs already incurred, he requested written submissions from each party as to whether their approval was within the court’s power. 

The claimant relied on the court’s power to give directions for the review of budgets (to be found in practice direction (PD) 3E 7.5) and submitted there was no restriction that prevented the court from approving costs that had been incurred. ?As a direction had already ?been made regarding the revision of budgets at the ?CMC, PD 3E 7.5 was said to ?be available to the court.

The defendant took a broader position, arguing that the ?Civil Procedure Rules (CPR) contained no provision which prevented the court from approving the incurred costs. ?The defendant argued the court was granted the power to control the parties’ budgets following the making of a cost management order by CPR 3.15(3), and that it was implicit that this extended to both incurred and future costs.

Wording of CPR provisions

Chief Master Marsh considered the wording of CPR 3 and PD 3E, noting that the construction of CPR 3.12 and 3.15 limited the court’s power to the approval ?of future costs only, as did the relevant provisions of the ?practice direction. 

On the other side of the coin, ?it was highlighted that PD 7.4 expressly prevented the court from approving costs incurred before the date of the budget. ?He did not consider that the parties could agree the revision ?to the incurred costs, as PD 7.6 only permitted revisions in respect of future costs, ?whether approved or agreed.

The claimant’s interpretation ?of PD 3E 7.5 was not accepted, ?on the basis that the proposed construction would directly contradict the wording of 7.6, which specifically referenced future costs. 

Turning to the defendant’s argument, Chief Master Marsh did not consider that the wording of CPR 3.15(3) could be interpreted to extend to costs incurred prior to the making of a costs management order. As a result, it was concluded that the court had no power to review or approve the costs that had been incurred by either party.

The message to practitioners from this case (and the earlier decision of Mr Justice Warby in Tim Yeo v Times Newspapers Ltd [2015] EWHC 2132 (QB)) is the importance of recognising as early as possible the need to undertake work not envisaged by the original budget, and to then apply to revise the budget before undertaking any additional work. 

Failure to do so will be likely ?to lead to the additional costs not being approved, increasing the risk that the budget will be exceeded. Chief Master Marsh recognised there may be situations where work must ?be carried out prior to seeking ?a revision to the budget, and noted that the party in question may be able to argue ‘good reason’ for departing from ?the approved budget, as per ?CPR 3.18(b), but this approach would not be without risk. 

Best practice, therefore, ?is to apply to revise the cost budget at the earliest opportunity.

David Wright is a costs lawyer and a council member of the Association of Costs Lawyers @CostsLawyers www.associationofcostslawyers.co.uk