What circumstances allow departure from an approved costs budget?

It has been a couple of months since Charlene Turner and Helen Spalding attended the annual #SCILed2024 conference in Birmingham, but I thought it would be a good time to delve in to the “costs questions” box, and share another question that we received at the event, and hopefully provide an answer that may help other litigators if this situation arises on their cases too.

QUESTION:

What circumstances allow departure from an approved costs budget?

ANSWER:

If all has gone to plan and you have a costs management order for a good workable sum then this is great news for you as a receiving party.  If you are the paying party, then you know your costs liabilities.

This means that CPR3.18 will apply at a detailed assessment.  When assessing costs on the standard basis, the Court will have regard to the receiving party’s last approved or agreed budget for each phase, and will not depart from such approved or agreed budgeted costs unless satisfied there is good reason to do so.

In other words, if there is no good reason to depart from the agreed or approved budget, then the receiving party will recover their costs in full as claimed.  In most cases, this means that it is just the pre-Budget costs that are now open for assessment.

However, it is important to consider what may and may not be considered to be a good reason to depart and to consider this test against the test of ‘significant development’ that is required for a Cost Budget to be varied.

It seems to be accepted wisdom amongst some parties that the tests are to be considered the same, however, the usual argument that follows is that: if the tests were meant to have equivalency, why use different phrases when preparing the rules?  It appears that it was a deliberate decision made in the drafting of the rules and therefore, the logical consequence is to consider that one is a higher test than the other.  We believe that ‘good reason to depart’ is ultimately the lower threshold to achieve because there can be circumstances where there is good reason to depart without there being a ‘significant development’ occurring in the litigation.  However, it is strongly recommended that you should not deliberately ignore an opportunity to amend your budget in order to rely on the ‘good reason’ test.  The CPR is clear that budget variation is mandatory by stating that ‘parties must apply to vary their cost budgets when there is a significant development’.

What could be considered a good reason to depart, has been left to judicial discretion and therefore, debate.

Harrison v University Hospitals Coventry & Warwickshire NHS Trust was one of the first cases to look in to the issue, and ultimately Lord Justice Davis stated that “as to what constitutes “good reason” in any given case I think it much better not to seek to proffer any further, necessarily generalised, guidance or examples.  The matter can safely be left to the individual appraisal and evaluation of costs judges by reference to the circumstances of each individual case.”

In Nash v MOD the Court found that a change to the hourly rates at an assessment was not a good reason to depart from the budget that had been set. The reasoning behind this appears to be that it cannot be said for certain what ‘hourly rate’ the Court had in mind when setting the costs management order.  All the Court will have set is a figure it considers to be reasonable and proportionate to carry out that work.  If the receiving party has done that, within budget, then those costs should be allowed regardless of whether hourly rates are reduced.

Our experience of dealing with costs recovery and budgeting has confirmed the general feeling and outcome of Harrison, in that a good reason to depart can vary from case to case, and there is no fixed rule in place.  Examples can include a variation to the witness evidence, the conduct of a party, extra work required of an expert, disclosure requirements and a second JSM, but it would come down to the individual scenario of the particular case.

For more information or if you have any questions then please do not hesitate the writer, Tom Brocklebank, here.