This was a hearing of an application by the claimants to vary their costs budget. In the substantive action, the claimants allege that the defendants were professionally negligent in relation to the drafting of two options agreements and ancillary advice relating to the development of land. Separately, the defendants issued a claim for unpaid fees. The two claims are being case managed together with combined costs budgets and will be heard together.
A CCMC took place before a Deputy Master over two days, 18 November and 3 December 2019. The parties' costs budgets and the disclosure review document were subsequently finalised, and the CCMC Order was sealed on 24 December 2019. The claimants' costs budget was approved in the total sum of £1.455m.
A year later, on 3 December 2020, the claimants submitted their Precedent T to the defendants. On 21 December 2020 a further two and a half weeks later, the claimants issued their application to vary their costs budget.
The claimants sought to increase their budget by £1.339m to a total of £2.795m. This was more than double the future costs approved in December 2019.
The variations related to a change to the disclosure assumptions, from Model A and B, to Model C disclosure. The disclosure phase alone sought an additional £581,000.
The claimants tried to argue that when the costs budget had been approved in December 2019, it was on the basis of Model A and B assumptions. This was even though by the time of the second CCMC hearing on 3 December 2019, there had already been a discussion between the parties about changing the scope of disclosure to Model C, and the claimants' solicitors had already indicated their intention to file an updated costs budget before the resumed CCMC. When the budgets were approved, there was no suggestion that the claimants' costs budget was not based on Model C disclosure and would need further substantial revision.
As disclosure progressed, in April 2020 the claimants' solicitors wrote to the defendants' solicitors saying, "As we now have details of the volume of documents for review during the disclosure phase and since our assumptions were based on Model A/B disclosure rather than Model C, we will soon be writing to you separately regarding proposed amendments to our costs budget."
The defendants' solicitors immediately rejected that explanation. They did not accept that the change to Model C was a significant development, given that it had occurred before the budget was approved in December 2019. They also noted the failure to raise the matter with the Deputy Master at the time.
The claimants' application was heard in January 2021, after the amendment to the rules for varying a costs budget came into effect (1 October 2020). The rule change:
- elevated the procedure from a practice direction to a new Rule 3.15A;
- replaced 'shall' with 'must', so that the revising party must revise its budgeted costs in the event of a 'significant development'; and
- made explicit the requirement for budget revisions to be submitted promptly.
Master Kaye dismissed the application to vary the costs budget. There had not been a significant development since the last approved budget - the claimants knew in November 2019 that the disclosure element had changed, and they allowed the second part of the CCMC to proceed and the budget to be approved on the basis of a Model C assumption which they say was the wrong basis, yet they took no action to rectify this before the budget was approved. This application was not prompt – it had taken over a year to file their application, and they had been aware that the contention that there had been a significant development would be opposed since April 2020.
The application therefore failed the threshold test, and the court had no jurisdiction to vary the last approved budget.
Master Kaye confirmed the claimants' only recourse now would be to persuade the costs judge on detailed assessment that there is a good reason to depart from the last approved costs budget.
An application to vary a costs budget involves a two-stage process:
- First, there must be a significant development, which warrants a revision to a costs budget.
- Secondly, the application must be prompt.
The test has to be considered in the context of each case. Not every significant development will warrant a revision, and not every development will be significant, even if it has costs consequences.
Should parties fall foul of the test, it may be possible to demonstrate a good reason to depart from the last approved budget on detailed assessment. However, that is in itself a high bar to meet.