Home / Insight / Budget variation is compulsory where there is a significant development in a case.

Budget variation is compulsory where there is a significant development in a case.

15/07/2020

It’s fair to say that the costs budgeting regime has achieved some success in containing costs before they are incurred. It works well in a properly budgeted case that follows the anticipated trajectory to resolution. The case will have satisfied the assumptions made against which the budget was drafted and followed the procedural course set out in court directions.

However, where a case does not follow those assumptions and/or the anticipated trajectory the amount of costs required to be paid by one party to another may be adversely affected. This is because the divergence may cause the parties to incur more or less than the amount of future costs provided in the approved budget.

Whilst an approved budget covers those things that should have been reasonably foreseeable, where something occurs which is not and alters the complexity and costs by more than a modest amount then that may well be classed as a “significant development” in the litigation.

When a significant development occurs, the rules, as currently drafted, allow the parties to apply to vary their budgets. In practice, this rarely happens as the parties seek to deal with the costs at detailed assessment.

New rules have been drafted which, subject to ministerial approval, will compel the parties to revise their budgets where a significant development arises. The proposed rules provide that:

“A party must revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions.”

This new rule provides the defendant with a useful tool to reduce the claimant’s original approved budget. By way of example:

The defendant denies liability, causation and quantum in the defence. At the CCMC the court orders directions to trial and approves the claimant’s budget at £350,000, of which £250,000 is in respect of budgeted future costs.

A few months later, following receipt of further evidence, the defendant admits liability. There is now no need for liability evidence and yet the claimant has a budget to trial of £250,000 to use on quantum alone.

In these circumstances, the defendant should revise their budget and serve it on the claimant and request the claimant to provide a revised budget. In the event that the claimant refuses, the defendant can apply for an order to compel.

At the subsequent costs management hearing, the court approves the claimant’s varied budget at £250,000 of which £150,000 is in respect of budgeted future costs.

The requirement to vary the budget under the new rule is a welcome aid to containing costs before they are incurred. Defendants need to be aware and take the initiative to vary budgets downwards as and when such significant developments arise. If they fail to do so during the litigation, it’s extremely unlikely an objection to incurred budgeted costs will be entertained upon detailed assessment.

Defendants also need to guard against claimants who may seek to use this new provision to increase their budgeted costs where they have made a mistake and underestimated the amount of work involved or failed to appreciate what the litigation actually entailed.

Howard Dean
Author

Howard Dean
Partner
Head of Costs

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