Not all doom and gloom: recent case gives new hope for costs budgeting and compliance

For those dealing with the seemingly rigid nature of the costs budgeting regime a ray of light has been provided by the judgment of Mr Justice Akenhead in The Board of Trustees of the National Museums and Galleries of Merseyside v AEW Architects [2013] EWHC 3025 (TCC).

Akenhead J determined that he would order interim payment of costs pending costs assessment; costs to be ordered to be on a standard basis.  What makes this part of his judgment interesting is the question of whether the level of the order should be determined by reference either to the approved costs budget or to the revised costs budget which had not been approved.

The revised costs budget of around £1.1 million was more than double the amount of the approved costs budget.  Both parties had in fact produced revised budgets and they had been placed before the court at the pre-trial review (PTR).  There was no suggestion that either party had found the revised costs budget of the other party objectionable but, perhaps due to time constraints, they were not considered by the court. Akenhead J recalled that the PTR had taken place on a Friday when the court was very busy and time was limited.

Under the pilot scheme, under which these proceedings progressed, the provisions set out that when assessing costs on the standard basis the court 'will have regard to the receiving party's last approved costs budget' and that it will not depart from that unless there is 'good reason to do so'. The question for Akenhead J was whether the order for interim payment should only consider the approved budget rather than the much greater revised budget.

Approved budget or (much greater) revised budget?

In considering this issue, Akenhead J was referred to the recent decision in Elvanite where Coulson J considered the impact of costs budgeting orders. In that case it was considered that the court should not amend the Costs Management Order following an increase in the costs budgeting. The issue therefore was whether there was a good reason to depart from the CMO and a number of factors were identified. Akenhead J saw no reason to disagree with the principles set down in Elvanite but did observe that:

  • the pilot scheme requires the parties to file and serve budget revisions when the previous budget is no longer accurate
  • this should be done at the next procedural hearing before the court. This is to allow the court to approve or disprove the departure from the previous budget
  • no formal application is required for this

Applying and distinguishing Elvanite

In considering the case before him, Akenhead J considered that there were important differences between Elvanite and the case before him. In this case, it had been an oversight by the both the parties and the court itself that the costs budgets had not been reviewed at the PTR. There was no indication that the parties took issue with the other party's costs budget and there were obvious reasons why the costs had increased so much in this case eg substantial amendments to the claimants case, the complexity of the case was much greater than previously anticipated and the agreement to a more concertinaed approach to enable all the work to be completed prior to trial which in turn increases the costs associated with the phases contained within that time period. At such a late stage and as the trial judge, Akenhead J did not consider that it would be appropriate to revise the only formally approved costs budget.  However, he considered, based on his knowledge and case management of the case, that there were very obvious reasons for the substantial increase in the costs budget.  However, rather than reaching a specific position he noted that ‘It is most appropriate however to leave the detail of this issue to the costs judge but, doubtless, he or she can take into account what I have said’.  He went on to say that he would probably have approved a revised budget at the PTR for at least £1 million and that ‘allowing for appropriate departures (for good reason) from the originally approved budget, that is an appropriate basis at least against which to assess the interim payment of costs on account’.

Best Practice

The best practice remains to provide the court with a revised costs budget.  However, this judgment shows a willingness, by one judge at least, to take a pragmatic approach to the issue of costs budgeting such that in appropriate circumstances it might be possible to have a revised costs budget retrospectively approved. It will be interesting to see how the costs judge decides to proceed with any costs assessment in this case or the impact this decision may have on any Part 36 offer the paying party makes at the commencement of any detailed assessment; should it be pitched based on the revised or the formally approved costs budget?

It should be noted that this judgment also deals with a multitude of other practical issues covering topics such as interest, indemnity costs and CFAs.

For those with a subscription to LexisPSL, a full news report of this case together with links through to underlying guidance can be found here. The Elvanite report can also be found here.  If you are not a subscriber, please click here to find out more and to access a free trial.

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