Varying your costs budget after the introduction of Precedent T – Master Kaye provides intelligible judgment in Persimmon Homes Ltd & Anor v Osborne Clark & Anor [2021] EWHC 831 (Ch)
Varying your costs budget after the introduction of Precedent T – Master Kaye provides intelligible judgment in Persimmon Homes Ltd & Anor v Osborne Clark & Anor [2021] EWHC 831 (Ch)
Master Kaye provides guidance on what constitutes ‘significant development’, providing a threshold test to determine court’s discretion to allow variations focusing on the development, promptness of application, and what happens when it comes to the incurred costs (CPR 3.15A); ensuring not to step on the toes of detailed assessments and ensuring “good reason” for departure is still open to challenge where an application is not made in time.
In this professional negligence claim, the applicants sought to vary their previously agreed costs largely based on a Request for Information (RFI), additional CCMCs and disclosure changes; this resulted in the approved budget sums being doubled. Master Kaye’s judgment explores the variation (CPR 3.15A) rules in comprehensive detail offering essential guidance on what constitutes a significant development.
What variations were being sought?
The main crux of the Applicants reason to vary their budget was based on the change of “Model” in terms of the disclosure review documents; affecting all future phases within the budget where variations were now sought. The immediate issue lay in the application for variation being made in December 2020; four months post significant costs being incurred. The Applicant stated “…had the Developers applied to vary speculatively in November 2019, February or April 2020, before they knew the actual costs it was likely that they would have had to make a further application…”
Master Kaye reflected that this was “approaching costs budgeting from the wrong direction. Cost budgeting is primarily a prospective exercise and parties should by now be well used to providing costs for future phases based on the best information available. … She [for the Applicant] submits that promptness is only one of the balancing factors the court considers when exercising its discretion. I do not agree. Promptness is a mandatory requirement although it may also come into account at the discretion stage”
The submissions for the Respondent were brief in challenging the variation (full details on paras 86-95), but argued that the developments in the litigation were not significant enough to warrant variation, nor were they new developments known since approval of the last budget, disclosure costs had simply exceeded the Applicants’ initial budget; which alone does not constitute “good reason”. In terms of the disclosure, the Respondents’ position remained that “the application is just too late…is simply not prompt and the court’s jurisdiction is not engaged” with the purposes of costs budgeting not to take a backdated approach; suggesting that if the budget has been put forward on the wrong basis, that should now go against their application (PD51U para 22 referenced in Disclosure Review Document).
When will a variation be considered?
In order to invoke the Court’s jurisdiction under CPR 3.15A, a development has to be established. This is broken down further by Master Kaye into what constitutes a ‘development’, and whether it is “significant and warrants a revision to the costs budget…has to be considered in the context of each case”. However, it was acknowledged that whilst significant developments may not have occurred, this will not prevent “good reason” being argued at detailed assessment.
If a significant development cannot be supported, the application is not necessary. If however a development can be supported, the next stage will be to determine whether the development is significant to warrant variation from the approved budget. And only then, whether the application made has been done so promptly.
“It is only if both these mandatory requirements are met that the threshold test is satisfied – significant development warranting a revision to the last approved costs budget and promptness - that the court goes on to consider whether as an exercise of discretion it should approve, vary or disallow the proposed variations pursuant to CPR 3. 15A (5) including incurred costs (CPR3.15 A (6)).”
Any review of sought variations upon satisfaction of these points must be made with consideration to the overriding objective; which may take considerations back toward significant developments and promptness.
Master Kaye was clear that costs budgeting is not an exercise to delve into the realms of carrying out a detailed assessment, nor to apply retrospect but is a “forward-looking exercise” from the last approved budget; Sharp v Blank [2017] taking the lead in setting these early parameters on budget variations.
Master Kaye highlights the key considerations when variations within a phase are introduced:-
“…Do the matters raised by the applicant, in fact, change the overall scope and likely cost of that phase?
Were they, or should they have been, expressly or impliedly taken into account when the last costs budget was approved?”
Having considered the relevant factors, Master Kaye then applied them in this case summarised below.
RFI/RRFI
Costs were not anticipated or included in the budget previously approved and were therefore capable of consideration under CPR 3.15A; however, the resulting costs were not accepted as “significant development”, relating to just a modest level of costs sought overall, the sums were not ‘reasonable or proportionate’ in any event; to explore the costs here further would impact a detailed assessment which Master Kaye did not wish to step on given the purposes of costs budgeting. Simply, the application to vary in respect of the RFI was made overdue, failing to satisfy the ‘promptness’ threshold. “… CPR 3.15A (6) was never intended to and is not open season to come back and vary a costs budget after the event.”
CMC’s
Master Kaye repeated his understanding as to the reason for the inclusion of these costs at this stage, but determined they did not arise following “significant developments” and should have been considered within the now approved budget in December 2019. This raised the question as to why an earlier request to amend the budget at that stage, or file an application in August 2020 was not made.
It was confirmed that whilst the additional sums sought were substantial, these did not make the development significant, and the costs remained modest overall comparatively against the totality of variations sought.
The main point here was whether further CMC’s are “significant developments in their own right”? It was confirmed the further CMC would have been reasonable to anticipate as part of the litigation process. Had it not, it would have been reasonable to seek an amendment prior to finalising the 2019 costs budget, irrespective of whether the further CMC would be construed a ‘significant development’.
The second test of promptness was then considered. The application was made 4 months post the CMC; Master Kaye determined the application was not submitted ‘promptly’ and therefore, discretion had no place to this part of the application; again leaving the costs incurred to be determined at detailed assessment under “good reason to depart”.
Disclosure
The main reason the budget variation sought resulted from disclosure and the change to “Model C” made in November 2019; this was not a ‘significant development’ in accordance with CPR 3.15A. The application was made 1 year after the change and was simply, “not prompt”. Therefore, the court had no jurisdiction.
Consideration was given as to when the scope of the change was understood (perhaps early-mid 2020), but Master Kaye was still unconvinced this would amount to a “separate significant development”. Notwithstanding stage 1 being ascertained, the element of promptness remained in doubt. It was made clear that the remaining increasing phases were sought, resulted from the proposed significant development to the disclosure phase and whilst these were estimated costs, there was still a lack of evidence that this was a ‘significant development’ since the last approval.
Master Kaye has provided an eloquent summary of the threshold concerning significant developments, promptness and the Court’s discretion to allow variations alongside consideration of incurred costs. Whilst determining in relation to the RFI/RRFI and CMC, it was not accepted that either amounted to a ‘significant development’ or a prompt application. He also commented that the sums sought were unreasonable but stopped short at pre-assessing the costs, making it clear that costs remained open for the applicant to challenge the inclusion and recovery at any eventual assessment.
Furthermore, he commented with regard to disclosure, but ultimately addressing the fact that the significant development did not occur since the last approved budget. When addressing the incurred costs, Master Kaye was keen to reiterate the purposes of costs budgeting, which will include incurred costs if the first stage (‘significant development’ evidence) and second stage (promptness – taken in context with filing the application and seeking agreement with the opponent) is established whilst ensuring the overriding objective is maintained.
“Costs management is intended to provide the parties with certainty and to enable the court to control costs and manage the litigation proactively and prospectively in a reasonable and proportionate way and in accordance with the overriding objective, balancing the costs of taking a particular step against the benefits of doing so…
…It is not the function of an application to vary to enable the Developers to address any overspend or miscalculation after the event and after a large part of those costs are incurred. … It is here that the issues of promptness and significance of the development re-emerge in particular as part of the exercise of discretion.”
Kate Benn - Kate@rcostings.co.uk