End of the phoney war: budgetary control 'for civil costs

It is arguable that we have been in a period analogous to a phoney war. Alarms have sounded but we await the major decisions that will shape the longer term application of costs management.

So far, and thanks to decisions arising from the pre-LASPO pilots rather than the post-April rules, there has been some encouragement for the optimists and the pessimists. In this context I define optimists as those who expect costs management to provide more certainty over litigation costs and greater efficiency in their assessment.

The pessimists include those who ?predict that a lack of judicial appetite and resource, allied with loud barks but soft bites on implementation will undermine the new rules and, worse still, create an additional layer that will increase rather than reduce costs.

Significant support for the optimists (and in this case they might be described as sado-optimists) is found in the decision of Coulson J on 14 June 2013 in Elvanite Full Circle Ltd v AMEC Earth and Environmental (UK) Ltd [2013] EWHC 1643. A substantial win in the case for the defendant turned sour on costs in the following way.

The defendant's approved budget ?under the Mercantile/TCC Costs Management Pilot was £264,708. A month before trial the defendant informed the claimant that its costs estimate had increased to £531,946 but there was no application to the court to vary the budget and the first the court knew about the overrun was at the end of the case when a belated application was made.

No variation to the budget was allowed. Coulson J found that for an application to have had any chance of succeeding it would need to have been made "immediately it became apparent that the approved budget had been exceeded by a more than minimal amount" - and in any event before the trial. He pointed out that retrospective variation could not be part of a budgeting exercise as it would deal only with incurred costs.

Although the claimant could claim prejudice based on its £250,000 ATE cover limit, Coulson J doubted that prejudice was "of any real relevance".

Elvanite also dealt with case-specific issues that might establish good reason to depart from the budget. Coulson J found that there was very limited scope for such departure after examining the budget category of expert evidence, to which the defendant attributed most of the overrun. The judge reminded himself of his own earlier decision in Kim Murray and Another v Neil Dowlman Architecture Ltd [2013] EWHC 872 (TCC) in which he said:

"In my view, in an ordinary case, it will be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a costs budget, which is then approved by the court, should be subsequently revised or rectified", he said.

"The courts will expect parties to undertake the costs budgeting exercise properly first time around, and will be slow to revise approved budgets merely because, after the event, it is said that particular items had been omitted or under-valued. I also agree that any other approach could make nonsense of the whole costs management regime."

Earlier support for the pessimists had been found in the Court of Appeal's decision in January in Sylvia Henry v ?News Group Newspapers Ltd [2013] EWCA Civ 19. Good reason to depart from the budget had been established in Henry notwithstanding a dramatic overrun and the absence of any application to vary the budget. The secondary but no less important issue - by how much it was reasonable to depart from the budget - ?was remitted to Master Hurst, the senior costs judge and was heard on 15 and ?16 July 2013.

Ultimately no measurement of the effect of good reason was made within the Henry assessment. The parties settled at the end of the second day following conventional findings on global proportionality under Lownds (in the claimant's favour), hourly rates (reduced in line with earlier related cases, and the downgrading of one of the claimant's principal fee earners) and with success fees allowed at lower percentages than those claimed. Henry has therefore fizzled out as a source of guidance for costs management implementation.

The challenge for litigation teams anxious to avoid the clear and ?present danger of Elvanite is to compile thorough budgets, including a clear ?rubric of the assumptions employed, and then to monitor all elements regularly through the life of the case; especially - and this is the tough part - during periods of high activity.