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16 January 2018
In Sharp v Blank ( EWHC 3390 (Ch)) the High Court considered the defendants' application for approval of their revised cost budget on the basis that there had been significant developments in the litigation. The judgment provides helpful clarification of the court's jurisdiction to approve costs that have already been incurred between the date of the original approved budget and the date of the application hearing. Further, the judgment is useful for practitioners in its examination of the circumstances which can be said to represent 'significant developments' in a case.
The relevant cost budgeting provisions of the Civil Procedure Rules (CPR) can be found in CPR 3.12 to 3.18 and in Practice Direction 3E. Of particular significance in this case are Paragraphs 7.4 and 7.6 of Practice Direction 3E. The guidance in Practice Direction 3E 7.4 states that:
"As part of the cost management process the court may not approve costs incurred before the date of any costs management hearing. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all subsequent budgeted costs."
The guidance in Practice Direction 3E 7.6 stipulates that:
"Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions… The court may approve, vary or disprove the revisions having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed."
The underlying litigation was brought by approximately 5,800 claimants who made serious allegations against five former directors of Lloyds TSB Group and Lloyds itself in relation to the acquisition by Lloyds of Halifax Bank of Scotland plc and its participation in the government's recapitalisation scheme in 2008 and 2009.
A costs management order was made in January 2017 (at the request of the claimants) to ensure that the claimants were aware of the extent of their costs exposure. The claimants' approved cost budget stood at approximately £17 million, while the defendants' totalled approximately £19 million.
On October 19 2017 the defendants issued an application to revise their cost budget. They raised seven significant developments that they say required them to revise their budget pursuant to Paragraph 7.6 of Practice Direction 3E. The claimants opposed the defendants' application on three main points of principle:
The master granted the defendants' application in part as follows.
Costs already incurred
The court had jurisdiction under CPR Practice Direction 3E 7.6 to approve a revised costs budget where the revisions related to costs which had been incurred between the date of the budget and the date of the hearing.
The master acknowledged that although, if read literally, Practice Direction 3E 7.4 prohibited the court from approving costs incurred before the date of any costs management hearing, the requirements of this paragraph were "impossible to implement". By way of example, the master noted that CPR 3.13(1) requires parties to file and exchange costs budgets 21 days before the first case management conference. In each case, the budget will be at least three weeks out of date and the estimated costs for the case management conference itself will have been incurred by the time that the hearing of the conference has concluded.
The master noted that the language of Practice Direction 3E 7.6 "points towards taking the previous budget as a base reference point", and confirmed that costs incurred since the date of the last approved budget which related to significant developments were, for the purposes of the revision, estimated costs.
Interim applications treated as significant developments
The court found that interim applications may be significant developments, as may the consequences that flow from any interim application. Such applications could therefore form the basis of a revision to a party's cost budget under Practice Direction 3E 7.6.
Significance must be understood in light of the size, complexity and manner in which the litigation unfolded. It may also take into account the likely additional expense that has been, or is expected to be, incurred. Certain applications might, in themselves, not be significant developments, but may lead to work that can be characterised as significant. As such, the court should look at the totality of related developments.
With regard to the seven significant developments noted by the defendants, the master permitted adjustments to the defendants' cost budget in relation to the first four points below, but not to the last three:
The master commented that it was "deeply unattractive for the claimants to complain that the application [had] been made late" in circumstances where the defendants first raised the need to revise budgets on July 21 2017 and no response was provided by the claimants until September 22 2017. The court found the defendants to have taken reasonable steps to ensure that their application was made in a timely fashion and was brought on for the hearing as soon as practicable.
The master did not accept the claimants' complaint that the application had been made to divert their attention away from the trial and had been presented in a "heavy-handed and document-heavy way". The judgment confirmed that pursuant to Practice Direction 3E 7.6, the revision of costs budgets is not optional, but rather a requirement. If there were significant developments in a case and the parties asked the court to revise cost budgets, it would be unusual for the court simply to refuse to make any order at all.
The judgment provides useful commentary for practitioners on the court's jurisdiction to approve costs that have already been incurred between the date of the original budget and the date of the application. A party's ability to apply for retrospective amendments is a contentious topic and the pragmatic approach taken by the master in accepting that "some degree of retrospectivity is inevitable if the costs management regime is to work" will provide comfort for litigants.
The court's confirmation that interim applications (and the consequences that flow from them) can equate to significant developments clarifies the juxtaposition of Practice Direction 3E 7.6 and 7.9 (which expressly provides that interim applications are to be treated as additional to the approved budgets). The judgment explains that the two provisions are not mutually exclusive, but should be read together and construed as a whole. While obviously case specific, the examination of the circumstances which were held to be significant developments provides useful guidance for practitioners dealing with revisions to costs budgets.
For further information on this topic please contact Andy McGregor or Elizabeth Wiggin at RPC by telephone (+44 20 3060 6000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
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