Kerry Underwood

ALTERATION OF BUDGET AFTER CIRCUMSTANCES CHANGE  

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By Robert Males, Managing Partner, Underwoods Solicitors

In Asghar v Bhatti (2017) EWHC 1702 (QB)

the court considered an issue relating to the variation of a Costs Budget where it had been previously confined to court fees only. The issue related to the change of circumstances and in particular an early Part 36 offer.

Earlier in the case the Claimant had failed to file a Costs Budget and therefore in accordance with the rules the budget had been confined to the court fees only. The Claimant made an application for relief from sanctions but that was refused.

The matter was originally listed for a six day trial but it became apparent that that was not enough and so the trial was adjourned. The parties were given an opportunity to make an application to revise their Costs Budget on the basis of the change in circumstances in that the trial would now last longer than originally anticipated. The application to amend the Costs Budgets came before the Master. As mentioned the Claimant’s Costs Budget was already limited to court fees only so the question for the Master was whether it was possible to revise a Costs Budget in relation to additional work which had not been anticipated at the time of filing the original Costs Budget.

There is a relevant paragraph in the White Book which says as follows:

“If a Costs Management Order is made, it is arguable that a party treated as having a budget limited to court fees may, indeed must, seek revisions of it so as to include any additional expenditure made reasonable by developments which could not have been anticipated at the time of their breach of rule 3.14. Practice Direction 3E, paragraph 2.6 requires parties to revise their budgets in respect of future costs if significant developments in the litigation warrant such revisions. If a Costs Management Order is not made, Practice Direction 44, paragraph 3.7 applies. Under this provision the court may accept that the occurrence of significant developments in the litigation amounts to a satisfactory explanation for a claim for extra costs in respect of those developments.”

The Master decided to allow the Claimant’s budget to be revised because of the additional time of the trial.

The trial commenced but settled on the second day when the Defendant was given permission to accept the Claimant’s offer and as a result the Defendant was to pay the Claimant’s costs. The Defendant appealed the order which had revised the Claimant’s Costs Budget.

The court considered the two grounds of appeal. The first is that the practical effect of the Master’s order was to overturn the costs sanction previously imposed by the court which limited the Costs Budget to court fees only. The judge was clear that the Master fully appreciated the position in relation to the earlier Costs Order and that an application for relief from sanctions had been refused.

However the application before the Master to revise the Costs Budget was different. There had been significant developments since the failure to file the original Costs Budget. The notes in the White Book envisage a situation where revised budgets can be dealt with where additional costs which were not foreseen and were not anticipated the time of the original failure to file the Costs Budget. The judge held that if there was a significant development and if the Costs Budget was revised to permit those additional costs that will not undermine the policy underlying CPR rule 14.

The judge was referred to the decision of Mr Justice Coulson in Murray and Another v Neil Dowlman Architecture Limited (2013) EWHC 872

which dealt with a position if the Costs Budget could later be revised because of mistakes or inadequacies in the budget and expressed the view that that would undermine the whole purpose of the Costs Budget regime. However this case is different because we are dealing a revision to the budget arising out of a significant development which is the additional time needed for the trial and that information has arisen well after the original failure to file the budget.

Counsel for the Defendant submitted that the Master did not take into account the fact that revising the budget would subvert the original sanction ordered by the previous Master in relation to the failure to file the Costs Budget. It was clear that the Master had in her mind the events which amounted to the significant development and was well aware that she was allowing a revision to the budgets because of that development. Indeed she drew attention herself to the notes in the White Book as mentioned above.

The judge indicated it was a matter for the Master’s discretion as to whether she should allow a revision of the budget based upon the fact that the original trial was listed for six days and was now listed for 12. She was aware of the circumstances and decided it was appropriate to revise the Costs Budget since the original failure to file the budgets.

The Part 36 offer

The Claimant had made an early Part 36 offer in this case which was accepted by the Defendant on the second day of the trial. This brings into focus the provisions of CPR 36.23 and may allow the Claimant to recover part of its costs. This deals with cases where the Costs Budget is confined to the court fees alone.

“(1) this rule applies in any case where the offeror is treated as having filed a Costs Budget limited to applicable court fees, or is otherwise is limited to their recovery of costs to such fees.”

“(2) costs in rules 36.13 (5) (b), 36.17 (3) (a) and 36.17 (4) (b) shall mean – (a) in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with (b) any other recoverable costs.”

In order to follow this, you need to cross reference the various rules.

(1) 36.13 (5) (b) is a reference to where the parties cannot agree liability for costs and where the court, unless it is unjust to do so, orders “the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance”.

(2) 36.17 (3) (a) is a reference to the costs being ordered to be paid by a Claimant to a Defendant where a Claimant fails to beat a Defendant’s offer.

(3) 36.17 (4) (b) is a reference to the costs order to be paid by the Defendant to a Claimant when the Defendant fails to beat the Claimant’s offer.

What this means in practice is that a party which has their Costs Budget limited to court fees only can still recover 50% of their fees for the period after a Part 36 offer is made if the offer is not beaten.

This means that a well-judged Part 36 offer can still be of assistance to a party even though they have had their Costs Budget limited to court fees only and so the opponent still needs to be sure that they can beat that offer and it still gives the parties an incentive to settle.

A paying party could in fact be at some disadvantage even at half the costs because this would be a situation where they are not aware of the likely costs of the party because a Costs Budget has not been filed.

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Written by kerryunderwood

July 20, 2017 at 9:08 am

Posted in Uncategorized

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