Approach to Cost Budgeting - An insight into procedural matters
Posted on 3rd May 2025 at 07:37
The case of BDW Trading Ltd v Ardmore Construction Ltd (Re Costs) [2025] EWHC 1063 (TCC) (02 May 2025) offers an interesting insight into procedural matters around Costs Budgeting and Costs Management.
The key points:
1. The court can make a Costs Management Order at any time.
2. Significant Leading Counsel involvement will be scrutinised and may not be proportional. Here the Claimant could split the fees allowed for Leading Counsel between the Witness Statement and Expert Report phases.
3. The court here was not persuaded by the Defendant's argument that disclosure costs should be less on the basis the Claimant had assumed less data - "I am not persuaded that there is a direct link between volume and cost."
4. A contingency should be 'more likely than not', if it is not don't be surprised if the Court declines to approve it.
5. Disclosure becoming a significantly greater task was a significant development and justified a variation to the Costs Budget. The Claimant should not be penalised for its assumptions - "That is the purpose of preparing a budget based on assumptions."
6. The Costs Budgets were approved at the high end of reasonableness "given the amount at stake in the litigation".
Mr Andrew Mitchell considered a number of issues relating to the Claimant's and Defendant's Costs Budgets.
A CCMC had taken place in June 2024 and the parties had been ordered to file revised budgets, highlighting any areas of disagreement. This was not done and as a consequence no Costs Management Order was made at the time. The Claimant made an application to amend its Costs Budget in March 2025
The Claimant sought to argue that the court could not or had no power to budget retrospectively, this was not accepted by the court:
"I do not accept that the Court is unable to make a costs management order now, setting out its view as to the reasonableness (or not) of budgets as at 27 June 2024. CPR 3.15(2) provides that a costs management order can be made at any time, and generally the Court has considerable discretion as to what to approve and on what basis in relation to disputed items as to the future costs. This would not be a retrospective order, moving the goalposts at a later stage or seeking to rule on what are now incurred costs, but one recording the Court's view on estimates as they were submitted as at a particular date. Having a record of that is of value and allows a disciplined approach, even if I am prepared to allow a revision to aspects of the Claimant's budget such that the original approved budget may prove to be largely of historic interest only."
The first issue to be considered was the use of Leading Counsel.
"At the CCMC I gave guidance (in the sense of expressing scepticism) about the proportionality of significant Leading Counsel involvement in the witness statement and expert report phases. At that stage, the Claimant sought some £70,000 for Leading Counsel for this work (on top of some £3,000 already incurred on expert reports).
I did accept however that it was reasonable for Leading Counsel to "have a look" at such evidence, by which I meant a reasonably high level review rather than active involvement in the preparation of the evidence itself (which, needless to say, should be led by the witnesses and experts themselves, and not by lawyers - of any description)."
The court later concluded:
"I therefore approve the sum of £17,000 for Leading Counsel for expert reports (rather than the £20,000 now claimed) and £7,500 for witness statements (rather than the £13,500 now claimed). I do not mind if the Claimant wishes to allocate that particular total (£24,500) differently between those two phases, mindful that I have little visibility on where precisely her input will prove more necessary."
On Disclosure the Defendant had challenged the Claimant's Budget:
"The Defendant says these costs are too high bearing in mind the small amount of data then proposed to be reviewed (1.5GB), being only £50,000 less than the defendant's estimate which is based on a review of over 20GB. I agree that more information could have been provided by the Claimant to explain the budget, but I am not persuaded that there is a direct link between volume and cost. I would have approved the Claimant's budget for this aspect of disclosure (£64,020) as at 27 June 2024. I do note however that the incurred costs for this item rose from £34,594 to £40,183 between the CMC and the end of the month, without any reduction in the estimate. That might be a matter to be reviewed on assessment in due course. On the basis that this has been incurred, I will therefore reflect this by approving a budget as at 27 June 2024 for future solicitor costs of £58,500."
The court made clear that there is not a direct link between volume and cost but also highlighted the need for a Costs Budget to be properly explained.
A discrete issue also arose around increased incurred costs:
"The Defendant submits that where the amount of incurred costs has increased between the CCMC and the end of the month, June 2024, the amount of that increase should come off any future estimates, absent some explanation. As I have already said, I agree in relation to disclosure. I do not propose to make any adjustment in relation to witness statements or expert reports or ADR because those are de minimis increases."
It raises the questions around the approach when revising a budget post CCMC and the impact of updating the incurred costs on the future costs.
The Defendant had included contingencies to cover the instruction of Leading Counsel (having argued it was not necessary).
"There is a dispute as to whether I should approve the Defendant's budget in respect of Contingencies D-F. These contain alternative pricing for counsel disbursements if both a senior and junior counsel were used. The 'main' budget assumes only junior counsel, consistent with the Defendant's position at the CCMC that a silk was not required. In those circumstances, and in the absence of any suggestion that a decision has now been taken to instruct a silk or of any relevant assumptions underpinning these contingencies, I am not persuaded that it is more likely than not that a silk will be instructed, and I decline to approve those contingency items which are duplicative (at least in part) of items in the budget itself."
It's clear any contingency should be more likely to happen than not and if it is not then the Court will decline to approve the same.
The Claimant applied to vary its Costs Budget in relation to disclosure:
"By letter dated 14 February 2025, the Claimant seeks a very substantial increase for its disclosure budget on the basis of circumstances which are said to have arisen since 27 June 2024 when it filed its proposed budget.
(1) As at 27 June 2024, the Claimant estimated the future disclosure stage would cost £80,000 (being solicitor costs of £64,000 and disbursements of £16,000), on top of already incurred costs of some £48,000, producing an overall expected spend on disclosure of around £128,000.
(2) The Claimant now seeks an increase in the future estimate of £295,000, taking the estimated disclosure budget to £376,000 (on top of the £48,000 already incurred). This is made up of around £200,000 of additional solicitor cost (a roughly four-fold increase in hours), previously £64,000; and an increase of some £95,000 on disbursements, most of which (£90,000) concerns the costs of review software, the rest being an increase in counsel cost.
This is a very large increase indeed. The new circumstances (post 27 June 2024) are said to be:
(1) There was protracted disagreement between the parties on the DRD, whereas the assumption had been that the claimant's draft would be agreed.
(2) In particular, two new issues were added in November 2024; and different custodians and date ranges were agreed; and a significant number of new search terms were added to the Claimant's disclosure.
(3) The original June 2024 budget had included only £7,500 as an estimate for future for e-disclosure/document management services (totalling some £14,000 including incurred costs) based on only 1.5GB of new data to process; 18 months of hosting and 2 hours of project management time per month. Whereas the Claimant now says that 58GB (perhaps some 50,000 documents) will need to be reviewed with the assistance of TAR software, a very substantial increase.
(4) I also note the Claimant says that at the time of the original estimate the document searches had not been carried out, and section 2 of the DRD (which is the part which teases out the search parameters) had not been agreed in any material way.
The Defendant accepts that it was necessary to add two additional issues and extend various search parameters but does not accept that there was any protracted disagreement in respect of the DRD. On the information I have been provided with, I am not satisfied that there was any protracted disagreement or, at least, that any significant amount of the new estimate is down to that. The real point is not the cost of agreeing necessary changes to the DRD itself but rather concerns the consequential increased costs in terms of search and review time of the documents required by that agreed DRD.
The Defendant says that the Claimant has failed to explain its extra £200,000 in solicitor time cost but assumes that this is as a result of reviewing a larger document set. I agree that is a fair assumption and agree that very little substantiation for the increase has been put forward (other than an assertion of more hours).
The Defendant also criticises the adequacy of the Claimant's original search terms. It says that the Claimant was wholly unreasonable to have allowed for only 1.5GB of data (the Defendant having allowed for 20GB at the time). I agree that it does appear that the Claimant's approach was too narrow, and vastly underestimated the number of documents that would need to be reviewed. That does trouble me because it might indicate that costs have been unnecessarily incurred in preparing for a disclosure exercise on an inadequate basis. But it does not follow, in my judgment, that the Claimant is to be penalised for its assumptions in circumstances where it is apparent that the disclosure task is considerably greater than the Claimant originally anticipated. That is the purpose of preparing a budget based on assumptions.
Standing back, I am satisfied that the Claimant's assumptions have changed, and that it is appropriate to reflect that fact in a revised budget."
The value and importance of assumptions can't be understated, it's clear they are the foundation for any variation. It's therefore important to be clear about the basis upon which a budget is drawn.
The Claimant having established a significant development now turned to what level of revision was appropriate.
"The question remains, what is a reasonable sum for disclosure bearing in mind all the circumstances, including the nature and value of the case. On the basis of the materials provided, I am prepared to approve:
(1) An increase to the budget for future solicitor time costs, resulting in a new estimate for that line [row 13] of £120,000 (previously £64,000, which I would have reduced to £58,000, as above). I will leave it to the Claimant to decide how it wishes to allocate that across the fee-earners. I bear in mind, amongst other things, that this is on top of some £40,000 already incurred for time costs; the increase recognises the increased volume of documents, but also that I would not expect costs to rise in direct proportion to volume; the revised sum would be greater than the amount allowed for the Defendant, but I do not accept that the difference should be as large as suggested. Generally, I have concerns about how the Claimant has gone about its disclosure scoping work, leading to such a radical change in work programming.
(2) £50,000 for Other Disbursements (previously £7,500) [row 19]. I cannot readily see (and none of this is explained) why the document management/platform costs should be materially greater, if at all, than that sought by the Defendant (£47,000) but I will allow an increase to take account of the increase in volume of potentially relevant documents.
(3) I will allow a relatively modest increase to £8000 (previously £5,625) for Junior Counsel. I am not persuaded that Leading Counsel's estimate should be increased."
The court concluded:
"To the extent approved above, I am satisfied that the Claimant's disclosure budget of 27 June 2024 may be increased pursuant to CPR 3.15A on grounds of significant developments since the budgets were filed at the end of June 2024. My conclusion on the amounts would be the same if I were looking at the reasonableness of the sums claimed, without the lens of significant developments.
I add that I consider both parties' budgets, as now approved, to be at the high end of reasonableness, given the amount at stake in this litigation."
It's noteworthy that the court considered that it was appropriate to budget at the high end of reasonableness to take into account the facts of the case. This may be a point that can be transferred to other claims when dealing with costs management.
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