Practico Blog: ‘Significant Developments’ and Costs Budgeting Principles

Important Guidance on ‘Significant Developments’ and other Costs Budgeting Principles

Sharp v Blank & Ors [2017] EWHC 3390 (Ch) offers some much-needed guidance regarding budget revisions and how the costs management process should work in practice.

This case involved seven claims that were subject to a group litigation order, with approximately 5,800 Claimants making serious allegations against five former directors of Lloyds TSB Group and Lloyds itself. The Claimants applied to the management judge for a direction that a costs management order should be made with anticipated revisions to be made later. The parties were ordered to exchange budgets, which in aggregate, amounted to slightly less than £37 million.

The Defendants applied to revise their budget citing ‘significant developments’, pursuant to CPR PD 3E paragraph 7.6. The Claimants opposed the application on the following grounds:

  1. Lateness;
  2. Oppression - due to the Claimants’ precarious funding position; and
  3. Jurisdiction - that none of the matters relied upon could be properly classified as significant developments, that the Court has no jurisdiction to deal with costs incurred prior to the date of the hearing of their application, and that interim applications could not be treated as significant developments.

The Ruling

Chief Master Marsh ruled that:

a) The court has jurisdiction when revising a budget under PD3E 7.6 to revise a budget taking the last agreed or approved budget as the base reference point.

b) Where, as in this case, the budgets were directed to be prepared to an antecedent date, the relevant date is the date set by the court.

c) Costs which have been incurred since the date of the last agreed or approved budget (or the antecedent date) that relate to significant developments are, for the purposes of revision, placed in the estimated columns of the revised Precedent H in one or more phase. In some cases, it may not be obvious where they go (for example a late application for security for costs) but I can see no reason why Precedent H may not be adapted as necessary to accommodate work that does not easily fit in.

The Master acknowledged that “some of the costs will have, in the real world, made a complete or partial transition from estimated to incurred, but within the costs management world that transition has to be ignored” and that “it seems obvious to me that some degree of retrospectivity is inevitable if the costs management regime is to be made to work”.

Further, the Master concluded that an interim application may be a significant development, as may the consequences that flow from an interim application. The fact that the practice direction deals with significant developments and interim applications in separate paragraphs did not “lead automatically to the conclusion that they are self-contained and mutually exclusive”. The Master also found that the Defendants took reasonable steps to ensure that their application was made in a timely fashion and was heard as soon as reasonably practicable.

The Master also noted that the revisions of budgets under paragraph 7.6 is not optional but a requirement placed on the parties. The fact that the Claimants decided not to revise their budget and leave the matter for detailed assessment “should not affect how the court deals with the defendants’ application if the jurisdiction to make revisions is engaged”.

The Master highlighted that it was the Claimants who pressed for costs management to apply and there was no good reason for the Court to decline to exercise its discretion under paragraph 7.6.

Significant Developments

The Master accepted the following were significant developments:

  1. An extension of 48 days to the trial timetable.
  2. A review of 1,000 documents arising from the Defendant’s application for specific disclosure.
  3. Service of the Claimants’ additional expert report (which comprised of 72 pages and 676 pages of exhibits) was a change from the agreed basis upon which expert evidence was to be provided and could not have been predicted at the time the budget was prepared.
  4. Responding to the Claimants’ additional expert report flowed from the Claimants actions and should be regarded in conjunction with the revision sought above.

However, the factors below were found not to be significant developments:

  1. The Claimants’ third-party disclosure application was a part of trial preparation, which did not encompass work that could properly be characterised as a significant development.
  2. The Defendants sought a revision of £44,000 in disbursements arising from questions put to three of the Defendants’ experts. The sum sought amounted to less than 1% of the sum allowed in the expert budget phase, which the Master viewed as too modest to be regarded as significant.
  3. It was claimed one of the Claimants’ experts sought to introduce an additional tranche of expert evidence in a third report, which required a response in the form of a witness statement and supplemental notes from two experts. The Master regarded this as a modest adjustment arising in the course and consideration of expert evidence.

This judgment provides practitioners with guidance on the Court’s jurisdiction to approve costs incurred between the date of the original budget and the application hearing, how those costs are to be presented and what may constitute a significant development for the purposes of revising a budget.

Although not formally binding, the decision is expected to carry persuasive authority in costs management hearings.