Not every significant development in a case will warrant a budget revision, a High Court master has ruled in the first detailed judicial consideration of rule 3.15A, which came into force last October.
At the same time, in refusing a bid to increase two claimants’ budget by £1.3m, Master Kaye sent out a clear message about the need to apply for variations promptly and urged parties to keep their budgets under review.
In Persimmon Homes Ltd and Anor v Osborne Clarke LLP and Anor  EWHC 831 (Ch), she said not every significant development warranted a budget revision.
The master acknowledged that some significant developments would be “more obvious and easier to identify than others” – such as adding a new phase – but where it was a change to an existing phase, “and in particular a mixed phase, such as disclosure”, the court had to look more closely.
She explained: “Do the matters raised by the applicant, in fact, change the overall scope and likely cost of that phase? Were they, or should they have been, expressly or impliedly taken into account when the last costs budget was approved?
“In such a case, the court would need to be confident that the proposed variation related only to the additional impact of what is contended to be a significant development rather than an attempt to carry out a root and branch revision to the phases of the last approved costs budget.
“While the court should not consider the costs at a granular level nor micromanage the costs, it must be able to say that it is not interfering with the discretionary exercise carried out by the deputy master who approved the last costs budget.
“It is for the party seeking the variation to provide sufficient information and evidence with their application to satisfy the court that the variation is not simply an attempt to address a miscalculation or an overspend or to claw back previously disallowed costs. They would have to be able to satisfy the court that the variation only related to the significant development and did not interfere with the exercise carried out by the deputy master.”
She said this case was an example of “the difficulties that may arise” when rule 3.15A was not followed.
The developer claimants are suing the Bristol-based law firm for £10m over alleged negligence in drafting of two option agreements and ancillary advice relating to the development of land in Oxfordshire. It is being case managed with Osborne Clarke’s claim for £400,000 in unpaid fees from Persimmon Homes.
The claimants’ £1.46m budget was approved by Deputy Master Linwood in December 2019, of which just over £1m were future costs. Before Master Kaye a year later, they sought a variation to increase the budget to £2.8m, taking future costs to £2.4m.
Disclosure was the main cause, with the claimants saying they budgeted on the basis of model A and B under the disclosure pilot scheme, only for them to end up using model C. This was a significant development justifying varying the budget, they argued.
However, the master found that, by the time of the case and costs management conference (CCMC), the claimants anticipated this change but allowed the CCMC to go ahead without saying so.
It was “simply not good enough” to say they did not have time to revise the costs budget in advance of the CCMC and failed tell the deputy master and Osborne Clarke that they had not done so.
The claimants argued that they could not have accurately foreseen the scale of the disclosure exercise at that point and that it only began to become clear several months later.
But Master Kaye rejected the submission that the claimants could only understand the impact on the budget in retrospect, pointing out that it was “primarily a prospective, not retrospective, exercise”. It could assist at the detailed assessment in arguing the claimants had good reason to depart from the budget, however.
As a result, given that it was already known at the time the budget was approved, the change in disclosure model did not constitute a significant development.
Even if it was, Master Kaye went on, “it does not seem to me that a 12-month delay until 3 December 2020 before making an application to vary can be considered prompt”.
This was the same for two other, much smaller, elements of the budget that the claimants sought to vary – a request for further information and a second CCMC.
There was no evidence that the claimants had considered the former to be a significant development when it was served in February 2020, while the £73,000 extra sought was “modest” in the context of the budget as a whole.
The master concluded that the request and associated costs were not a significant development that warranted a revision. Also, it was again not made promptly – 10 months after the request and four months after the costs had been incurred.
While “conceptually” there could be an urgent significant development that resulted in the costs being substantially incurred by the time a prompt application was made or heard, “I am not currently persuaded that where a phase, including the costs for which a variation is sought, have been fully incurred before the application to vary is made that there would be any jurisdiction to approve a variation to the last approved costs budget for those phases after the event”.
Master Kaye continued: “Thus, if no application to vary is made promptly, and the costs are then fully incurred, such costs would, it seems to me, either be subject to the question of whether there was a good reason to depart from the last approved costs budget or the costs would be at large and in either case it would be a matter for the costs judge in due course.”
She made a similar finding in relation to the second CCMC.
The master stressed that variation applications were not intended to allow parties to address any overspend or miscalculation after the event and after a large part of those costs are incurred.
“I agree with [counsel for the defendant] that the prospective predictability and control of costs outweighs the retrospective correction of costs in terms of the exercise of discretion. It is here that the issues of promptness and significance of the development re-emerge in particular as part of the exercise of discretion.
“The prejudice to the developers in having to seek to persuade a costs judge after the event to allow them to vary their costs budget or to determine the costs that are at large is far outweighed by the prejudice to [Osborne Clarke].”
Master Kaye also said that the sums sought were not reasonable and proportionate.
Zoë Barton QC and Daniel Petrides (instructed by Walker Morris) for the claimants; James Hatt (instructed by Norton Rose Fulbright) for the defendants.