Major increase in scale of disclosure not significant enough to justify budget variation

14 June 2023

An increase in the scope of disclosure did not amount to a ‘significant development’ that justified doubling an agreed costs budget, the High Court has ruled.

This was because the party failed to show why more disclosure would have such an effect on costs.

His Honour Judge Pearce, sitting in Manchester, also held that key to deciding whether there was a significant development was whether the circumstances could reasonably have been foreseen at the time the budget was set.

Simpsons (Preston) Ltd & Anor v MS Amlin Underwriting Ltd [2023] EWHC 1370 (Comm) is a claim brought by two car dealers over the scope of business interruption insurance during the Covid pandemic.

In September 2022, the claimants’ budget was agreed at just under £60,000, comprising fee-earner time of £34,100 and disbursements – in the form of an external disclosure provider – of £25,565. They then applied to nearly double it, to £118,000, calculated as another £49,000 of fee-earners’ time and £9,142 in disbursements.

The core of their argument was that the discovery of two unanticipated network drives containing 2TB of material had made the disclosure process far more extensive and costly than had been anticipated in the costs budget. Whereas the claimants had expected just a few thousand documents, there were now 362,074, including almost 10,000 spreadsheets.

The defendant asserted that this was not a ‘development’ in the litigation at all – rather, it was the claimants’ realisation that the scope of their disclosure was greater than what they previously anticipated.

HHJ Pearce said that, while budgeting should be done at an early stage in the litigation process, one could not expect the process of initial disclosure to identify much about the likely scope of extended disclosure. This made it difficult at the budgeting stage to make an informed judgment as to what was likely to be involved.

“For this reason, I agree with the comment of Master Davison in Al-Najar that the bar for what is a significant development should not be set too high.

“Otherwise, a party risks being unable to recover costs that it incurs of which it could only have been aware had it engaged in an investigation of its own case considerably beyond that which is anticipated by the scheme of the disclosure rules in the Business and Property Courts contained in PD57AD.”

Rejecting the defendant’s bid to distinguish between internal and external developments, the judge said a “more satisfactory approach” was to look at circumstances “that come to light making the litigation more (or in an appropriate case, less) costly and complex but that could not reasonably have been anticipated and mistakes, where a party could reasonably have identified and anticipated the circumstances by proper and proportionate investigation of the case prior to the costs management order”.

While not always easy to decide, this distinction “presents a principled dividing line between that which can properly be the subject of an application to vary and that which cannot”.

HHJ Pearce added: “In particular it incentivises the proper preparation of cases and costs budgets, without penalising the party that avoids front loading costs before the court can take charge of the costs management process.”

On that basis, a party discovering that its own disclosure was far more substantial than it initially realised was capable in principle of being a ‘significant development’.

Here, finding the drives could properly be called a development, but whether it was significant was “more difficult” as there was “relatively little information before the court to enable an assessment of this”.

The judge explained: “Whilst the claimants explain the increase in number of documents, it is not clear why the increased number necessarily leads to a significantly greater burden in the disclosure process.

“It is not clear from the evidence before the court that the increased number of Excel spreadsheets which have required review is a consequence of the discovery of the previously unanticipated drives or is simply an aspect of other parts of the disclosable documents.

“It is not clear why the de-duplication problem… has been so time intensive, nor (for example) why the spam or ‘bulk’ emails referred to have greatly increased the burden of the process.

“Further, it is not clear why the need to scan hard copies was not previously known. As to the obtaining of further licences [from the disclosure software provider], in my judgement that additional cost, whatever its cause, could not on its own be said to be significant.”

HHJ Pearce concluded that there had not been a significant development. “Whilst I acknowledge the need to avoid setting the bar too high by excluding matters that could not reasonably have been known, even if they can be said to be internal to the party seeking the variation, I am also conscious that the bar must be sufficiently high to encourage a rigorous approach to costs budgeting at the outset, otherwise a potential paying party cannot have the reasonable assurance that a costs budget is supposed to bring as to its potential liability in the event of an adverse costs order.”

Andrew Grantham KC (instructed by Brabners) for the claimants. Erica Bedford (instructed by DAC Beachcroft) for the defendant.

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14 Jun 2023

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