Elvanite Full Circle Ltd. v Amec Earth & Environmental (UK) Ltd.

Indemnity costs require conduct unreasonable to a high degree or circumstances taking the case outside the norm. An arguable but unsuccessful claim does not ordinarily meet that standard.

Where a costs management order exists, the approved budget is the benchmark for standard assessment. A party seeking an increased budget must apply formally and promptly, before trial, once a material excess becomes apparent. Retrospective revision after judgment is incompatible with costs management.

Departure from an approved budget requires good reason. An unexplained budgeting error, predictable expenditure or overspending caused by non-compliance with court directions will not ordinarily suffice. A genuinely unforeseen and reasonably incurred category of evidence may justify a limited departure.

The claimant's substantive claim had been dismissed in an earlier judgment, [2013] EWHC 1191 (TCC), while one element of the defendant's counterclaim succeeded. The claimant accepted liability for the defendant's costs.

The defendant's approved costs budget, as enlarged, was £268,488. It later sought £497,593.66, although it had neither applied before trial to revise the costs management order nor obtained approval for the increase.

The court determined whether costs should be assessed on the indemnity basis, whether an approved budget remained relevant to indemnity costs, whether the defendant could revise its budget after judgment or show good reason to depart from it, and the appropriate interim payment.

1. Standard-basis costs. The defendant was entitled to its costs, but only on the standard basis. Indemnity costs require conduct unreasonable to a high degree or circumstances taking the case outside the norm. The claimant's case raised numerous arguable issues, included a sound initial allegation of breach and was not pursued disproportionately. Its experts were unpersuasive, but neither unreasonable nor responsible for materially increasing the trial. Refusal of the defendant's inclusive settlement offer did not make the claimant's conduct sufficiently unreasonable.

2. Indemnity assessment and approved budgets. Although this issue was obiter, an approved budget should remain the starting point even for indemnity assessment. A budget estimates the whole costs likely to be incurred rather than costs calculated for a particular basis of assessment. Treating it as the starting point preserves certainty and discourages routine applications for indemnity costs. An indemnity order may, depending on the facts, constitute good reason for departure.

3. No retrospective budget revision. A party seeking approval for a significant increase must make a formal application. Merely filing and serving a revised budget is insufficient. The application should be made immediately when a more than minimal excess becomes apparent and must be made before trial. Revision after judgment would cease to be budgeting, encourage parties to wait and see, and destroy the certainty provided by costs management. The defendant could not retrospectively double its approved budget.

4. Good reason for departure. The same good-reason standard governs approval of a revised budget and departure on assessment. Unidentified or unexplained mistakes in the original estimate do not ordinarily constitute good reason. Nor did predictable work, unchanged pleaded issues, excessive expert involvement or expenditure caused by failure to comply with directions justify departure here. The later need for expert evidence about the costs of implementing the planning permission was genuinely unforeseen and could justify a limited departure.

5. The defendant remained entitled to argue other alleged departures before the costs judge. Their scope was likely to be limited. The claimant was ordered to pay £250,000 on account of costs within 28 days of the hearing.

• High Court (Technology and Construction Court): In the earlier merits judgment, [2013] EWHC 1191 (TCC), the claimant's claim was dismissed and one element of the defendant's counterclaim was allowed for £3,500 plus VAT. This subsequent judgment determined the basis and management of the defendant's costs.