3 May 2017
Tom Semple considers the High Court decision that held that costs judges are bound by the cost budgets at detailed assessment and cannot depart from them unless there is good reason to do so. A copy of the judgment can be accessed here. The issue is due to be addressed by the Court of Appeal later this month in the matter of Harrison v Coventry NHS Trust.
The Claimant had succeeded against the Defendant in a clinical negligence claim. The claim had settled before trial and, unsurprisingly, the costs bill was less than was the total budgeted figure. Before looking at the costs budgets and the final costs bill, the Court was asked to address a preliminary issue, namely: the extent to which costs budgeting fetters the costs judge’s powers and discretion at detailed assessment.
It was held by Costs Judge Lumb that the budget was only a factor to be considered amongst others under Rule 44.4(3) when the costs judge carried out detailed assessment. Rule 3.18 was only concerned with the situation where the receiving party is claiming a higher than budgeted sum, whereupon they would need to provide a good reason for the higher sum. The decision was appealed to the High Court.
Arguments on Appeal
In brief, the Claimant argued that Rules 3.18(a) and (b) of the CPR created a requirement that the costs judge would award the receiving party its budgeted costs unless the paying party could show good reason not to do so. To find otherwise would subvert the purpose of costs budgeting. Parties would also no longer have the benefit of knowing what costs the court was likely to consider were reasonable and proportionate.
The Defendant submitted that departure from the budget (in relation to Rule 3.18(b)) could only be in the case of going over the budget, following which the receiving party would need to provide a good reason for doing so. Costs budgeting was never intended to be or replace detailed assessment. Issues, such as hourly rates and incurred costs, are not dealt with at budgeting and what may be reasonable and proportionate at the CCMC may change when carrying out a detailed assessment.
The appeal was heard before Mrs Justice Carr. She allowed the appeal. Rule 3.18 states:
"In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the recovering party’s last approved or agreed budget for each phase of the proceedings; and
(b) not depart from such approved or agreed budget unless satisfied that there is a good reason to do so."
Carr J held that the wording in the rules was clear. The budget will be binding on the costs judge at detailed assessment and will not depart from it unless there is good reason. The intention behind this rule was to reduce the scope and need for detailed assessment and afford the parties a degree of certainty as to their costs liabilities. Whilst budgeting is not a detailed assessment in advance and does not replace detailed assessment outright, the budget is set upon determining what costs will be reasonable and proportionate. If the budget were not binding, this would create significant duplication at detailed assessment.
Whilst CPR r.44.4(3) lists many factors the court will have regard to when carrying out detailed assessment, one of which being the last approved budget (r.44.4(3)(h)), this did not demote the budget to a guide alone. It was not inconsistent with r.3.18 and was likely a convenient way of amending r.44.4(3) following the Jackson reforms.
Carr J did not define what a ‘good reason’ to depart from the budget would be. However, if the party had spent less than the budgeted sum, complying with the indemnity principle would be a good reason. She also commented that, when considering hourly rates, changing the rates might be a good reason to award a different sum for certain phases.
Whilst Carr J gave a strong indication that the decision was likely to be appealed, this case is a reminder of the importance of the costs budget and the CCMC. If her decision is upheld, costs budgets are likely to be authoritative when assessing costs at the conclusion of the case, unless there is a good reason to depart from them.
Emphasis was placed on the budgets being a ‘living document’. If there are significant changes to the proceedings warranting a revised budget (for example, needing further expert evidence), parties should be alive to their duty to apply to amend the budgets. Whilst a significant change in proceedings is likely to amount to a good reason to depart from the budget, a party’s failure to apply to amend it before detailed assessment is unlikely to find favour with the costs judge, given the importance now given to budgets in those hearings.
Further, the incurred costs and hourly rates warrant additional consideration. Although they are not assessed at the budgeting stage, the authoritative impact of the overall budgeted figure significantly reduces the costs judge’s scope if the sum claimed is at or below that figure. If the budgeting judge is unwilling to comment on the incurred costs or hourly rates (which would likely be influential at detailed assessment), the court should nonetheless bear them in mind when determining what costs would be reasonable and proportionate at each phase and overall.
The Court of Appeal is set to address this issue in this month when it considers the similar decision of Senior Cost Judge Master Gordon-Saker in Harrison v Coventry NHS Trust. Carr J suggested that Merrix could appropriately be joined to that appeal, given the "legitimate scope for disagreement" amongst costs judges as to the role of costs budgets in detailed assessments. Some welcome clarity could be in the pipeline.