A costs budget, once approved, cannot be re-opened by a costs judge unless there is ‘good reason’ to do so, the Court of Appeal has held in an important judgment
Ruling in Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792, Lord Justice Davis said the question of what amounted to ‘good reason’ could be left to costs judges. Delivering his judgment, Davis LJ said: ‘Since the meaning of the wording is clear and since it cannot be maintained that such a meaning gives rise to a senseless or purposeless result, effect should be given to the natural and ordinary meaning of the words used in CPR 3.18. ‘In truth, that natural and ordinary meaning is wholly consistent with the perceived purposes behind, and importance attributed to, costs budgeting and costs management orders.’
Davis LJ and two appeal court judges backed a judgment by Mrs Justice Carr on a similar issue in the case of Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB),  1 Costs LR 91.
The budget presented by Harrison’s solicitors at the costs management conference was £197,000, not including success fees and ATE premium, in 2014. Shortly before trial was due to start in July 2015, the case was settled for £20,000. Harrison’s solicitors then put forward a bill of costs for more than £467,000, including success fees and ATE premium.
Iain Stark, chairman of the Association of Costs Lawyers, said: ‘This ruling is a victory for common sense and demonstrates once and for all the central importance of budgeting in litigation. ‘The budget is a key document and the costs management process has real weight. The decision on incurred costs is similarly welcome. There is a danger of claimants incurring as much as possible before case and costs management conference, but they are only putting themselves at risk of adverse comments or the need for detailed assessment if they do so.
‘However, the court’s comment that the costs judge on detailed assessment will still have to look at whether the final figure is proportionate risks introducing an element of uncertainty in the process. We hope that practitioners will now put renewed efforts into budgeting their case properly, which will provide their clients with a degree of certainty on costs. ‘From a technical point of view, we anticipate that the assumptions parties make in their budgets will come under particular scrutiny as they are likely to feature prominently in any attempts to argue at detailed assessment that there is a good reason to depart from the approved or agreed budget.’
This article first appeared in the New Law Journal on 23 June 2017