Budget binds judge on detailed assessment, says High Court

A costs judge undertaking detailed assessment “will not depart from the receiving party’s last approved or agreed budget unless satisfied that there is good reason to do so”, a High Court judge has ruled, overturning District Judge Lumb’s much-discussed ruling in Merrix.

Mrs Justice Carr said: “This applies as much where the receiving party claims a sum equal to or less than the sums budgeted as where the receiving party seeks to recover more than the sums budgeted.”

Carr J said the starting point had to be CPR 3.18: “The words are clear. The court will not – the words are mandatory – depart from the budget, absent good reason. On a detailed assessment on a standard basis, the costs judge is bound by the agreed or approved costs budget, unless there is good reason to depart from it.

“No distinction is made between the situation where it is claimed that budgeted figures are or are not to be exceeded. It is not possible to square the words of CPR 3.18 with the suggestion that the assessing costs judge may nevertheless depart from the budget without good reason and carry out a line-by-line assessment, merely using the budget as a guide or factor to be taken into account in the subsequent detailed assessment exercise.

“The obvious intention of CPR 3.18 was to reduce the scope of and need for detailed assessment. The respondent’s approach would defeat that object. This straightforward conclusion reflects the fact that costs budgeting involves the determination of reasonableness and proportionality.”

The judge said this interpretation was in line with the obiter comments of the Court of Appeal last year in Sarpd, Mr Justice Coulson’s thinking in the very recent case of MacInnes v Gross [2017] EWHC 127 (QB), and the views of Senior Costs Judge Master Gordon-Saker in Collins v Devonport Royal Dockyard Limited last month, and Master Whalan in Harrison v Coventry NHS Trust last year.

Nothing in paragraph 7.3 of Practice Direction 3E, where it is stated that when reviewing budgets the court will not carry out a detailed assessment “in advance”, impinged on this approach.

“The practice direction is there setting out the nature of the assessment exercise at the costs budgeting stage. The court will not carry out a detailed assessment at that stage; rather it will consider whether the budgeted costs fall within the range of reasonable and proportionate costs. It is not stating that, whatever costs budget is approved or agreed, there will be an unfettered detailed assessment in due course.

“The fact that hourly rates are not fixed at the costs budgeting stage is no obstacle to such a conclusion. As the notes to CPR 3.18 in the White Book reflect, the fact that hourly rates at the detailed assessment stage may be different to those used for the budget may be a good reason for allowing less, or more, than some of the phase totals in the budget.”

The judge emphasised that costs budgeting does not replace detailed assessment: “It is common ground that, as [DJ Lumb] remarked (at [53]), Precedent Q is not an advanced assessment of the recoverable costs. It informs the court, in a readily accessible format, what has been spent compared with the budget.

“But the appellant is not contending that there should be no detailed assessment. On the contrary, the question is how that assessment should be conducted. Further and on any analysis, there remains room for detailed assessment outside the budget – for example, in relation to pre-incurred costs not the subject of the costs budget; costs of interim applications which were reasonably not included in a budget; where costs are being assessed on an indemnity basis; where the costs judge finds there to be a good reason for departing from the costs budget.

“Equally, the addition of the receiving party’s last approved or agreed budget as being a factor to which the court will also have regard (in CPR 44.4 (3)(h)) does not demote the budget to the status of a guide alone.”

Carr J said her conclusion reflected what was “the clear intention of costs management” – to reduce the cost of the detailed assessment.

DJ Lumb had expressed concern that her approach would lead to longer and more expensive cost management hearings instead.

Carr J said: “With proper and realistic co-operation and engagement between the parties, that should not be the case. The costs budgeting exercise already takes up significant amounts of court time and the parties’ time in preparation. There is already a very substantial investment.

“Further, the costs budgeting exercise is not intended to be a detailed assessment and the parties and the court should not approach it as such. It is a broad, phase-based assessment which will, albeit performed on a principled and carefully timetabled basis, inevitably be rough and ready in places.

“The clear intention behind and effect of the cost budgeting regime is that it is nevertheless to result in a budget from which the court will not depart on detailed assessment on a standard basis, unless there is good reason to do so.”

The “shortcomings and inevitable inaccuracies” in the cost budgeting process did not help the respondent, she continued.

“Where costs claimed are less than the budgeted figure, then the inaccuracies will be irrelevant, since the receiving party will only recover the lower figure (because there would be good reason to depart by reason of the indemnity principle). Equally, where costs claimed were higher, the receiving party would have to show good reason for departure from the budget.”

Carr J said “one can be confident that this decision on first appeal will not end the debate”, describing the issue as one which “would appear to be ripe for early consideration by the Court of Appeal”.

She said she had learned that the Court of Appeal would be hearing an appeal in May against Master Whalan’s unreported ruling in Harrison. “It may be that any appeal from this decision could be listed alongside that matter, if that were thought appropriate.”

She continued: “Whatever the future holds, however, it is important that a growing body of judgments on the same issue does not emerge in piecemeal manner. It is essential that there is procedural co-ordination.

“The same solicitors and/or counsel are involved in many of these matters in what is a relatively small world. I am told that many stays of detailed assessments are already in place, pending the outcome of this appeal. The parties may accept my judgment as binding for their purposes.

“Alternatively, it may be that further stays need to be imposed, to prevent unnecessary court and judicial time and expense being devoted to a debate which the Court of Appeal is very shortly going to consider.”

John Foy QC and Daniel Frieze, instructed by Irwin Mitchell, acted for the claimant/appellant, and Ben Williams QC, instructed by Acumension, for the defendant/respondent.


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Costs News
Published date
03 Mar 2017

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