Budgeted costs “unaffected” by cut in hourly rates for incurred costs

A reduction in hourly rates of incurred costs is not a good reason to do the same for hourly rates in the budget, a costs judge has ruled.

The latest in a series of judgments on the issue, Master Nagalingam ruled that “hourly rates hold no special status in the making of a costs management order”.

The High Court was due this Friday to hear an appeal in RNB v London Borough of Newham, after Deputy Master Campbell ruled that reducing the hourly rates for the incurred costs meant there was a “good reason” to reduce the budgeted costs too.

But Sam Hayman, senior associate in the costs team at London firm Bolt Burdon Kemp, which acted for the claimant, said it has just settled. “The defendant made an offer significantly in excess of the sums in issue in the appeal. While it was important that the principle be clarified by a higher court, the claimant rightly accepted the generous offer.”

Master Nagalingam, handing down his ruling in Nash v Ministry of Defence yesterday – another case in which Bolt Burdon Kemp acted for the claimant – reduced the hourly rate for the incurred costs and was then asked by the defendant to do the same for the budgeted costs.

He said that “given a costs management order is only ever made where required to further the overriding objective in terms of providing for costs which are just and proportionate, I have no difficulty in concluding that the budgeted phase totals which are subject to a costs management order must have been deemed reasonable and proportionate at the time the order was made”.

There were no efforts to revise the budgets and no arguments about significant developments which might otherwise have led to budget revisions.

“In effect, Mr Joseph [for the defendant] invites me to go behind or second guess how the constituent elements were balanced in order for the court to make a costs management order. Additionally, and absent there having been any significant developments in the case, he asks me to make a decision which would reduce what the case managing judge has already ordered was a reasonable and proportionate sum to spend for future costs in every phase of the budget.”

Master Nagalingam said the paying party was “effectively asking me to assign an elevated status to hourly rates over and above all of the other constituent elements/underlying details in the budget”. He was not prepared to do that, finding that “hourly rates hold no special status in the making of a costs management order”.

He continued: “If I am wrong about that, it gives rise to an additional risk that if rates (as one constituent element/underlying detail) is opened up to assessment then all of the constituent elements/underlying details could be opened up to assessment. This would be defeating one of the key purposes of costs budgeting, i.e. increased certainty and reduced costs of dealing with future assessments of costs.

“It would also significantly reduce the scope for budgets to be agreed, with parties then arguing over what constituent elements/underlying details of an ‘agreed’ budget could then still be subject to further scrutiny upon a detailed assessment of costs.”

The master stressed, however, that a paying party still retained the ability to argue that the overall sum of assessed incurred costs plus budgeted costs was disproportionate.

On related issues, the master ruled that he was not prevented from considering if there was a good reason “even where I have found that there is no evidence the parties agreed that the rates in the budgeted costs section of the budget could be subject to detailed assessment”.

He added: “I simply take the opportunity to highlight to both parties in this assessment the importance of agreeing budgets in clear and unambiguous terms, and ensuring that case managing courts are fully informed of the terms of any agreement so that the extent of agreement may be correctly recorded in the costs management order.”

He also concluded there was no difference between the status of a costs management order “which arises out of agreement rather than revisions following dispute”.

Mr Hayman said: “This judgment provides a thorough consideration of the relevant law and has given clarity to what is a highly contentious issue of detailed assessment. While this is a first-instance decision, the well-reasoned judgment is likely to prove useful for parties on detailed and summary assessment where costs budgeting has previously taken place.”

Andrew Rogers (instructed by Bolt Burden Kemp) represented the claimant, with Paul Joseph (instructed by the Ministry of Defence) for the defendant.


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Costs News
Published date
15 Mar 2018

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