CA: parties need good reason to depart from budget at detailed assessment

The ACL has backed yesterday’s ruling by the Court of Appeal that costs judges on detailed assessment can only depart from approved or agreed budgets if there is good reason to do so.

However, it warned that a comment by Lord Justice Davis that the proportionality test should be applied at the end of the detailed assessment risked increasing uncertainty.

The much-anticipated ruling in Harrison v University Hospitals Coventry and Warwickshire NHS Trust [2017] EWCA Civ 792 also upheld the decision by Mrs Justice Carr in Merrix, which was not appealed so as not to delay this decision.

The decision of Master Whalan, sitting as a district judge, was leapfrogged to the Court of Appeal, and Lord Justice Davis said it had been told that a number of detailed assessments “are currently on hold pending the outcome of this appeal”.

The bench was made up of the Master of the Rolls, Sir Terence Etherton, Lord Justice Davis and Lady Justice Black, with the Senior Costs Judge, Master Gordon-Saker, sitting as an assessor.

The case was a disputed clinical negligence claim stated to be worth less than £50,000. At the costs management hearing, the claimant put forward a budget of £197,000, made up of incurred costs of £108,000 – on which the judge made no comment – and future costs of £89,000. Success fees and the after-the-event insurance (ATE) premium were not included.

Shortly before trial, the case settled for £20,000 plus costs. The claimant then put forward a bill of more than £467,000 (including success fee and ATE premium).

On detailed assessment, Master Whalan said CPR 3.18 precluded him from subjecting the budgeted costs to a “conventional” detailed assessment unless there was good reason to do so.

With regard to the incurred costs, it was “in practical terms” required that good reason likewise should be shown if there was to be a departure from what was set out in Precedent H.

He ultimately assessed the recoverable costs at £420,168 (including success fee and ATE premium).

The first issue before the Court of Appeal was whether a costs judge on detailed assessment was precluded from going below the budgeted amount unless satisfied there was good reason for doing so.

Davis LJ, giving the judgment of the court, said: “I am in no real doubt that Master Whalan reached the right conclusion on this issue and that the conclusion of Carr J in Merrix was also correct, for the reasons which she gave.”

Despite being taken to various comments and views on costs budgeting – an approach he said he was “a bit bemused by” – Davis LJ said it was a matter of construing the wording of CPR 3.18. “For this reason alone, therefore, I was not much moved by [defence counsel] Mr Hutton’s courteous but firm insistence that to understand the rule, one has to understand the ‘realities’; and for that purpose one had, he said, to be at the ‘coal-face’ of costs management decision making (which virtually all appellate and many High Court judges are, I accept, not).

“In many ways, Mr Hutton’s submissions in fact came close to an attack if not on the whole principle of costs budgeting then at all events on the efficacy in practice of costs budgeting… But I do not need to go into the competing arguments… simply because, put shortly, the system is now enshrined in the Civil Procedure Rules.”

There was, the judge continued, no ambiguity in rule 3.18. The costs management order (CMO) did not effectively replace detailed assessment. “The effect, rather, is as to how the detailed assessment is conducted.”

Further, “the existence of the ‘good reason’ provision gives a valuable and important safeguard in order to prevent a real risk of injustice; and, as I see it, it goes a considerable way to meeting Mr Hutton’s doom-laden predictions of detailed assessments becoming mere rubber stamps of CMOs and of injustice for paying parties if the approach is to be that adopted in this present case.

“As to what will constitute ‘good reason’ in any given case, I think it much better not to seek to proffer any further, necessarily generalised, guidance or examples. The matter can safely be left to the individual appraisal and evaluation of costs judges by reference to the circumstances of each individual case.”

Davis LJ said the rules were similarly clear that there does not need to be a good reason to depart from the incurred costs figure.

“Paragraph 7.4 of PD 3E is quite specific: as part of the costs management process, the court may not approve costs incurred before the date of the budget costs management conference. What it can do is record in the CMO its comments (if any) on such costs: which are then be taken into account when considering reasonableness and proportionality…

“It follows, in my view, that incurred costs are not as such within the ambit of CPR 3.18 (in its unamended form) at all. Accordingly, such incurred costs are to be the subject of detailed assessment in the usual way, without any added requirement of ‘good reason’ for departure from the approved budget.”

He added: “Where, as here, a costs judge on detailed assessment will be assessing incurred costs in the usual way and also will be considering budgeted costs (and not departing from such budgeted costs in the absence of ‘good reason’), the costs judge ordinarily will still, as I see it, ultimately have to look at matters in the round and consider whether the resulting aggregate figure is proportionate, having regard to CPR 44.3 (2)(a) and (5): a further potential safeguard, therefore, for the paying party.”

The court also ruled that a case was “commenced”, for the purposes of CPR 44.3 (7)(a), when the relevant proceedings were issued by the court. In this case, it was important because it meant the difference between the old and new proportionality test applying.

ACL chairman Iain Stark (pictured) 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.”

Alexander Hutton QC of Hailsham Chambers and Roger Mallalieu of 4 New Square, instructed by Acumension, represented the defendant. Kevin Latham of Kings Chambers, instructed by Shoosmiths, was counsel for the claimant.


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Costs News
Published date
26 Jun 2017

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