Cut in hourly rate for incurred costs not “good reason” to do same to budget

A reduction in hourly rates for incurred costs was not a good reason to do the same to budgeted costs, Master Rowley (pictured) ruled last week, nor was the fact the case settled for significantly less than had been claimed.

Jallow v Ministry of Defence [2018] EWHC B7 (Costs) was a claim by a soldier over non-cold freezing injuries he suffered to his hands and feet that led him to leave the Army. Liability was agreed on a 75/25 basis before proceedings began, but they continued over the issue of quantum.

Master Leslie reduced the claimant’s budget from £148,262 to £120,000 plus VAT and additional liabilities and including the incurred costs. The estimated costs were £107,777, reduced to £78,505 by Master Leslie.

There was some disagreement about the value of the claim. While the defendant said the budget was set on the basis of the claim being worth £300,000, the claimant said it was put on two bases depending on what findings of fact the judge made in the final hearing in relation to the employment of the claimant. There were, therefore, two alternative sums claimed: £185,000 or £312,000.

Four weeks before the assessment of damages hearing, the claimant accepted a part 36 offer of £90,000.

On detailed assessment, the claimant sought £188,085 inclusive of additional liabilities. Master Rowley reduced some of the hourly rates – which ranged from £140 per hour for grade D fee-earners up to £330 for grade A – in respect of the incurred costs.

The defendant argued first that the valuation of the case was a good reason to depart from the budget. Master Rowley suggested that, in relation to the sums claimed being “rather higher” than the sums achieved, the Court of Appeal’s dicta in Lownds held good.

“The essence of the point is whether it was reasonable for the claimant to believe that his case was worth the sum that he claimed,” the master said.

“It is only if he could not reasonably have had that belief, because his claim was exaggerated in some way, that the budget might be considered to have been set on a false premise and as such should be departed from on assessment.”

That was not the case here, he continued. “In my judgment, the claimant did not exaggerate his claim. He put forward alternative cases as to quantum which demonstrates that he was alive to the issues surrounding the potential level of damages to be recovered.

“Therefore, the ultimate settlement of this claim did not falsify in any way the premise of Master Leslie’s setting of a budget in a case where the sums in issue were £300,000. Consequently, I reject the defendant’s argument that the valuation of the case is a good reason to depart from the budget.”

The defendant then said that the reduction in hourly rates was a good reason to depart; an issue upon which several judges have had their say in recent months. A ruling by Deputy Master Campbell was due to go to the High Court but settled last month.

Master Rowley said the ‘good reason’ test came with a high threshold to pass. He rejected the claimant’s analogy with the “significant development” test to amend a costs budget, saying instead that there were similarities with the “genuine issue” test when trying to challenge a retainer.

“In place of the solicitor’s certificate is the approval of the budget by the court. In either situation, the judge at the detailed assessment is not going to entertain a challenge unless something is raised which is specific to the case before the court.

“There is nothing specific to this case regarding the hourly rates challenge. If they are reduced here, exactly the same point would apply in any other case. That in itself, in my view, points to the conclusion that a reduction in the hourly rates ought not to be a good reason to depart from the budget.”

He said the fact that the hourly rates allowed at detailed assessment were different from those originally used in the budget did not constitute a good reason.

“This case is a good example of why the make-up of the estimate on which the budgeted costs are subsequently agreed or approved is not relevant to the subsequent detailed assessment.

“In this case, the solicitor who had conduct for the first two years (which was, more or less, up to the CMO [case management order]) left the firm and the case had to be reallocated.

“The claimant and his solicitors took the view that a more experienced solicitor was required to deal with the difficulties in the quantum claim. Consequently, the work was done at a higher hourly rate than had been envisaged in the budget.

“It has always been my understanding that the approved phased total can be used by senior or junior fee-earners at differing hourly rates as the party considers to be appropriate. If it were otherwise and, as in this case, the fee-earner who had originally been acting was no longer able to do so, a slavish adherence to the rates set out in the calculations for the original budget would mean that an application to amend the underlying details to the budget would be required even though there may be no wish to amend the budget totals themselves.

“That seems to me to be an unlikely proposition and this illustration explains why I have said above that, once the phase total has been approved, the underlying figures are no longer relevant.”

Master Rowley acknowledged the tension between the need to allow reasonable and proportionate costs on an item-by-item basis in detailed assessments and the need for certainty of recovery as expected by the use of budgets.

However, he said the reality was that, if the party came within its approved or agreed budget, individually ‘unreasonable’ items turned into a reasonable and proportionate sum overall.

“My concern, and I suspect Master Campbell’s, is that the lack of scrutiny at a detailed assessment of the hourly rates claimed will encourage parties to incur costs up to the budget set for each phase on the basis that they are unlikely to have to withstand scrutiny at a detailed assessment.

“As such, there will be an inflationary element which is only kept in check by conventional detailed assessments. But this concern is something which has to yield to the aims of costs management in making detailed assessments shorter.

“For a long time, the work of the costs judge has been described as the compounding of ‘much sensible approximation’ to achieve justice. Ultimately, the use of CMOs is simply a further example of that pragmatism.

“Accordingly, I find for the claimant that there is no good reason to depart from the budget by virtue of the reduction to the hourly rates in this case.”

Sam Hayman of BBK LLP acted for the claimant; Michelle Walton (instructed by Jessica Wilson, Costs Lawyer) for the defendant.

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Costs News
Published date
02 May 2018

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