Court of Appeal upholds primacy of budgeting over detailed assessment

Etherton: Master of the Rolls on the bench for Harrison

Costs judges on detailed assessment can only depart from approved or agreed budgets if there is good reason to do so, the Court of Appeal has confirmed today – although it said that proportionality remains a backstop safeguard.

The much-anticipated ruling in Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792 also upheld the recent 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.

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

The case was a clinical negligence claim at all stages of which damages were expressly limited in value to £50,000. Liability was disputed. 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 (ATE) insurance premium were not included.

Shortly before trial, the case settled for £20,000 plus costs. The claimant then put forward a bill of over £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.”

He said he did not need to address the defendant’s submissions questioning the efficacy in practice of costs budgeting, “simply because, put shortly, the system is now enshrined in the Civil Procedure Rules”.

There was, the judge said, no ambiguity in rule 3.18. If the defendant were right, it would mean that a receiving party may only seek to recover more than the approved or agreed budgeted amount if good reason is shown, whereas the paying party may seek to pay less without needing to show good reason.

“It is difficult to see the sense or fairness in that. Nor does this argument show much appreciation for the position of the actual parties to the litigation – not just the prospective paying party but also the prospective receiving party – who need at an early stage in the litigation to know, as best they can, where they stand…

“As Mr Latham pointed out, had the intention really been that good reason is required only in instances where the sum claimed exceeds the approved budget, then the rule could easily and explicitly have said so.”

Davis LJ said the 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.

Iain Stark, chairman of the Association of Costs Lawyers, commented: “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.”

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