An approved or agreed budget will bind the parties at detailed assessment unless there is good reason not to, the High Court has ruled in a decision that is almost certain to go to the Court of Appeal.
Overturning the ruling of District Judge Lumb in the much-talked about case of Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB), Mrs Justice Carr said this would achieve the purpose of cutting down the number of detailed assessments.
Also, she said, “real emphasis needs to be placed on the importance of certainty on costs in the context of access to justice”.
She observed that “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”.
Carr J said she had learned that in May the Court of Appeal would be hearing an appeal against a similar decision by SCCO Master Whalan in the unreported case of Harrison v Coventry NHS Trust. “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.”
Carr J said the key to the issue was 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 approach was consistent with the obiter comments of the Court of Appeal last year in SARPD Oil. “Read as a whole, it is clear that the Court of Appeal’s position was that, once a budget was agreed or approved, then part 3.18(b) applied.”
The fact that hourly rates are not fixed at the costs budgeting stage was no obstacle either, Carr J said. “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 – the question was how the 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.”
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.”
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.