Rowley enters debate over what constitutes “good reason” to depart from budget

Rowley: Dicta in Lownds holds good

Master Rowley has become the latest judge to rule that a reduction in hourly rates for incurred costs is not a good reason to do the same to budgeted costs.

The fact the case settled for significantly less than had been claimed was also not a good reason, he found, as the claim was reasonable and not exaggerated.

Jallow v Ministry of Defence 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 it 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, he said.

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 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 a few weeks ago.

Master Rowley said the ‘good reason’ test came with a high threshold to pass and the fact that the hourly rates allowed at detailed assessment were different from those originally used in the budget did not reach it.

He 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 [in RNB], 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, head of costs at London firm Bolt Burdon Kemp, who acted for the claimant, said the ruling provided clarity on the often-contentious question of a ‘good reason’ to depart from the budget.

He continued: “The judgment offered a helpful reiteration of the fact that once a budget is set, it is at the party’s election as to how the phase total is spent.

“To a large extent, the master upheld our submission that hourly rates and any other reference material beyond the front page of the Precedent H hold no special status in the costs management order.

“In this regard, the master also made plain that costs judges must give weight to the intentions and aims of Lord Justice Jackson’s report and allow costs budgeting and costs management orders to curtail the extent of detailed assessment in order to do justice to the reforms and will of Parliament.”

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