Cost Budgets: the effect on Detailed Assessments

The Court of Appeal (CA) this month handed down the long awaited judgment in the case of Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792 in which the CA dealt with how budgets will affect detailed assessments.

Harrison is a significant case due to the wider importance of the issues raised and therefore leave was given for the appeal to proceed directly to the CA, with many detailed assessments being placed on hold pending the outcome of the appeal.

One thing made clear by Davis LJ when handing down the judgment was that the submissions from the Defendant 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’. 

The judgment addressed four issues: -

(1) What effect does the ‘future costs’ have on the assessment of costs at the conclusion of the case.

The CA treated the starting point on this issue as Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB), [2017] 1 Costs LR 91.  In Merrix, the Court had concluded that where the costs claimed on assessment are, on a phase by phase basis, within the budgeted figure for the same phase as approved or agreed in a costs budget, then the court, in applying CPR 3.18, cannot depart from that agreed figure either upwards or downwards without good reason. The CA agreed with this approach by confirming a CMO could not operate in effect to replace the detailed assessment.

  • “The effect, rather, is as to how the detailed assessment is conducted.  Second, and linked to the first point, the whole argument, in my opinion, tends to downplay the significance of the "override" built into the wording of CPR 3.18 (b).  Where there is a proposed departure from budget - be it upwards or downwards - the court on a detailed assessment is empowered to sanction such a departure if it is satisfied that there is good reason for doing so.  That of course is a significant fetter on the court having an unrestricted discretion: it is deliberately designed to be so.  Costs judges should therefore be expected not to adopt a lax or over-indulgent approach to the need to find “good reason”: if only because to do so would tend to subvert one of the principal purposes of costs budgeting and thence the overriding objective.”
  • Further “that said, 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.”

(2) With regard to ‘incurred costs’, is there a requirement of ‘good reason’ allowing a costs judge to depart from the amount put forward in the budget at any subsequent assessment.

In SARPD Oil International Limited v Addax Energy SA [2016] EWCA Civ 120 the suggestion was that incurred costs should be given the same status as future costs. Further, at first instance in Merrix Master Whelan held that the incurred costs be subject to the same approach as estimated costs. The CA disagreed

  • “Either incurred costs are within the ambit of CPR 3.18 (b) or they are not.  Since they are not approved budgeted costs, by the terms of paragraph 7.4 of PD 3E and of the Rules, they are not within that sub-rule”. ……… “incurred costs are not as such within the ambit of CPR 3.18 (in its un amended 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”.

In other words, the “incurred costs” element of the budget is not definitive and therefore is subject to assessment without any fetter under CPR 3.18, though any comments made by the budgeting judge will still be taken into account.

(3) The approach the Courts should take with the issue of proportionality where costs have been budgeted - provided the ‘future costs’ remain in budget, are they excluded from any consideration of ‘global’ proportionality on assessment absent good reason

The CA held no exclusion applied, confirming that “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”

This is important therefore to remember that proportionality still impacts costs even where the estimated costs remained within budget, as the court must still look at the entirety of costs in order to consider if the overall figure is proportionate and determine whether or not to make an additional reduction.

(4) When, for the purposes of the transitional provisions relating to proportionality contained in CPR 44.3 (7), a case is to be treated as “commenced”.

The CA held that it was “plain that a case is “commenced” for the purposes of CPR 44.3 (7)(a) when the relevant proceedings are issued by the court. That, in the present case, yielded the date of 9 April 2013. The proportionality provisions of CPR 44 (2)(a) and (5) applied accordingly.

This ruling has been seen by many as a victory for common sense, an opinion shared by Association of Costs Lawyers Chairman Iain Stark: ’demonstrating once and for all the central importance of budgeting litigation’ and the ‘real weight’ of the budget.

Practitioners however are warned not to forget that this judgment also confirms that proportionality will still bite on the overall figure of costs regardless as to whether the future costs remain on budget.

Click here for the judgment.

By Rowena Edwards – Costs Lawyer