Sue Fox considers the practical effect of the Harrison budgeting decision

August 23, 2017August 23, 2017 Sue FoxLeave a comment

In the eagerly awaited decision in Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] WECA Civ 792 (seearticle, page 8), the key findings of the Court of Appeal were that (1) budgeted costs will not be departed from in the absence of a ‘goodreason’; (2) incurred costs do not form part of the budgeted costs; and (3) the good reason test does not apply to those incurred costs. So, what does this decision mean in practice, and what further observations can we make?

Of particular interest is how the courts will deal with ‘incurred costs’. During the Court of Appeal case, thecourt’s attention was drawn to incurred costs when the respondent presented what was described by Davis LJ as ‘an ingenious argument’ regarding incurred costs being potentially approved ‘through the back door’ at the budgeting stage. The respondent submitted that: ‘The incurred costs will have acquired a special status:
in that, while not “approved” as such, they will have been taken into account by the court at the costs management hearing in managing the future estimated costs.’ Please click here to read the full article.

Sue Fox is a Senior Associate and the Head of Costs Budgeting in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622.

The importance of the precedent H Costs Budget! Harrison on appeal – no second bite of the cherry.

June 21, 2017June 21, 2017 Sue FoxLeave a comment

Jacqueline Dawn Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] WECA Civ 792 – the Court of Appeal has found that the budgeted costs will not be departed from in the absence of a “good reason”. Davis LJ further found that incurred costs do not form part of the budgeted costs and the good reason test does not apply to those incurred costs. Davis LJ confirmed that the proportionality test can be applied to the final claim for costs. This is despite the proportionality test having been applied when the costs budget was approved, this may result in claims for costs being subject to detailed assessment on the issue of proportionality alone.

Davis LJ summarised the Applicant’s submissions regarding what reliance should be placed on the budget at detailed assessment, as follows:

“The premise underpinning Mr Hutton’s argument thus was that CMOs in effect are but summary orders which at best give no more than a snapshot of the estimated range of reasonable and proportionate costs: often reached, as Mr Hutton would have it, on a broad brush or rough and ready judicial approach after a hearing which would have been limited in time, rushed in argument and incomplete in the information advanced”.

Davis LJ considered this to be a sceptical appraisal, commenting:

“that to sanction, at detailed assessment, a departure from the budget in the absence of good reason would overlook (among other things) that budgeted costs are already required to have regard both to reasonableness and to proportionality; that the aims of costs budgeting include a reduction in detailed assessments and of issues raised in points of dispute; and that the element of certainty to clients (in the form of knowing what costs they are likely to face, in terms of payment or recovery) would be removed.

Moreover, if approval of a costs budget by a CMO has the more limited status which the appellant would ascribe to it then that would have a potentially adverse impact on parties thereafter attempting to agree matters without requiring a detailed assessment. Although Mr Hutton queried if that was one of the perceived prospective benefits of the costs budgeting scheme, it seems to me – as it did to the editors of Cook on Costs – wholly obvious that it was indeed designed to be one of the prospective benefits of cost budgeting that the need for, and scope of, detailed assessments would potentially be reduced.”

The court’s attention was then drawn to incurred costs. The respondent presented what was described by Davis LJ as an ingenious argument to the court regarding incurred costs being potentially, in essence, approved ‘through the back door’. The respondent submitted that:

“the incurred costs will have acquired a special status: in that, while not “approved” as such, they will have been taken into account by the court at the costs management hearing in managing the future estimated costs.”

Davis LJ disagreed and found that:

“With respect, this will not do. 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.”

Davis LJ recognised that practical problems remained surrounding incurred costs and advised that the CPR committee’s intention was to amend the rules to decouple incurred costs from budgeted costs.

In summary, a good reason is required to depart from the budget, the proportionality test can be applied to budgeted costs, thus a reason to escape the restrictions of the budget; incurred costs should be considered in isolation to the budgeted costs and the rules still require amendments regarding incurred costs to ensure that costs management works.

It is therefore essential that an accurate budget is presented to the court, this Court of Appeal decision has ruled that a budget cannot be departed from unless there is a good reason to do so, this is a difficult test to overcome. There is no second bite of the cherry.

Fixed Recoverable Costs – the pilot scheme

June 20, 2017June 20, 2017 Sue FoxLeave a comment

News story image Following on from my newsletter below, the Civil Procedure Rule Committee meeting notes have been published today. Last month I explained how Jackson LJ had suggested how ‘capped fixed costs’ would work. The meeting notes have now confirmed how the pilot scheme will work, explaining that costs for preaction would be capped at £10,000, for particulars of claim at £7,000 and for defence and counterclaims at £7,000.

Many thanks to John Hyde of the Law Society Gazette who has reported that “Parties can claim up to £6,000 for a reply and defence to the counterclaims, £6,000 for the case management conference, £6,000 for disclosure and £8,000 for witness statements. Expert reports are capped at £10,000, with the trial and judgment costs limited to £20,000.

The working group dedicated to the pilot scheme proposes an overall cap of £80,000 rather than setting an actual fixed amount at this stage.

The proposal, backed in principle by the committee, is to run the pilot in certain specialist civil courts: the London Mercantile Court and three courts in each of the Manchester District Registry and Leeds District Registry. Any cases where the trial will go beyond two days, or where the value is more than £250,000, are excluded“.

Clarion May 2017 Newsletter: Fixed Recoverable Costs. A taster of how the pilot scheme may work.

The judiciary have released an outline regarding how the fixed recoverable costs regime may work. Jackson LJ attended a costs seminar in Birmingham back in March 2017, which focused on mercantile and business litigation. At that seminar both Jackson LJ and HHJ Waksman outlined their proposals for the fixed costs pilot scheme, those proposals being subject to the approval of the Civil Procedure Rules Committee. The details of their proposals were as follows:

The pilot scheme will run in the London Mercantile court, and Manchester and Leeds specialist courts.

It is likely that the pilot will commence in October 2017 and will last for two years.
The pilot scheme is optional.
There will be a separate fixed costs list.
The pilot can be joined at certain stages:
- The pre-action stage
- No later than 14 days after service of the defence
- At the case management conference (CMC)
- Claimants can commence proceedings in the fixed costs list.

The Defendant has an absolute right to object to this, and if so then the proceedings would be removed from the fixed cost list.

The CMC will be the last opportunity to join the pilot.
Parties will not be able to withdraw from the pilot, apart from the Defendant if the Claimant issues in the pilot scheme (see above).
There will be a shortened process with strict case management .

The pilot is currently a ‘work in progress’, however it is envisaged that these proposals will be making their way to the Civil Procedure Rules Committee in June 2017, so these could be public by July 2017. It is currently predicted that:

Parties will be required to file their “core documents” (the documents that are relevant to the issues in the claim) with their statements of case, i.e. the particulars of claim, defence, reply and defence to counterclaim.

There will be no need for further disclosure, unless parties can justify this at the CMC.

If further disclosure is required, parties will need to apply for the same before the CMC. If the parties cannot agree, an order will be made.

At the CMC, the judge will suggest Alternative Dispute Resolution (ADR), including Early Neutral Evaluation (ENE).

The CMC will be the only interim hearing, this will include setting the trial timetable.

Consideration is being given to limiting the number of witnesses, the thoughts are that there will be one factual witness on each side.

Costs budgeting will not be required and there will be no pre-trial review.

The trial length will be up to two days (excluding judicial reading).

Cross-examination will be “very strictly controlled”.

An early hearing date will be guaranteed.

Judgments will be produced within a short period of time.

Pilot participants can expect “active and proactive” case management.
Costs will be summarily assessed at the end of trial.

The above proposals were made in March 2017, however since then there have been further proposals, as follows:

The pilot will only relate to claims that are less than £250,000.

The pilot will only relate to claims where the trial is no more than 2 days.

The pilot will only relate to non-complex matters.

The maximum costs that will be allowed will be £80,000. The pilot scheme will be similar to the IPEC costs regime. There will be caps for phases of litigation and those phases will be the same as the phases used in costs budgets.

Parties can only leave the scheme under exceptional circumstances, examples of those circumstances are; allegations of fraud, if the matter subsequently is listed for a 3 day trial.

Judgment will be handed down within 6 weeks.
The proposed ‘grid’ is not yet available and it is likely that this will not be available until the practice directions are published, so it may make its way into any July update to the rules. The main benefits of the pilot scheme are that claims will be resolved speedily and parties will be more aware of their potential costs exposure.

We will continue to provide updates regarding fixed costs, as well as all costs related law.

Sue Fox who is a Senior Associate and Head of Costs Budgeting at Clarion, can be contacted on 0113 336 3389 or on sue.fox@clarionsolicitors.com

“Costs budgets are now working better”………

May 23, 2017May 23, 2017 Sue FoxLeave a comment

At this years’ APIL conference it was said that “Costs budgets are now working better”………

Thanks to Gordon Exall and Rachel Rothwell for tweeting interesting and salient comments and quotes made at this years’ APIL conference. Those tweets included – “Harrison is coming any day”, “Merrix may largely be upheld with clarification of incurred costs”, “costs budgets are now working better”……… To read a few of those comments please click here.

Thanks again to Rachel and Gordon for their continued devotion to provide updates
on costs law.

Sue Fox is the Head of Costs Budgeting in the Costs and Litigation Funding department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622.

Calling trumps: Sue Fox on how the court has laid its cards on the table over costs management. The interaction between costs budgeting and costs assessment – Merrix v Heart of England NHS, the appeal of the first instance ruling.

May 9, 2017June 22, 2017 Sue FoxLeave a comment

The interaction between costs budgeting and costs assessment has been considered again in Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB) – the appeal of a first Merrix v Heart of England NHS instance ruling.

Mrs Justice Carr found that the court will have ‘regard to the receiving party’s last approved or agreed budget by respecting it or finding that there is a good reason to depart from it’……………………………………………

………………………….. So, the question to be answered is – will a receiving party’s costs
be allowed in full if they are less than the budget? Yes – for now! The Merrix decision confirms that any departure from the budget applies to both downward and upward revisions, hence parties have to show a good reason to depart from the budget.

Does Mrs Justice Carr’s finding in Merrix deny the paying parties an opportunity to challenge potentially unreasonable costs, despite it being their responsibility for the costs of challenging those costs? At the moment – yes.

Is it ‘just’ for the receiving party to request their costs in full simply because they have been incurred and fall within the parameters of the budget? What safety mechanism is in place to ensure that any receiving party does not include unreasonable and disproportionate costs in their claim for costs, simply justified on the basis that they ‘fall within budget’?

Mrs Justice Carr felt that the indemnity principle was sufficient, though perhaps it is not – unreasonable costs can be claimed from the client, hence the need for Solicitors Act assessments. Or alternatively, the client may have little regard to the constraints of the budget and request that ‘out of scope’ or disproportionate and unreasonable costs are incurred in any event.

How can restraints be imposed on a spendthrift client with deep pockets, and at the same time discourage a paying party from being overzealous in their requests for detailed assessment? Perhaps the introduction of the ‘one-fifth rule’ to costs budgeted cases could be the answer. This shares the burden of the costs consequences, rather than the traditional costs shifting rule. If the bill is reduced by more than 20%, then the receiving party is responsible for those costs rather than the paying party, but if the paying party secures less than a 20% reduction to the bill, then they become responsible for those costs.

This should encourage all parties to think seriously about committing to detailed assessment, rather than the onus being on the paying party. Not only does this tie in nicely with the rules for Solicitors Act assessments, but it is also in line with the rules surrounding provisional assessment relating to the recoverability of costs for an oral
hearing (see article, page 10). Further, it embraces Jackson’s intention to reduce the number of detailed assessments, and at the same time does not deprive parties the opportunity to challenge the costs. Just a thought.

Is this the end? Perhaps only for now. Mrs Justice Carr requested that if this decision were to be appealed, then it should be heard together with any existing listings covering the same point of principle.

In her decision, she referred to Harrison, which was soon to be heard in the Court of Appeal. The Harrison decision is listed for May, and so the paying party in Merrix may be running out of time to get this listed together with Harrison – but we await with interest.

Please click here to read the full article which was published in the April edition of the Litigation Funding magazine.

MacInnes v Gross – the budget is not a one stop shop

February 28, 2017March 9, 2017 Sue FoxLeave a comment

MacInnes v Gross [January 2017] EWHC 127 (QB) – the court looked at payments on account, indemnity awards, departure from the budget and proportionality!

Indemnity awards

In the case MacInnes v Gross [2017]EWHC 127 (QB), the honourable Mr Justice Coulson refused to award indemnity costs despite the claimant refusing to engage in negotiating a settlement. The judge comment that:

“More importantly, they also have to be considered against the background of the solicitors’ correspondence, which made plain that, on at least two separate occasions, the first defendant, through his solicitors, refused to engage in mediation. Again, that was doubtless because he genuinely believed in the rightness of his defence. But I consider that that failure tempers any criticism that might otherwise be made of the claimant’s rejection of the first defendant’s offers and his failure to make anything like a realistic offer in return”.

The Judge considered the criticism regarding negotiation collectively with the allegations regarding conduct and resolved that conduct had not been an issue. He refused to grant an indemnity award.

Proportionality

The court commented on proportionality, commending the claimant as follows:

“The claimant litigated his claim in a reasonable and proportionate manner. In my view, the fact that the claimant’s approved costs budget was around £234,000, when set against a claim for €13.5 million, demonstrates the proportionate way in which the litigation was conducted”.

Payments on account/departure from the budget

HHJ Coulson stated that “the days of the educated guesswork are now gone”, the court found that the budget can be used to determine the level of the payment on account.

The defendant requested a payment on account, the request was not in dispute, however the level of the payment was. The claimant proposed a payment on account in the sum of £375k, primarily on the basis that the defendant would not necessarily recover the amount of his costs budget at detailed assessment stage. This was the principle that was laid down in the first instance decision in the Merrix case, however the court did not adopt that approach and the court found that:

“The first defendant’s approved costs budget was in the sum of £570,000. He originally sought an interim payment of £605,000, being 95% of the approved costs budget (£540,000) together with an additional £65,000 to reflect the fluctuations in exchange rate and interest. During the oral submissions, the latter figure was reduced to £30,000 to reflect interest only, so that the first defendant asked for the sum of £570,000 as an interim payment on account of costs”

The court referred to the cases of Silvia Henry v News Group Newspapers Ltd and Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd (No 2) and stated:

“CPR 3.18 makes plain that, where there is an approved or agreed costs budget, when costs are assessed on a standard basis at the end of the case, “the court will…not depart from such approved or agreed budget unless satisfied that there is good reason to do so. The significance of this rule cannot be understated. It means that, when costs are assessed, the costs judge will start with the figure in the approved costs budget. If there is no good reason to depart from that figure, he or she is likely to conclude the assessment at the same figure”.

A view that was mirrored in the recent appeal decision in the Merrix case. HHJ Coulson went on to comment:

“One of the main benefits to be gained from the increased work for the parties (and the court) in undertaking the detailed costs management exercise at the outset of the case is the fact that, at its conclusion, there will be a large amount of certainty as to what the likely costs recovery will be. One consequence is that, for the purposes of calculating the interim payment on account of costs, the starting point will almost always be the payee’s approved costs budget”

He concluded that:

“So when making an interim payment on account of costs in a case with an approved costs budget, the days of the educated guesswork identified by Jacob J in Mars UK Limited v Teknowledge Limited [1999] 2 Costs LR 44 are now gone. Instead the court can be confident that there is a figure for costs which, because it has already been approved, is both reasonable and proportionate”.

Accordingly, the court granted an interim payment on account of costs of £528,000.

The budget remains to be the essential tool to be used throughout the litigation and will be used for many purposes in addition to controlling legal spend.

Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB) – On appeal, Mrs Justice Carr confirms that the good reason test to depart from a budget relates to both downward and upward departures.

February 28, 2017March 6, 2017 Sue FoxLeave a comment

Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB) – On appeal, Mrs Justice Carr confirms that the good reason test to depart from a budget relates to both downward and upward departures.

The inter-action between costs budgeting and costs assessment has been considered again in the appeal of the case of Merrix v Heart of England NHS Foundation Trust [2016]. DJ Lumb found that:

“It is not helpful in the context of this debate to consider “departure” within the meaning of CPR 3.18 as being upwards or downwards. It is important to understand that the departure refers to a departure from the budget not from a fixed sum. Just because a party has incurred costs that come in at under the total for a phase is not a departure from the budget. Applying the ordinary meaning of the words the party is still within the budget unless or until the Court revises the budget. It is not the replacement of one fixed sum with another fixed sum. The purpose of the form Precedent Q is to set out the differences between the actual expenditure and the budgeted figures for each phase. It is not intended to be some advanced assessment of the recoverable costs. If having completed a line by line assessment of the reasonable costs the Court considers that the costs are still disproportionate, the Precedent Q could be a useful breakdown for the Court to use to make adjustments to ensure the resulting figure is proportionate”.

DJ Lumb concluded that the budget and the bill of costs were different tools for Courts to manage costs, which were applied at different times. Consequently, despite the cost claimed being less than the budget, DJ Lumb (Regional Costs Judge) ordered that detailed assessment was appropriate.

This decision has been appealed to the High Court and the appeal has been allowed, with Mrs Justice Carr finding:

“In my judgment, the answer to the preliminary issue is as follows: where a costs management order has been made, when assessing costs on the standard basis, the costs judge will not depart from the receiving party’s last approved or agreed budget unless satisfied that there is good reason to do so. This applies as much where the receiving party claims a sum equal to or less than the sums budgeted as where the receiving party seeks to recover more than the sums budgeted”.

This decision now falls in line with LJ Jackson’s report and the cases of Slick Seating and Safetynet. In 2012, in the case of Safetynet Security LTD v Coppage [2012] EWHC B11, HHJ Simon Brown QC stated that “since the Claimant’s costs were within the budget approved by the court, a detailed assessment would be an unnecessary and expensive course of action to take”. Costs were awarded in the Claimant’s favour, in the amount of the budget. Later in the case of Slick Seating Systems & Ors v Adams & Ors [2013] EWHC B8 (Mercantile), HHJ Simon Brown QC observed that the Claimant had “laudably kept within the budget and exercised due control over their activities and expenditure in an exemplary fashion” and that their budget was proportionate to what was at stake, he awarded the claimant their costs as claimed.

LJ Jackson’s view of how cost budgeting would work was explained at Chapter 40 1.4 (iv) of his report:

“At the end of the litigation, the recoverable costs of the winning party are assessed in accordance with the approved budget”

And at Chapter 40 1.5 of his report:

“Issues for consideration. If costs management becomes a feature of civil litigation in the future, many issues will have to be considered before any set of costs management rules is drawn up. In particular: (iv) In so far as the last approved budget is binding, should it operate as an upper limit upon recoverable costs or should it operate as a form of assessment in advance? “

At Chapter 45 of his final report the Law Society noted that:

”If the costs management proposals set out in the Preliminary Report are accepted, it would seem that detailed assessment will have a place only in the context of cases where RP’s costs significantly exceed the budget”. The Commercial Litigation Association (“CLAN”) believed that “detailed assessment will become less common if costs management is adopted”.

That said, the case of Troy Foods v Manton [2013] EWCA Civ 615, Lord Justice Moore-Bick warned that an approved budget is not a licence to conduct litigation in ‘an unnecessarily expensive way’. He added that: “I do not accept that costs judges should, or will, treat the court’s approval of a budget as demonstrating, without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply because they fall within the scope of the approved budget.”

So, the question to be answered is – will your costs be allowed in full if they are less than the budget? Yes, unless parties can show a good reason to depart from the budget – Merrix now confirms that this applies to both downward and upward revisions to the budget.