Yirenki v Ministry of Defence [2018] 11 WLUK 53 – Are hourly rates a good reason to depart from the budget?

July 5, 2019June 28, 2019 annaramliLeave a comment

When budgeting cases, the Civil Procedures Rules (CPR) under Practice Direction (PD) 3E para.7.3 provides that, when the Court is approving figures, the approval should “only relate to the total figures for budgeted costs of each phase”.

In this claim, upon costs management, the Judge approved both a number of hours for each phase, as well as individual disbursements in the budget. This approach is clearly contrary to the CPR. Parties often reserve the position in relation to their incurred costs, and the hourly rates on the incurred costs, to be dealt with at detailed assessment. Interestingly, Master Davison reserved the issue of the hourly rates for the future costs to also be dealt with at detailed assessment.

Reduction to the hourly rates

Now, we know from the case of Jallow v Ministry of Defence [2018] EWHC B7 (Costs) that, where there has been a reduction to the hourly rates for the incurred work, this is not a good reason to depart from the budgeted costs. Master Davison clearly differs in his opinion, given that he has reserved the position of the hourly rates specifically for the estimated costs.

This decision has since been appealed and has, not surprisingly, been allowed. It was said by Mr Justice Jacobs QC that the approach of Master Davison was contrary to the CPR. Relying on rule CPR 3.15(2)(b) specifically, he provided that the correct approach is clearly that the approved figure is meant to be a final figure, rather than a provisional one which the other side could later attempt to reduce.

Mr Justice Jacobs QC advised that the cost budgeting process is not meant to be a detailed assessment in advance and that the job of the Court is to approve a proportionate figure which can be relied on. The principle of reserving the position as to the hourly rates of the budgeted figures weakens the reliance that can be placed on the budget itself, supporting the case of Jallow v Ministry of Defence [2018] EWHC B7 (Costs), in that hourly rates are not a good reason to depart from the budgeted figures.

UPDATES – What is a good reason to depart from a budget??

June 28, 2019June 28, 2019 annaramliLeave a comment

Since Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792 and the ruling that a budget will only be departed from (up or down) if there is good reason to do so, there has existed the issue of what a good reason to depart from a budget upon detailed assessment is. Case law provides authority for what does and does not amount to a good reason, and there has now been time to reflect on this.

The matter of what constitutes a good reason is still subject to much questioning and debate, as there is no distinct definition of what amounts to ‘a good reason’.

The case of RNB v London Borough of Newham [2017] EWHC B15 (Costs), which followed that of Harrison and Deputy Master Campbell, decided that departing from the hourly rates was a good reason to depart from the budget. However, this decision faced criticism, in that the Judges’ role in the budgeting process is to set a total for each phase in the budget and is not to approve or fix the hourly rates.

Therefore, for all intents and purposes, it is irrelevant what the hourly rate is for those budgeted costs, at the time that the budget is set. A Judge may look at it like this: whether a party spends 15 hours at £200.00 per hour, or 20 hours at £150.00, for a total phase of £3,000.00 – the figure is still the same. The total phase is just that: a total amount which the Court believes is appropriate for the work required.

The issue of hourly rates – and a good reason to depart from a budget – was revisited in Bains v Royal Wolverhampton NHS Trust. This decision went against RNB, as it ruled that to reduce the hourly rates in line with reductions made to those of the incurred costs would be to second guess what the Judge was thinking at the point of costs management.

Nash v Ministry of Defence [2018] EWHC B4 (Costs), a high court decision following the decision of Bains, ruled that, if the change in hourly rate for incurred costs was a good reason to depart from the budgeted figures, it would bring about a case of double jeopardy. Thus, the only way to combat this, would be to undertake an assessment of the incurred costs at the costs case management hearing.

Jallow v Ministry of Defence [2018] EWHC B7 (Costs) highlighted matters that do not amount to a good reason to depart from the budget, and how the costs management order (CMO) can impact the detailed assessment. Master Rowley commented that the two factors brought in front of him, namely the settlement figure in comparison to the pleaded value, and the reduction in the hourly rates, do not amount to good reasons for departing from the budget.

The Master concluded that a reduction to rates for incurred costs do not amount to a good reason to depart. To amount to a good reason, something specific is needed to have happened. The change in the hourly rates did not amount to something specific and had it done so, it would have set a precedent for parties to argue good reason every time rates have been reduced, as it is in many cases.

A more recent decision of an appeal case, Barts Health NHS Trust v Salmon (unreported) (2019)delves further into the matter of good reason and provides authority on departing down from the budget where the phase has not yet been completed. HHJ Dight concluded that, where the phase has not been completed, and the receiving party has claimed less than the total figure for that phase, then this amounts to a good reason to depart from the budgeted figure, in order that the indemnity principle not be breached. Interestingly, HHJ Dight then went on to say that once good reason has been established, then the paying party need not put forward any further good reason when additionally challenging the level of the total figure claimed and attempting to reduce the phase.

This raises some significant questions about the importance of the assumptions of the budget, following approval of the figures at the costs case management conference. The only page required for filing is the front page of the approved budget. However, should it now be required to submit updated assumptions, to reflect what the figures are based on, should any part argue a good reason to depart in relation to whether a phase has been completed. I suspect, as further good reasons become apparent, the use of the assumptions to show what the phase total was based on will become a much more widely used tool, in proving good reasons to depart, where assumptions widely differ from the actual outcome, and could come to benefit both receiving and paying parties, For example, where there has been more work assumed than has actually been undertaken, regardless of a party is claiming the total of the phase, or where the total of the phase is much lower than budgeted, regardless of whether the number of witnesses was much lower than the number anticipated.

There remains uncertainty as to what does amount to a good reason. With some guidance, I suspect there will be many more cases to come; however, will reluctance be shown by Judges to make those decisions given the gravity of those rulings?

An Order for a payment on account in Part 36 settlement

January 17, 2019January 17, 2019 annaramliLeave a comment

We found in Culliford & Anor v Thorpe [2018] EWHC 2532 (Ch) that a payment on account can be made by the Court after the judgement has been made and after the Order has been sealed. Previously, it had been widely understood that a Part 36 agreement, as it is a deemed Order for costs under CPR 44.9(b), provides authority for a party to apply for an Order for a payment on account and the Court can make such an Order upon settlement, as obligated pursuant to CPR 44.2(8).

However, in the High Court case of Finnegan v Frank Spiers [2018] EWHC 3064 (Ch ),a successful professional negligence claim from last year, Mr Justice Birss ruled that the Court does not have the power to make an Order for a payment on account where a claim is settled by way of Part 36, as the agreement does not provide authority to do so.

It was considered and argued by the Claimant Counsel that the decision for a payment on account should be based on the authority under CPR 44.9 for a deemed costs Order. The Part 36 agreement is a deemed costs Order and provides authority for costs to be assessed on the standard basis, outlined under CPR 44.3(2) and which Part 36 indicates. Counsel for the Claimant relied on the rule under CPR 44.2(8) – where an order has been made for costs to be assessed by way of detailed assessment, as they would be here, then an order shall be made for a payment on account.

Presiding over the case, Justice Birss ruled that Part 36 was a self-contained code, as is written within the part. He highlighted that it is clearly not entirely complete given the inclusion of the CPR 44.9; however, as it is a self-contained code, it should follow that it should be treated as such. Part 36 contains its own authority for the consequence of costs following settlement, and as such, there is no reason that CPR 44.2(8) should be followed when looking at whether to make an order for a payment on account. Justice Birss stated that much of CPR 44.2 is not applicable to Part 36 settlement and therefore one could not correctly apply CPR 44.2(8) to the rule. This is because the place for any authority for making a payment on account following Part 36 should be within the Part itself, from which it is absent. Furthermore, the Defendant Counsel argued that CPR 44.9 is in place in order to trigger the detailed assessment proceedings; however, it does not include any other provision of Part 44.2 when triggering the process, therefore highlighting that it should be no different when dealing with Part 36. Justice Birss dismissed the Claimant’s appeal.

The ruling has caused much debate, and was a topic of discussion at the annual Association of Costs Lawyers Conference, in which even the Counsel for the Defendant, Mr Rupert Cohen, agreed with costs judges that perhaps the decision went the wrong way. I am sure that it will not be the last time we see argument over this point and will discuss further any decisions that arise on this blog.