The 109th update has clarified what falls within the “incurred” costs, and made some changes to the guidance regarding which phase costs fall into. Watch the video for more detail and some tips on how to manage the period between the drafting of the budget and the date of the costs management hearing.
Anna Lockyer is an Associate and Costs Lawyer in the Clarion Costs Department. You can contact her by email at Anna.Lockyer@Clarionsolicitors.com, or by phone on 0113 288 5619.
There are many case authorities in relation to budgeting since the process was implemented, it is hard to keep track of them all. Here is a complete list of cases.
2014
Appeals
Havenga -v- Gateshead NHS Foundation Trust [2014] EWHC B25(QB)
General guidance
A & B (Court of Protection: Delay & Costs) [2014] EWCOP 8)
Hegglin -v- Persons Unknown & Google Inc [2014] EWHC 3793 (QB)
Thomas Pink Ltd -v-Victoria’s Secret UK Limited [2014]
Yeo-v-Times Newspapers Ltd [2014] EWHC 2853 (QB)
2015
General guidance
BP -v- Cardiff & Vale University Local Health Board [2015] EWHC B13 (Costs)
(GSK Project Management Ltd -v- QPR Holdings Ltd [2015] EWHC 2274 (TCC)
Stocker -v- Stocker [2015] EWHC 1634 (QB))
Tim Yeo MP -v- Times Newspapers Limited [2015] EWHC 209 (QB))
Various Claimants -v- Sir Robert McAlpine & others [2015] EWHC 3543 (QB)
Judicial guidance cases
GSK Project Management Ltd -v- QPR Holdings Ltd [2015] EWHC 2274 (TCC)
Tim Yeo MP -v- Times Newspapers Limited [2015] EWHC 209 (QB)
Late filing of a budget
Simpson -v- MGN Limited [2015] EWHC 126 (QB)
Overspending on the budget
CIP Properties (AIPT) Limited -v- Galliford Try Infrastructure Ltd [2015] EWHC 481 (TCC)
Excelerate Technology Ltd -v- Cumberbatch [2015] EWHC B1 Mercantile)
Parish -v- The Danwood Group Ltd [2015] EWHC 940(QB)
Simpson -v- MGN Limited [2015] EWHC 126 (QB)
Proportionality in budgeting
(BP -v- Cardiff & Vale University Local Health Board [2015] EWHC B13 (Costs)
Various Claimants -v- Sir Robert McAlpine & others [2015] EWHC 3543 (QB)
2016
General guidance
Agents’ Mutual Limited -v- Gascoigne Halman [2016] CAT 21
Campbell -v- Campbell [2016] EWHC 2237 (Ch)
Group Seven Limited -v- Nasir [2016] EWHC 629 (Ch)
Merrix -v- Heart of England NHS Foundation Trust [2016] EWHC B28 (QB)
Signia Wealth Limited -v- Marlborough Trust Company Limited [2016] EWHC 2141 (Ch) –
Agents’ Mutual Limited -v- Gascoigne Halman [2016] CAT 21
Late filing of a budget
Jamadar -v- Bradford Teaching Hospitals NHS Trust [2016] EWCA Civ 1001
Murray -v-BAE Systems PLC (Liverpool County Court, 1st April 2016)
Outcome of budgets and costs of assessment
Sony Communications International AB -v- SSH Communications Security Corporation [2016] EWHC 2985 (Pat)
Proportionality in budgeting
(Considers Agents’ Mutual Limited -v- Gascoigne Halman [2016] CAT 21
Group Seven Limited -v- Nasir [2016] EWHC 629 (Ch)
Revising the budget
Warner -v- The Pennine Acute Hospital NHS Trust (Manchester County Court 23rd September 2016)
The budgeting procedure
Agents’ Mutual Limited -v- Gascoigne Halman [2016] CAT 21
Merrix -v- Heart of England NHS Foundation Trust [2016] EWHC B28 (QB)
2017
Departing from the budget on detailed assessment
RNB v London Borough of Newham [2017] EWHC B15 (Costs)
General guidance
Harrison -v- University Hospitals Coventry & Warwickshire Hospital NHS Trust [2017] EWCA Civ 792
MacInnes -v- Gross [2017] EWHC 127 (QB)
Napp Pharmaceutical Holdings Ltd v Dr Reddy’s Laboratories (UK) Ltd & Ors [2017] EWHC 1433 (Pat)
Judicial Guidance cases
Findcharm Ltd -v- Churchill Group Ltd [2017] EWHC 1109 (TCC)
Woodburn v Thomas (Costs budgeting) [2017] EWHC B16 (Costs)
Late filing of a budget
Asghar -v- Bhatti [ 2017] EWHC 1702 (QB)
Mott & Anor v Long & Anor [2017] EWHC 2130 (TCC)
Outcome of budgets and costs of assessment
Harrison -v- University Hospitals Coventry & Warwickshire Hospital NHS Trust [2017] EWCA Civ 792)
Merrix -v- Heart of England NHS Foundation Trust [2017] EWHC 346 (QB)
Part 36 in budgeting
Car Giant Limited -v- the Mayor and Burgesses of the London Borough of Hammersmith [2017] EWHC 197 (TCC)
Proportionality in budgeting
Rezek-Clarke -v- Moorfields Eye Hospital NHS Foundation Trust [2017] EWHC B5 (Costs)
Revising the budget
Asghar -v- Bhatti [2017] EWHC 1702 (QB)
Sharp v Blank & Ors [2017] EWHC 3390 (Ch)
Sir Cliff Richard OBE -v- The BBC & Chief Constable of South Yorkshire Police [2017] EWHC 1666
2018
Departing from the budget on detailed assessment
Jallow v Ministry of Defence [2018] EWHC B7 (Costs)
Nash v Ministry of Defence [2018] EWHC B4 (Costs)
General guidance
Yirenki v Ministry of Defence, [2018] 5 Costs LR 1177
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.
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?
This continues to spark debate. The rules states that the hourly rate cannot be set (CPR 3 PD 3E, para 7.10), but further explain that the constituent elements of the budget should be considered when assessing the amount to approved (CPR 3 PD 3E, para 7.3). So, with the hourly rate falling under the umbrella of a ‘constituent element’ the hourly rate can be taken into account, but importantly, not fixed. There will usually be a number of factors that contribute to a reduction of the budget and on occasions the level of the hourly rate may be one of those contributing factors.
Parties are often working blind in respect of the logic that the case management Judge applied. If the court did take the hourly rate into account when reducing the amount of estimated costs sought, and no evidence exists to support the Judge’s thought process, what happens when the costs are finally assessed?
At the moment there is conflicting case law in this regard.
In RNB v London Borough of Newham [2017] EWHC B15 (Costs) Deputy Master Campbell said “If (as it is the case) the hourly rate is a mandatory component in Precedent H which is not and cannot be subjected to the rigours of detailed assessment at the CCMC, it makes no sense if it is automatically left untouched when the rates for the incurred work are scrutinised at the ‘conventional’ assessment.”
“Such an approach would offend against the guidance given in Harrison at paragraph 44. Indeed, as [counsel for the defendant] points out, it is only on that occasion that a paying party has an opportunity to challenge the rate.”
This was therefore a “good reason” to depart from the costs allowed in the claimant’s last approved budget.”
However in Nash v Ministry of Defence [2018] EWHC B4 (Costs) – Master Nagalingam found that “a reduction in hourly rates of the incurred costs is not a good reason to depart from the budget in respect of the budgeted (future) costs”.
And finally, in Jallow v Ministry of Defence [2018] EWHC B7 (Costs) Master Rowley found “that there is no good reason to depart from the budget by virtue of the reduction to the hourly rates in this case”.
How can the legal profession employ the rules as currently drafted? Is it possible to gain clarity and a clearer view of the blind logic/working approach adopted by the Judges? If, during the course of the CMC, the Judge does comment on the hourly rate, ask him/her to record a note on the case management order that the hourly rate was considered when approving the budget and that it played a role in the reduction to the rates.
Any questions? Please contact me at sue.fox@clarionsolicitors.com or call me on 0113 336 3389.
