departure from the budget

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.

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.

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.

Tag: departure from the budget

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

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