In Harrison v University Hospitals Coventry and Warwickshire NHS Trust practitioners finally have some guidance from the Court of Appeal about costs budgeting and detailed assessment. What practical lessons can we distil from it?
It is worth remembering that Harrison looks at the “old” wording of CPR 3 Part II. The amended version of CPR 3.15, from 6 April 2017, now spells out that by costs management orders (CMOs) the court may only manage the costs “to be incurred (the budgeted costs)”.
So there can now be no doubt that for any cases subject to budgeting, incurred costs are outside the ambit of that process, except to the extent that they can be taken into account in setting the budget for costs to be incurred. There is no longer any need to use a recital (if there ever was, but as many practitioners had done following SARPD Oil International Ltd v Addax Energy SA stating that incurred costs have not been agreed or decided. The costs assessment will start from scratch in the time-honoured way for incurred costs. In Findcharm Ltd v Churchill Group Ltd, Coulson J emphasised that the budgeting process was not an arena for playing games. The defendant’s budget was unrealistically low, as was its offer for the claimant’s costs, and insofar as that was an attempt to get the court to set a reduced budget for the claimant, that failed completely and the claimant’s costs were budgeted as claimed. So be sensible and realistic.
But in an appropriate case do ask the budgeting judge for comment on the incurred costs pursuant to CPR 3.15 (4) because any such comments must then be taken into account at costs assessment. This is particularly relevant where it remains a lacuna in the budgeting process that incurred costs cannot be budgeted, and some claimant firms will front-load costs.
Since the assessment of budgeted costs will not be starting from scratch and good reason must be shown to depart from the budgeted figures, the overarching principle must be to be sensible about what points you take on detailed assessment, if you are the paying party.
The fact that costs have been budgeted should make early and judicious Part 36 offers, by either side, much easier; it is of course possible to make Part 36 offers for part of the case.
If you are likely to end up as a receiving party, and there is any risk that the budget will be exceeded because there has been an unexpected turn in the litigation, try to agree the budget with your opponent. If agreement can’t be reached, apply. The longer you leave it, the greater the risk you run of not recovering the costs in excess of the budget.
But if you are likely to be the paying party, and you can see that no application has been made, sit tight.
Given that Davis LJ declined to give any guidance as to what might be “good reason” for departing from the costs budget, we will have to wait for further decisions on assessment to help guide us for the future. One vexed question remains whether hourly rates, which are specifically not to be set as part of the budgeting process, will be a good reason: see the White Book 2017 at note 3.18.2, which says that:
“… in certain circumstances the court assessing costs may treat its allowance of different rates as a good reason for allowing less, or possibly more, than some of the phase totals specified in the last approved or agreed budget.”
In what circumstances?
If a case gets to trial, in appropriate cases practitioners might, at the very least, ask the trial judge for guidance for the judge assessing costs as to whether there was good reason for departing from the budget. The trial judge may be better placed to decide than the judge on assessment.
Proportionality also remains a difficult issue with which the courts will need to grapple. If proportionality is to be applied at the end of an assessment, it is also a key factor in setting a budget. No doubt if, for example, the final award has been much less than the sum sought, or the claimant has lost a number of issues along the way, the paying party will have an easier task in raising proportionality again at the costs assessment stage. But most importantly, it is at the assessment stage that the court will, for the first time, be able to look at the totality of incurred costs as assessed and budgeted costs to see whether the aggregate figure is proportionate.