The issue: what weight should be given to a costs budget when the court is carrying out a detailed assessment? That was the point with which Carr J was given the task of deciding as a preliminary issue, decisions below having gone both ways.
For receiving parties, it had been their practice to put their case on the basis that where the court had made a costs management order under Section II of CPR 3, the court must allow the approved or agreed budget when assessing standard costs without further argument. The countervailing submission, advanced by paying parties, was to persuade the court that the budget was but one factor to take into account when considering the reasonable, necessary and proportionate costs. In other words, the costs judge could not simply tick through the budgeted costs: if requested to do so by the paying party, a line-by-line assessment needed to be carried out, as would have been the case before the implementation of CPR 3.15 on 1 April 2013.
Not so, Carr J decided. In answer to the question, “To what extent, if at all, does the costs budgeting regime under CPR 3 fetter the power and discretion of the Costs Judge at Detailed Assessment?”, she held that the court cannot depart from the receiving party’s last approved or agreed budget unless satisfied that there is “good reason” to do so.
Does that mean that Jackson LJ’s view, expressed in his review of civil costs that costs budgeting would diminish the need for detailed assessment, will now come to fruition?
The answer is that in multi-track cases where there is a straightforward order that the loser pays the winner’s costs, it might. But detailed assessment is, by definition, detailed. It is not a summary procedure which ordinarily can be carried out at the end of a hearing using brief schedules and the proverbial “broad brush” approach. There are many circumstances in which detailed assessment will still be needed, even if the hurdle for a paying party to surmount in advancing an effective challenge to the costs will be higher, due to the need to show “good reason”.
In her judgment, Carr J was careful not to identify in detail what might constitute “good reason” for departing from a costs budget. At paragraph 73 of her judgment, she mentioned hourly rates as being susceptible to challenge. She also noted, at paragraph 74, that:
“But clearly, if the receiving party has spent less than was agreed or approved in the budget, the need to comply with the indemnity principle would require departure from the budget. There is no question of a party receiving more by way of costs than was actually spent.”
Beyond that, however, she was not willing to go.
Despite Carr J’s reluctance on this point, it is easy to envisage other circumstances in which the budgeted costs cannot simply be ticked through and a paying party will be able to show “good reason”. Consider the following situations, where detailed consideration of the costs will be required by the court in the traditional sense:
- Costs incurred before the costs and case management conference (CCMC) cannot be budgeted by the court and must be assessed if they are not agreed.
- Under CPR 44.3, only proportionate costs will be allowed by the court when the budget is set. However, when the proportionality test in CPR 44.3(4) is applied, the incurred costs as assessed will need to be aggregated with the budgeted costs. This is in order to decide if the reasonable and necessary costs to be paid are also proportionate (see paragraph 82 of Merrix).
- Where the court has made an issue based costs order, those costs of the issues to which the receiving party is not entitled will need to be separated out of the costs budget. This will leave only those costs for which the paying party is liable. That process will only be possible by detailed assessment.
- Likewise, where there are costs of claim and counter-claim to quantify, the “ticking through” approach will be inappropriate.
- Suppose that the budget was for a case said to be worth £500,000, but the winner only recovers 10% of that sum. Whilst the paying party might say, “we have no objection to paying budgeted costs for a case worth £500,000, but we have every objection to meeting those costs in that sum where the claim has been exaggerated to such an extent”, once again, only detailed assessment will suffice to decide whether that is right.
- Consider the traditional detailed assessment arguments. Although the brief fee for the trial might have been budgeted, if the action settled before trial, but the brief had been delivered a month before it was due to start, a paying party would certainly not expect the full amount to be visited on them; it would be for the court on detailed assessment to decide on a reasonable figure.
- In relation to Part 36 offers, suppose that the claimant wins at trial but fails to beat the defendant’s offer, which necessitates paying indemnity basis costs from the last date for acceptance. In the absence of an agreement, it will be for the court to decide how the costs will be divided.
The mention of the indemnity basis leads to the final point on why it will be business as usual on detailed assessment, notwithstanding Merrix. Costs payable on the indemnity basis do not have to be proportionate as CPR 44.3(4) applies only to standard costs. As stated in Kellie v Wheatley, “Proportionality is not in issue if costs are to be assessed on the indemnity basis”. Not only that, in Denton v White, the Court of Appeal said that a party who obtains an indemnity basis costs order is freed from their costs budget. If Jackson LJ hoped that costs budgeting would reduce the scope of detailed assessment, as Carr J indicated that it should, the scenarios identified above indicate why that will not happen.