“Costs management is an adjunct to case management, whereby the court, with input from the parties actively attempts to control the costs of cases before it. The primary means by which costs management is effected is for the parties to provide budgets of their own costs, with those budgets being updated from time to time and submitted for approval to the court. The court then formulates the directions and orders which it makes with a view to ensuring that costs do not become disproportionate”.
True or false?
Both, is the answer. The quotation is taken from Sir Rupert Jackson’s Final report into the Costs of Civil Litigation (Executive Summary 6.10) but in terms of, “Does costs management ensuring that costs do not become disproportionate, avoid the need for Detailed Assessment under CPR 47?”, the answer is, “No, it does not”. On the contrary, recent experience suggests that it may be bringing back the satellite litigation experienced during the “costs wars” of the “noughties”, which the Jackson reforms, in part, were implemented in order to avoid a return.
The judgment in Saint Bartholomew’s Hospital Health NHS Trust v Salmon is a case in point. This was a budgeted case which concerned a clinical negligence claim issued in 2014, in which the 73 year old claimant had woken up, unable to move her left arm following a laparoscopic hemicolectomy performed on 23 March 2011. Whilst she had no complaint about the surgery, the issue was whether the arm should have been kept at 90 degrees during the operation or whether, as Mrs Salmon’s expert believed, that was too great an angle and had caused nerve injury.
With special damages claimed at £3,295 and no future losses, the overall value of the claim had been put at £10,000-£15,000. For a reason not explained in the judgment, the case must have been allocated to the multi-track, and accordingly become susceptible to costs budgeting. Mrs Salmon’s budget had been fixed by the court at £155,603, which included a provision for two experts (given the exhortations by government and senior judiciary that only proportionate costs are to be allowed, one asks rhetorically, how can it possibly be proportionate for the costs budgeting judge to approve a budget that is ten times higher than the claimant’s best case on damages? However, that is another story for another day).
The case had settled on 22 August 2015, Mrs Salmon having accepted a Part 36 offer of £7,000. As this had been a budgeted case, it might have been expected that the budgeted costs would have been ticked through at the subsequent detailed assessment, given the aspirations expressed in Sir Rupert’s executive summary about the court ensuring, through case management, that budgeted costs would not become disproportionate.
Far from it! In her bill, Mrs Salmon had recognised that the full amount for each of the phases of work undertaken by her solicitors could not be claimed without breaching the indemnity principle: by that was meant that, where the work had not been completed because the case had settled early, she would have no liability for pay for it, with the knock-on effect that there would be no such costs for which Barts would need to indemnify her (see Gundry v Sainsbury). For that reason, her bill had been calculated on the basis that, in respect of two phases, less than the budgeted sums had been claimed. For experts, £24,928 had been approved but only £14,072 spent, so only the latter figure appeared in the bill. That represented an underspend of £10,856. For the alternative dispute resolution (ADR) phase, the respective figures were £9,745 and £5,041, with £4,704 being the underspend.
At detailed assessment, the claims were both allowed. The court’s view was that, as Mrs Salmon’s costs were substantially within budget, there was no “good reason” within the ambit of CPR 3.18 to depart from it. Overall, the assessed costs (the aggregate of pre and post budget costs) had been allowed at £52,000, but the court had then been asked to apply the proportionality test under CPR 44.3(5). That had resulted in a further reduction of £12,000, meaning that Mrs Salmon’s recovery was just £40,000.
On appeal, HHJ Dight disagreed with the approach to the budgeted costs. In his view, the fact that the claimant had claimed less than the figure in the last approved budget, so as to comply with the indemnity principle, was, of itself, a “good reason” under CPR 3.18 to depart from it. It followed that it was now open to the court to continue to hear submissions from Barts on what the final figure should be (viz even less!), without showing any further “good reason” for doing so. As the judge expressed it at paragraph 22(h) of his judgment:
“… Once the court has a right to depart from the budget, neither the receiving party, nor the paying party needs to establish a further good reason within CPR 3.18 if they wish to persuade the costs judge to make a further or different adjustment to the bill… In my judgment this consequence applies whether it is sought to depart from the budget upwards or, as in this case, further downwards, because the finding of a good reason opens the gateway for departure from the budget and the rules do not stipulate that the good reason must determine the nature of the route to be followed thereafter…”
The result: the detailed assessment could not stand and the two phases fell to be re-assessed. That done, it would be necessary to revisit the figures in order to decide whether the costs were proportionate, having regard to the CPR 44.3(5) factors and if not, to make a further reduction.
The rationale and justice of all of this is difficult to understand, but that is not to level criticism at the judiciary below the High Court, who are required to make decisions about “good reason” in the absence of any guidance provided by those above them. At that level, in Merrix v Heart of England NHS Foundation Trust, Carr J’s view was that:
“There is no need for present purposes to examine in any detail what might or might not be a ‘good reason’ for the purpose of CPR 3.18.”
In Harrison v University Hospitals Coventry and Warwickshire NHS Trust, the Court of Appeal not only approved Merrix, but also declined to give any guidance about what might or might not be a “good reason”. Indeed, as Davis LJ said at paragraph 44:
“As to what would constitute good reason in any given case, I think it much better not to seek to proffer any further, necessarily generalised, guidance or examples: the matter can safely be left to the individual appraisal and evaluation of costs judges by references to the circumstances of each individual case”.
So, no guidance so far, but it is, nonetheless, worth contemplating what might have happened had Mrs Salmon spent the entirety of the approved budget on the experts and ADR and not just a proportion of it. In those circumstances, it would have been for Barts to have made the “good reason” running in order for there to be any [emphasis added] downward departure to the budget.
In Mrs Salmon’s case, however, the reward for her solicitors having conducted the case competently and economically, and claiming less than the approved budget, was the absolving of Barts from having to advance any good reason for attacking the figures for experts and ADR in the bill. Taking that to its logical conclusion, the upshot of HHJ Dight’s decision is that if you are a receiving party and claim your full budget, it is for the paying party to show good reason to depart from it. Otherwise it will be ticked through, whereas if you claim less from the paying party than your last approved or agreed budget (say for indemnity principle reasons), the receiving party will have done the paying party’s job for him or her. There would be no need to show a good reason; it would therefore be: back to an old fashioned item-by-item detailed assessment. This is exactly what the Jackson reforms cautioned against through effective costs management.
Of course, Mrs Salmon’s case did not end there. Having won the appeal on “good reason”, Barts had a further string to its bow in next inviting the court to apply the proportionality test to the £52,000, by making a further downwards adjustment to £25,000. Whilst HHJ Dight held that the decision below to reduce the assessed costs by an additional 23% to £40,000 could not be “properly impugned” (no reason given), the effect of the reduction had already created a shortfall which wiped out at a stroke almost double Mrs Salmon’s damages. Thus, eight years after her accident, unless her solicitors let her off, Mrs Salmon will have been left with nothing.
Is that the sort of justice which Sir Rupert had in mind when he recommended the implementation of costs management, costs budgeting and the proportionality rule now adopted in CPR 44.3 (5)? It is scarcely credible that he did, but that is how his reforms are turning out in case after case.