In May 2017, Master Rowley handed down judgment in Tucker v Griffiths and Hampshire Hospitals NHS Foundation Trust, dealing with various issues arising as preliminary points in a detailed assessment. The case centred on an alleged mis-certification of the claimant’s budget and, flowing from that, also dealt with hourly rates and good reason to depart (based on the alleged mis-certification). There is also a decision on the unrelated issue of the level of recoverable success fee.
The claimant’s budget was prepared by reference to what appeared to be common practice from his solicitors, Irwin Mitchell, at that time. In preparing a budget of this nature, a notional “blended” hourly rate was used that took into account:
- The hourly rates within the engagement documents.
- Any periodic increases to those rates.
- Notional future rate increases to the date anticipated for the trial window.
No real issue thus far, but the problem arose with regard to the incurred costs included within the budget. These were, rather curiously, recalculated at the “blended” rate, so as to overstate the actual costs incurred. Master Rowley strongly concluded that the approach should be deprecated as being “to all intents and purposes a breach of the indemnity principle”, and judged to satisfy the threshold of “improper conduct”. However, the sanction applied under CPR 44.11(2)(a) was limited to disallowing the costs management elements of the costs claimed within the bill of costs.
Part of the reasoning must have been the well-put position of counsel for the claimant that any overstatement of incurred costs could only lead to a reduced budget being set, a position that was supported by the evidence from the case and costs management conference (CCMC), and resulted in a further decision that this issue did not produce a good reason to depart from the budget at the detailed assessment.
The message arising from Practice Direction 22 is clear: the budget should reflect a “fair and accurate statement of incurred and estimated costs”. I have recently had the misfortune to seek to defend a budget on assessment where there was a clear mis-categorisation of the incurred costs as between the early phases. The budget was prepared when budgets were new and, on preparing a full bill of costs, it became clear that the approach originally adopted would not be justifiable (with mainly an issue arising as to inclusion of costs incurred on issue/statements of case within the pre-action phase).
Fortunately there were no forward-facing costs in either of those phases and the costs judge was persuaded not to entirely disapply the budget, as contended by the paying party. The court was satisfied that the forward-facing budget set at the CCMC was unlikely to have been impacted by such an approach, however flawed. If a claimant has incurred a few thousand in these early phases, regardless of how they are categorised, the level of work already undertaken is relatively clear to the master setting a forward-facing budget.
It is also noteworthy that, in practice, minor shifts from incurred costs identified at the budgeting stage to those presented within any after the event bill of costs also do not trouble the court too much. If nothing else, there is always that “black hole” in the timeline between the preparation of the initial budget and the CCMC order, wherein significant chunks of estimated costs become incurred.
Even in Tucker, the “improper conduct” did not result in a finding of a good reason to depart from the budget.
It remains worthwhile taking the time, or instructing a good costs lawyer, to ensure that the initial budget reflects a fair and accurate picture of the incurred costs in order to avoid what looks likely to have been an extremely expensive argument at detailed assessment – costs counsel, including silk, were instructed and significant witness evidence from the paying party ran “the best part of” an 800-page “tome”). I very much doubt that the disallowed costs management costs were even a tiny fraction of the costs of the subsequent debate.