Agreed costs budget could be open to challenge

With the widespread introduction of costs budgeting, lawyers, and costs practitioners in particular, are concerned with whether this heralds the end of detailed assessment for the majority ?of cases where the costs come in on, or under, budget.

CPR 3.18 states:

"In any case where a costs management order has been made, when assessing costs on the standard basis, the court will -

(a) have regard to the receiving party's last approved or agreed budget for each phase of the proceedings; and

(b) not depart from such approved or agreed budget [emphasis added] unless satisfied that there is good reason to ?do so."

To what extent therefore can parties expect costs that come in on, or under, budget to be simply rubberstamped by the courts as opposed to being subjected to the scrutiny of detailed assessment?

At the heart of this issue are two competing viewpoints. On the one hand, costs budgeting is designed to establish reasonable and proportionate costs expenditure at the outset of a matter and before those costs have been incurred. A party should then be able to proceed with the litigation knowing the level of costs they can expect to recover if successful. This aim would be entirely undermined if a party has incurred costs within the set budget but is still faced with the prospect of having those costs reduced further through the assessment process. Further, one of the aims of costs budgeting is to determine the level of reasonable costs at the outset and thereby avoid the need for undertaking a retrospective and expensive analysis of those costs at the conclusion. If detailed assessment is to remain the normal approach, the expense of this process will not be avoided.

Reasonableness line by line

On the other hand, the mere fact that the total costs claimed do not exceed the figures allowed for in a budget does not mean that the costs will all be reasonable when considered on a line-by-line basis. Indeed, it does not mean that all such costs claimed may even be recoverable as a matter of law. Further, costs budgets are based on specific phases of the claim and on certain assumptions. If a phase has been given a certain budget based on the assumption there will be ten witness statements, the reasonableness of the final costs claim should not simply depend on whether the claim does not exceed that figure but will depend on how many witness statements were actually obtained.

If the claim settled at a stage where only one witness statement had been obtained, the budget is likely to have little, if any, relevance as to the reasonableness of the costs.

HHJ Simon Brown has adopted the former viewpoint on at least two occasions. In the case of Safetynet Security Ltd v Coppage [2012] All ER (D) 57 (Dec)), after giving judgment for the claimant, it was decided that as the spend was within the court approved budget a detailed assessment would be an expensive and futile exercise. Accordingly, a final costs order was made within minutes of the substantive judgment being delivered.

In Slick Seatings Systems & Anor v Adams & Ors [2013] EWHC B8 (Mercantile) he awarded a successful claimant £351,000 costs to be paid within 14 days of judgment for £4.4m, where each phase was completed within a total budget of £359,000. In the judge's own words: "If you are successful at trial and are awarded costs on a 'standard basis', you stand a good chance of obtaining an order for payment of your costs within 14 days of judgment if you can demonstrate that you are within budget for each of your phases of work… There will be no need for the delay and expense of a detailed assessment. Your costs lawyer will be redundant at the end of the case and will have proved his worth for his involvement in accurate budgeting at the very beginning. Job done!"

This is to be contrasted with the views expressed by Lord Justice Moore-Bick in giving permission to appeal in Troy Foods v Manton [2013] EWCA Civ 615. He said: ?"The defendant's concern is that, on a detailed assessment, costs judges are likely to treat the approval of a budget, or any relevant part of it, as ipso facto establishing that the costs incurred in respect of the matter generally, or that particular element of it, are reasonable if they fall within the approved budget… I do not accept that costs judges should or will treat the court's approval of a budget as demonstrating, without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply ?because they fall within the scope of the approved budget."

This suggests that a line-by-line approach is still appropriate to explore the reasonableness of the costs claimed even where these fall within the budget.

Hopefully, more detailed guidance from the courts will be forthcoming shortly to determine the correct approach between these two competing philosophies.