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Costs budgeting versus detailed assessment

Costs budgeting versus detailed assessment


The appeal decision in Merrix provides certainty on costs management and a strong argument against fixed costs, writes Francis Kendall

Even those charged with policing the Civil Procedure Rules cannot agree whether costs budgeting fetters the powers and discretion of the costs judge at a detailed assessment.

A report late last year from the sub-committee charged with updating the CPR following last year’s Court of Appeal ruling in Sarpd Oil raised the question, which has been exciting debate since the autumn.

It said: ‘On the one hand, there is a view… that, if costs are claimed at or below the figure approved or agreed for that phase of the budget, then they should be assessed as claimed without further consideration. The budget fixes the amount of costs recoverable and the costs can only be reduced if the defendant paying party satisfies an evidential burden that there is good reason to depart from the figure in the budget.

‘There is a contrary view that the cost judge’s powers and discretion are not fettered by the budgeted figure for that phase and the budget is but one factor to be considered in determining reasonable proportionate costs on assessment of costs under CPR part 47. This view was accepted by District Judge Lumb in Merrix v Heart of England NHS Foundation Trust [2016] EWHC B28 (QB).’

Then, in February, Mrs Justice Carr overturned the ruling in Merrix and decided that the costs judge ‘will not depart from the receiving party’s last approved or agreed budget unless satisfied that there is good reason to do so’.

Carr J said the starting point had to be CPR 3.18: ‘The words are clear. The court will not – the words are mandatory – depart from the budget, absent good reason. On a detailed assessment on a standard basis, the costs judge is bound by the agreed or approved costs budget, unless there is good reason to depart from it...

‘The obvious intention of CPR 3.18 was to reduce the scope of and need for detailed assessment. The respondent’s approach would defeat that object. This straightforward conclusion reflects the fact that costs budgeting involves the determination of reasonableness and proportionality.’

The danger is that the first case and costs management conference (CCMC) will turn into a mini-detailed assessment in advance. Carr J recognised the risk but said: ‘With proper and realistic co-operation and engagement between the parties, that should not be the case. The costs budgeting exercise already takes up significant amounts of court time and the parties’ time in preparation. There is already a very substantial investment.‘

Further, the costs budgeting exercise is not intended to be a detailed assessment, and the parties and the court should not approach it as such. It is a broad, phase-based assessment which will… inevitably be rough and ready in places.’

It is a fine aspiration, but one wonders whether in practice parties will be quite so happy to take such an approach given that the detailed assessment will not give them a second bite of the cherry unless they can establish a ‘good reason’ to depart from the budget.

Happily, this issue is going to the Court of Appeal soon. In May, it is to hear an appeal against an unreported decision of Master Whalan in the Senior Courts Costs Office, and Carr J suggested any appeal in Merrix could be listed alongside.

As a result, there have been reports of cases being adjourned to await the appeal, but also of judges following Carr J’s ruling, which is the current authority after all. The ruling will also weigh heavily on the minds of any defendants who were thinking of agreeing claimants’ budgets ahead of CCMCs.

The debate needs to be seen in the context of Lord Justice Jackson’s review of fixed recoverable costs. Speaking about it in early March, he said he had already been sent a ‘strong message’ that ‘despite all the criticisms in the past, costs management is now working much better’.

The reality is that lawyers who view fixed fees with even greater horror than budgets – which, I suspect, is most of them – need the costs management regime to have an impact. Carr J’s ruling appears to achieve that. It does emphasise the importance of getting your budget right, of course.

There is a strong case that Carr J has got it right and detailed assessment will therefore be limited to: the incurred costs at the time of budgeting; any costs that fall outside the scope of the budgeting process; and any ‘good reason’ for departure in a specific phase – be that upwards or, as a result of the ruling, downwards.

Certainty is a key consideration, and the certainty provided by the application of Merrix, by reference to budgets determined on a case-by-case basis, must be a strong argument against the need for fixed costs, which, by their nature, would be far more arbitrary an approach, leading to injustice for some.

Francis Kendall is vice chairman of the Association of Costs Lawyers and a costs lawyer at Masters Legal Costs Services