Good reason and exceptional circumstances

On 21 June 2017, the Court of Appeal demonstrated the central importance of budgeting in Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792, by deciding that parties need a ‘good reason’ to depart from the budget at detailed assessment.

The case was a clinical negligence claim at all stages of which damages were expressly limited in value to £50,000. Liability was disputed. At the costs management hearing, the claimant put forward a budget of £197,000, made up of incurred costs of £108,000 – on which the judge made no comment – and future costs of £89,000. Success fees and the after-the-event (ATE) insurance premium were not included.

Shortly before trial, the case settled for £20,000 plus costs. The claimant then put forward a bill of over £467,000 (including success fee and ATE premium).

On detailed assessment, Master Whalan said CPR 3.18 precluded him from subjecting the budgeted costs to a “conventional” detailed assessment unless there was good reason to do so.

With regard to the incurred costs, it was “in practical terms” required that good reason likewise should be shown if there was to be a departure from what was set out in precedent H. He ultimately assessed the recoverable costs at £420,168 (including success fee and ATE premium).

The first issue before the Court of Appeal was whether a costs judge on detailed assessment was precluded from going below the budgeted amount unless satisfied there was good reason for doing so.

Lord Justice Davis said: “I am in no real doubt that Master Whalan reached the right conclusion on this issue and that the conclusion of Carr J in Merrix was also correct, for the reasons which she gave.” He said he did not need to address the defendant’s submissions questioning the efficacy in practice of costs budgeting “simply because, put shortly, the system is now enshrined in the Civil Procedure Rules”.

There was, the judge said, no ambiguity in rule 3.18. If the defendant were right, it would mean that a receiving party may only seek to recover more than the approved or agreed budgeted amount if good reason is shown, whereas the paying party may seek to pay less without needing to show good reason.

Further, “the existence of the ‘good reason’ provision gives a valuable and important safeguard in order to prevent a real risk of injustice…

“As to what will constitute ‘good reason’ in any given case… [t]he matter can safely be left to the individual appraisal and evaluation of costs judges by reference to the circumstances of each individual case.”

Davis LJ said the rules were similarly clear that there does not need to be a good reason to depart from the incurred costs figure.

As cases may take months or sometimes years to reach a conclusion, it is therefore essential for solicitors to ensure that the initial budget approved or agreed is monitored so that the budgeted amounts for any particular phase are not being exceeded.

As well as delivering a correct budget, it is also necessary to consider the extent of the work that may be required in dealing with cost budgeting issues. There is a cap within practice direction 3E paragraph 7(2) that provides that “save in exceptional circumstances” the recoverable costs of initially completing precedent H shall not exceed the higher of £1,000 or 1 per cent of the approved or agreed budget, and all other recoverable costs of the budgeting and cost management process shall not exceed 2 per cent of the budget.

It may also be possible to advance an argument that there are exceptional circumstances justifying a claim for a higher amount. This was one of the issues that was considered by Master Marsh in Sir Cliff Richard OBE v The BBC and Chief Constable of South Yorkshire Police [2017] EWHC 1666 (Ch). With no guidance as to what “exceptional” means, two budgets were prepared on the basis of a possible order for a split trial. Following the initial CMC, budgets were redrafted and at a third CMC the BBC made representations in respect of incurred costs. All of these factors gave rise to the case being placed in the exceptional category, which resulted in the cap being lifted.

It is, therefore, important for consideration to be given to the actual work and time that is to be undertaken for both the preparation of the initial budget and the revision of the same, along with work relating to preparation for any CMCs. In the majority of cases it may be that the capped amount is more than sufficient to cover the work but there will be those cases where substantially more work has to be undertaken than is generally contemplated.

David Cooper is a council member of the Association of Costs Lawyers and a partner at Taylor-Rose TTK

@CostsLawyers www.associationofcostslawyers.co.uk