Know where you're starting from before you depart

To know whether there is ‘good reason' to depart from the budget, it is imperative to keep a clear record of the assumptions made, advises District Judge Richard Lumb

Now that the general approach to a budgeted case on detailed assessment has been clarified by the Court of Appeal in Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 791, the debate has shifted to what would amount to a ‘good reason’ to depart from a budget.

This important debate is one all practitioners should be aware of. The welcome guidance in Harrison is important for assessments, but is arguably even more important for the budgeting process itself and the approach to the costs and case management conference.

Contrary to the previous assumption of many, the status of the budget is not a rough guide to the sort of levels of costs that might be capable of being reasonable and proportionate and which can always be subject to a full review at a detailed assessment anyway. The dangers of such a casual approach are now laid bare.

Costs incurred prior to the costs management order are the only ones where the paying party enjoys ‘open season’ to attack at assessment. Thereafter, the budget sets the costs recoverable for the successful party for each phase unless there is good reason to depart from the budget upwards or downwards at assessment.

Before considering what might amount to a good reason to depart from a budget, it is crucial to know what you are seeking to depart from. It must follow that without knowing what underlying assumptions were applied in setting the budget in the first place, it is impossible to know whether there is any reason, let alone a good one, to depart from it. It is therefore imperative that as far as possible a clear record is kept of the assumptions made.

The only obligation after the hearing is to file the front page of the budget, and that document does not record the assumptions applied and therefore does not help.

Ideally, assumptions should be recorded in the costs management order itself. Many judges faced with the time restrictions of the hearing may be reluctant to do this, but advocates can assist by offering to take carriage of the draft order and agreeing the terms with the other side for approval by the judge.

At a minimum, after the hearing the advocates on each side should prepare an agreed note of the assumptions applied. As a last resort, a transcript of the hearing could be requested but this would be time consuming and costly. Failure to take such steps risks the cost judge at detailed assessment having to guess what assumptions were made by the case managing judge – not a sound base from which to assess a good reason to depart!

Much the better approach is for the parties to engage in sensible discussions prior to the cost management hearing with a view to agreeing the budgets and the assumptions, or at the very least narrowing the issues between them as far as possible. The introduction of the precedent R budget discussion report has been of great assistance here.

The senior courts have, quite understandably, been reluctant to give examples of what amounts to a good reason other than where the costs spent are less than the phase total. Obviously, each case will be fact sensitive.

What is clear from Lord Justice Davis’s judgment in Harrison is that the bar will be set at a relatively high level. It is perhaps easier to identify what will not be good reasons. Any simple assertion raised at assessment that a costs management order was too generous or too mean is doomed to failure. The proper remedy for an aggrieved party was to appeal the costs management order. That in itself would present difficulties with the reluctance of appeal courts to interfere with the exercise of judicial discretion. Hence the importance of parties engaging fully at the budgeting stage. You have been warned!

District Judge Richard Lumb sits at Birmingham Civil Justice Centre and is junior vice president and chair of the Civil Committee of the Association of Her Majesty’s District Judges