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The relationship between budget and assessment

The relationship between budget and assessment


The disharmony between Merrix and SARPD shows that, until the court clarifies discrepancies in the CPR, cost recovery will remain unpredictable, explains Thomas Grace

On 13 October 2016, upon detailed assessment of costs before District Judge Lumb (sitting as a regional costs judge), it was held in Merrix v Heart of England NHS Foundation Trust [2016] EWHC B28 (QB) that, while ‘good reason’ is needed to recover more than the approved budget, such reason is not required for the court to award below.

This begs two questions. First, what purpose do budgets serve, if they are so easily cast aside? Second, how can one accurately advise clients as to the expense of bringing or defending an action when judicial discretion has produced asymmetrical and unpredictable results?

Good reason

Budgeting, universally rolled out on 1 April 2013 after a waywardly successful trial period in the sphere of defamation, is intended to further the overriding objective. The court wants faster, cheaper, more efficient, and proportionate litigation.

Accordingly, CPR 3.18 provides that the court will not depart, upwards or downwards, from an approved budget unless satisfied that there is good reason to do so. Why incur often significant additional expense in having a case management procedure, with a view to lowering the case’s overall costs, only to repeat the process at the close of proceedings?

Pursuant to CPR 44.4(3), however, while undertaking detailed assessment, the court will have consideration for a range of factors, of which the budget is just one. Good reason is not mentioned, and the approved budget carries no greater significance.

While the position is somewhat clarified by practice direction 3E 7.3, dictating, ‘when reviewing budgets, the court will not undertake a detailed assessment’ and instead will consider whether the budget ‘fall[s] within the range of reasonable and proportionate costs’, there is a tension: the relationship between the budget and assessment is undefined.

Opposing positions

DJ Lumb was presented with two diametrically opposing positions. The defendant asserted that the court should not afford the budget any special consideration under assessment, as it is just one of many factors under CPR 44.4(3). Almost entirely ignoring CPR 3.18 renders the budget virtually redundant; the consequence is ‘open season’ upon assessment.

Conversely, the claimant posited that where actual costs claimed are less than or equal to the budget – in the absence of good reason, which must be proved by the defendant – they should be assessed as claimed, without any further consideration. In practice, the budget replaces assessment. However, in the interest of saving time and expense, interlocutory assessment is unlikely to apply Master Rowley’s proportionality test (see May and another v Wavell Group plc and another [2016] EWHC B16 (Costs)), undermining the overriding objective. While it is a separate question entirely whether the court is always the best placed to evaluate costs incurred, the danger remains: costs may end up grossly disproportionate to the claim in dispute.

DJ Lumb prima facie sided with the defendant: while good reason is required to go beyond the budget, the court retains all discretion to award below. However, he acknowledged that his findings were raw and unfinished, alluding to a far more nuanced relationship between the two than he could find. His solution was that parties should adopt an ADR philosophy throughout the dispute, including budgeting – hardly revolutionary. This judgment therefore highlights the conflict, rather than offering any substantive guidance.

SARPD decision

Detailed assessment is neither open season, nor, in the absence of a hitherto unexpected good reason, a mere formality. Determining its relationship with the approved budget likely requires a conciliation of both opinions, and a middle-ground positioning.

However, DJ Lumb’s judgment, despite his protests, clashes with the findings of the Court of Appeal in SARPD Oil International Ltd v Addax Energy SA [2016] EWCA Civ 120. While this concerned an application for security for costs, the underlying principles considered were fundamentally analogous. The court found that the budget would act as a ‘strong guide as to the likely costs order made after trial’, signifying it is perhaps a weightier factor than the remainder under CPR 44.4(3).

The disharmony between Merrix and SARPD demonstrates that, until the court clarifies this discrepancy in the CPR, particularly in characterising the meaning of good reason, cost recovery will remain an uncertain, inexact, and unpredictable process.

Thomas Grace is a trainee solicitor at Memery Crystal


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