Using hourly rates to calculate costs

The 83rd update to the Civil Procedure Rules (CPR) made a number
of changes to the way costs budgeting and management is handled by the courts for cases issued on or after 6 April 2016.

One aspect of those changes relates to the hourly rates used to calculate the costs in the budget. For the increased number of cases where only
the first page of the budget is required to be served, it will make little difference because hourly rates used will not be apparent, but practice direction 3E 7.10 now says: 'It is not the role of the court in the costs management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed
is provided for reference purposes only to assist the
court in fixing a budget.'

Since the permanent introduction of costs management in April 2013, hourly rates (rightly or wrongly) have been used as a tool to try
to reduce an opposing party's budget. That tool is supposed
to have been blunted by the amendment to the practice direction, but is that the case?

What does the amendment
to the practice direction really mean and what are the consequences for the assessment of costs at the conclusion of the case?

Anecdotal evidence since
the change to the practice direction would suggest that many litigants and judiciary alike take it to mean that there should not be any consideration of the hourly rates. After all, the judicial approach to costs management is supposed to be a 'light touch' and the practice direction has always said that the court's approval only relates to the phase total.Historically, the difficulty has been that in order to arrive at the phase total, at least one of the parties involved in the process has encouraged the court to multiply a number of hours by a reasonable hourly rate and add reasonable disbursements for that phase. Many courts bought into that approach, mostly
likely because there is no real guidance on arriving at a phase total in any other way.

'Fantasy world'

An experienced Queen's Bench Division master in a costs management conference recently described a 'fantasy world' where he could not consider hourly rates when
the opposing party to a budget agreed the number of hours but not the hourly rate. After circular arguments, the master felt he had no choice but to base the approved budget on the hourly rates as claimed but leave the question of whether those
rates were reasonable to a
later assessment.

It is arguable that he should not have done so. The practice direction says the court cannot fix or approve the rates but the latter half says that the court can still use hourly rates to assist it
in reaching a figure. If the court therefore considers that an hourly rate is too high, it can still use a reasonable one to assist
it in arriving at a proportionate phase total. That rate will not be binding on a later assessment but there is nothing to stop
the court using it for the purposes of fixing a budget.

What does that mean for
a later assessment, whether summary or detailed?

Either in the anecdotal example given above or if taking an alternative approach, it is still likely to give rise to a fight when the costs are assessed.

Reason to depart

It will be interesting to see how CPR 3.18 - that on an assessment of costs, the court will not depart from the last approved or agreed budget unless there is good reason to do so - will be applied. Will arguments over hourly rates be a good reason to depart from the budget if a successful party ultimately incurs less than the approved phase figure, either using the budget hourly rate
or indeed a higher one?

There is an obvious argument that high hourly rates which the court may have used to assist in reaching a phase total should
be a good reason to depart,
but it also defeats the one of the objects of costs management:
to reduce the number of arguments on detailed assessment or avoid it entirely.

If hourly rate arguments are a good reason to depart from an approved budget, then should that be extended to arguments over time also? After all, an approved budget is not approval of time spent any more than
it is of the hourly rates, even
if the total is within the
approved sum.

Jon Lord is a council member of the Association of Costs Lawyers @CostsLawyers www.associationofcostslawyers.co.uk