On 21 June 2017, the same date that Harrison v University Hospitals Coventry and Warwickshire Hospital NHS Trust ((2017) 3 Costs LR 424 was heard at the Court of Appeal, Deputy Master Campbell heard the case of RNB v London Borough of Newham  EWHC B15 (Costs). Coincidentally, both cases were centred on the significance of costs budgeting at the costs assessment phase. We discussed the decision taken by Sir Terence Etherton M.R. in Harrison, in edition 190 of BC Disease News (here).
On 29 October 2015, proceedings were issued against the defendant in the case of RBN. The claimant’s budget was filed and served on 25 July 2016, followed by the defendant’s budget on 3 August. At the costs and case management conference (CCMC), on 12 August, a costs management order for £143,692.36 was made, agreeing the claimant’s budget under CPR 3.17. On 4 January 2017, a consent order settled the claim for ‘£250,000, plus costs to be assessed if not agreed’. A detailed assessment hearing was consequently listed, in respect of the claimant’s bill of costs, totalling £121,051.40.
On assessment, on 21 June 2017, the claimant’s approved Precedent H fee-earning rates during costs budgeting were reduced for incurred costs before the CCMC, as follows, on the basis that ‘the uplift on outer London guideline rates was excessive on the standard basis, having regard to the CPR 44.4(3) factors, and the increases year on year were too high given the level of inflation, were unexplained and could not be justified by reference to, for example exceptional overhead expenses’:
After having reduced the hourly rates for incurred costs the costs judge had to decide if there was ‘good reason’ to depart from the budgeted figures, already agreed in the claimant’s costs budget at the CCMC, which were instrumental to the CMO? Given the potential impact of Harrison, the costs judge listened to the parties’ submissions and reserved judgment on the matter.
The defendant submitted that Practice Direction 3E Paragraph 7.10 (above) proves it is not the role of the CCMC ‘to fix or approve the hourly rates claimed in the budget’. Since the assessment provided the only opportunity for the paying party to challenge the hourly rates, the defendant’s argument hinged on the fact that ‘the budget is not a costs cap’. Thus, the determination of reasonableness on assessment ‘needed to be applied equally to the incurred and budgeted costs’ and the adjustment to incurred costs supplied ‘good reason’ to depart from the budget.
On the other hand, the claimant submitted that the function of the CCMC is to approve ‘an amount’, of which expenditure is then ‘up to that party’. The claimant argued, therefore, that the purpose of the CCMC is not to fix hourly rates and working hours, but to ensure that the party completes work within the ‘amount agreed’, ensuring proportionality. Furthermore, applying the rate of incurred costs to budgeted costs would demonstrate a departure from the budget, without ‘good reason’ contrary to the intention of costs management, explained in decisions of binding authority in Merrix and Harrison.
At paragraph 92 of Mrs. Justice Carr’s judgment in Merrix, she clarified that:
‘... where a costs management order has been made, when assessing costs on the standard basis, 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. This applies as much where the receiving party claims a sum equal to or less than the sums budgeted as where the receiving party seeks to recover more than the sums budgeted’.
Then, in Harrison, the definition of ‘good reason’ was expanded, at paragraph 44:
‘Where there is a proposed departure from a budget – be it upwards or downwards – the court on detailed assessment is empowered to sanction such a departure if it is satisfied that there is good reason for doing so ... Costs Judges should therefore be expected not to adopt a lax or over-indulgent approach to the need to find "good reason"; if only because to do so would tend to subvert one of the principle purposes of costs budgeting and hence the overriding objective ... the existence of the "good reason" provision gives a value and an important safeguard in order to prevent a real risk of injustice ... As to what will constitute "good reason" in any given case, I think it is much better not to seek to proffer any further, necessarily generalised, guidance or example. The matter can safely be left to the individual appraisal and evaluation of Costs Judges by reference to the circumstances of each individual case’.
Deputy Master Campbell went on to the default position, at paragraph 18:
‘The starting point is that the court does not approve or disapprove hourly rates when budgeting costs under CPR 3.12-18. It simply approves an amount which it is reasonable, necessary and proportionate for a party to incur for each of the ten phases of the litigation, with the exception of the incurred costs. So far as the latter is concerned, the court at the budgeting stage does not and cannot carry out a detailed assessment; what it can do is to comment on the costs under PD 7.4 and take those comments into account when fixing the budget. Here, no comments were made at the CCMC, and working out whether it was reasonable, necessary or proportionate to incur those costs has been for the court to decide at (if I may adopt respectfully, the words Davis LJ in Harrison) the "conventional detailed assessment" I have just undertaken’.
However, when deliberating changes to budgeted costs, the costs judge reasoned, at paragraphs 22 to 25:
‘At the assessment hearing, I made reductions to the hourly rates claimed for the incurred costs to a level which has meant that the overall recovery by the Claimant for the period of work before the CMO has been reduced by significant amounts. Were that not to be reflected in the budgeted costs, that would mean that the Claimant will appear to recover an hourly rate as set out in Precedent H for the budgeted stage at a level that significantly exceeds the figure I consider to be reasonable and proportionate for the pre-budget stage.
If, (as it is the case), the hourly rate is a mandatory component in Precedent H which is not and cannot be subjected to the rigours of detailed assessment at the CCMC, it makes no sense if it is automatically left untouched when the rates for the incurred work are scrutinised at the "conventional" assessment. Such an approach would offend against the guidance given in Harrison at paragraph 44. Indeed, as Mr Clayton points out, it is only on that occasion that a paying party has an opportunity to challenge the rate and I agree with him for the reasons given above, that that is a "good reason" to depart from the costs allowed in the Claimant's last approved budget’.
If I am wrong, the same conclusion can be reached by a different route, as I have said in paragraph 5 above, proportionality was raised by the paying party in the points of dispute. With regard to costs incurred on the standard basis, CPR 44.3(2) provides that :- "…the court will – (a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; .."’
Upon concluding the line-by-line assessment, the costs judge reasoned, at paragraph 31, giving regard to CPR 44.3(5) factors (above):
‘Having aggregated those figures and looking at matters in the round, as Harrison has directed that I must, it is my view, having regard to the CPR 44.3(5) factors, that the resulting figure if left unaltered would result costs that it would be disproportionate for the defendant to pay. Expressing the point a different way, having regard to the amount recovered and the complexity of the litigation (a part 36 offer having been made at the outset, the fact that the action was settled without a trial and that I do not consider additional work was generated by the conduct of the defendant by, for example, putting the claimant to proof at a trial about the distressing history of the allegations of abuse), it is my judgment that the aggregate of the incurred costs as assessed and the budgeted costs as assessed thus far, if left unaltered, would result in the court allowing costs that were reasonable and necessary but not proportionate. That difficulty can be addressed by permitting the Claimant to recover the sum that would have been allowed had the assessed rates for the incurred costs been applied to the budgeted costs’.
As such, the budgeted costs of £143,692.36 and the bill of costs for £121,051.40, upon the application of Merrix/Harrison, were reduced to the final amount of £43,000.
The full judgment can be accessed here.