Court of Appeal rules on the relationship between budgets and detailed assessment

Harrison v University Hospitals Coventry & Warwickshire NHS Trust [21.06.17]

Date published

23/06/2017

Locations

The Court of Appeal has addressed the relationship between costs budgeting and detailed assessment. The court has provided some much needed clarity regarding the impact of costs budgets on detailed assessment.

Background

The case concerned a claim for damages arising out of alleged clinical negligence. The claim was expressly limited in value to £50,000. Liability was disputed.

There was a costs management conference before HHJ Hampton, sitting in the Northampton County Court on 18 August 2014. The claimant’s budget, including both incurred costs and estimated future costs, was approved at £197,000 exclusive of VAT, success fees and After-the-Event (ATE) insurance premium.

The judge recorded no comment on the figure relating to incurred costs, which amounted to some £108,000 of the figure of £197,000.

Shortly before trial fixed for July 2015 the case was settled, the defendant agreeing to pay the claimant damages of £20,000, together with costs on the standard basis. The claimant then submitted a bill of costs of over £467,000 (including VAT, success fee and ATE insurance premium).

It was that bill of costs which eventually came before Master Whalan on detailed assessment, who assessed the recoverable costs at £420,168. He found that he was precluded from performing a conventional assessment of the bill, absent any good reason, given the existence of the approved budget.

The defendant sought to appeal the decision and the matter was leapfrogged to the Court of Appeal.

Good reason

The case follows the earlier decision of Mrs Justice Carr in Merrix v Heart of England NHS Foundation Trust [24.02.2017]. This concluded that whilst costs budgeting did not replace detailed assessment, the Costs Judge should not depart from the receiving party’s last approved or agreed budget, unless satisfied that there is good reason to do so. Good reason 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”.

The Court of Appeal in Harrison was asked to look at the applicability of good reason in relation to both:

  • incurred costs (costs pre-budget)
  • estimated costs (costs post-budget).

In relation to the estimated costs, the court endorsed the approach adopted in Merrix [2017]. The budget is binding on the Costs Judge at detailed assessment and unable to depart from it without good reason to do so. This fetter applies regardless of whether the costs claimed are below or greater than the approved budget.

The court was also required to consider whether this requirement to show good reason had any application to the costs incurred prior to the budget. In the court below, Master Whalan had found that “in practical terms” a good reason was equally required before departure could be visited on such costs.

The court had no hesitation in finding that the costs management rules had no application in relation to incurred costs, such that they “…are to be subject of detailed assessment in the usual way, without any added requirement of good reason for departure from the approved budget”.

Perhaps unsurprisingly, the court declined to proffer what would constitute ‘good reason’, holding that the matter be best left to the determination by the Costs Judge evaluating the circumstances of each individual case.

Disproportionate

There is, however, a hint in the judgment that a bill of costs, even if within the limits of the approved budget, could still be susceptible to further scrutiny on the basis of proportionality. Specifically, the court said:

“I add that where a Costs Judge on detailed assessment will be assessing incurred costs in the usual way and also will be considering budgeted costs (and not departing from such budgeted costs in the absence of ‘good reason’) the costs judge ordinarily will still, as I see it, ultimately have to look at matters in the round and consider whether the resulting aggregate figure is proportionate, having regard to CPR 44.3 (2)(a) and (5): a further potential safeguard, therefore, for the paying party.”

Implications

In relation to costs incurred prior to an approved budget, these will be assessed in the usual way without the need to demonstrate a good reason.

In relation to the estimated costs approved in the budget, then it is for the parties, be it the receiving or paying party, to demonstrate good reason before any departure will be considered.

Comment

For defendants, this decision emphasises the importance of approaching the budgeting exercise with a degree of scrutiny as to the level of costs being sought by claimants, given the potential removal of a detailed examination of estimated costs, via the assessment process.