The dangers of the approved costs budget

Costs management provided defendants for the first time with an opportunity to contain third party costs before they were incurred. Not unsurprisingly, claimants' solicitors saw this as an opportunity to obtain approval of as large a budget as possible.

The importance of appropriate opposition to budgets at a costs management hearing should not be underestimated as it may be the only opportunity you get to challenge the claimant’s costs.

In Safetynet Security Ltd v Coppage & Anor [2012] EWHC B11, the claimant’s actual costs after the trial had concluded were less than its approved budget.  The trial judge, HHJ Simon Brown QC, had previously approved the costs budget himself and therefore saw no reason to interfere with the claim for costs. The claimant’s costs were summarily assessed as drawn.

In circumstances where a party comes in under budget after a trial, there is undoubtedly a strong temptation for the judiciary to summarily assess the costs as drawn without the need to defer to the detailed assessment procedure. Whilst few cases reach trial, the costs management hearing may be the one and only opportunity you get to challenge the costs incurred to settlement.

There have also been situations recently where, at a detailed assessment hearing, costs judges have assessed a bill of costs as drawn on the basis that the total claimed by the receiving party is less than the approved costs budget. This was because of the interpretation being given to CPR 3.18 and its effect at a detailed assessment hearing. The rule states:

“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will:

1. have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and
2. not depart from such approved or agreed budget unless satisfied that there is good reason to do so.” [Emphasis added]

This one rule is creating an ever-increasing amount of satellite litigation as receiving parties try to use it to their advantage and paying parties seek to challenge costs that previously would not have been recoverable.

In Sarpd Oil International Limited v Addax Energy SA & another [2016] EWCA Civ 120, the Court of Appeal gave guidance on when CPR 3.18 applies:

• It applies to all estimated costs in the approved budget
• It applies to all agreed incurred costs in the approved budget
• It applies to all incurred costs where the court has recorded that they appear to be reasonable and proportionate

As a result, many receiving parties argue that, where the costs claimed in the bill or part of the bill are less than those in an approved budget or individual budget phase, a costs judge at a detailed assessment hearing should not depart from the approved budgeted amount “unless satisfied that there is good reason to do so.”

We find it incredible that items a court would routinely disallow in a non-budgeted case may be allowed in budgeted cases.

Take for example a case which settles after exchange of all expert evidence but prior to a pre-trial review. The following items are claimed within the bill:

• Dinner and cocktails with client following commencement of proceedings - £980
• Photocopying bundle of documents to accompany instructions to medical expert - £300
• Case management discussions in relation to actions to take and progress – 30 minutes – recorded by both fee earners - £300
• Drafting memo to paralegal to draft List of Documents – 30 minutes - £150
• Medical report fee (report not disclosed and no permission obtained to rely upon it) - £1,100

These are all genuine items of costs that we have challenged recently and seen routinely disallowed upon detailed assessment in non-budgeted cases. Whereas, if the case was budgeted and the Bill was less than the approved budget the paying party, based on a receiving party interpretation of CPR 3.18,  will have to satisfy the court at detailed assessment that there is “good reason” to depart from the approved budget before these items could be disallowed.

What is a “good reason” will likely vary from case to case and be fact-specific. No definitive answer or definition has yet been provided by the judiciary.

In detailed Bills which exceed the amount of any approved budget, we are also seeing items of costs hidden and claimed in completely different phases. This appears to be an attempt by receiving parties to avoid having to show “good reason” themselves.

We are aware of a number of appeals against first instance decisions not to depart downwards from an approved budget. The most recent of note is from Regional Costs Judge Lumb in Merrix v Heart of England NHS Foundation Trust, 13.10.16. The experienced costs judge held that:

• When the costs management provisions were introduced, the rule makers did not make wholesale changes to CPR parts 44 and 47
• The amendment that was made was to CPR 44, to include an additional factor (h) under CPR 44.4 (3)
• The receiving party’s last agreed or approved budget is just another factor that the court will have regard to
• An approved “budget” does not mean either a cap or a fixed amount - it is a fund that is considered to be within the reasonable range of proportionate costs
• The powers and discretion of a costs judge on detailed assessment are not fettered by the costs budgeting regime save that the budgeted figures should not be exceeded unless good reason can be shown

We understand the appeal in Merrix will be expedited and heard before December 2016. This is an area of law which is developing and has the potential for significant impact on defendants and those required to meet between the parties’ costs.

Keoghs comment

Let common senses prevail and let costs management and detailed assessment have their rightful places within the litigation!

Costs management should be about approving a budget (at a macro level) that is the limit as to the reasonable and proportionate costs that a party may incur in order to allow reasonable investigation and progression of their case, and nothing more.

Detailed assessment should be about only allowing costs (at a micro level) that are reasonably and proportionately incurred and are reasonable and proportionate in amount.

Together the costs management and detailed assessment processes have the ability to reduce the frequency of detailed assessment hearings compared with before the introduction of costs management.

It would be helpful if CPR 3.18(b) is amended to state that the court may not depart “upward” from such approved or agreed budget unless satisfied that there is good reason to do so.