MRS VALERIE ELSIE MAY MERRIX and HEART OF ENGLAND NHS FOUNDATION TRUST  EWHC 346 (QB) – 24 February 2017
Birmingham District Registry on Appeal from the Reginal Costs Judge.
This appeal concerns the interpretation of CPR 3.18 “In any case where a costs management order has been made, when assessing costs on the standard basis, the court will – (a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and (b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so. (Attention is drawn to rules 44.3(2)(a) and 44.3(5), which concern proportionality of costs.)” More specifically, this appeal had to determine whether this rule prevents a costs judge from carrying out a line-by-line assessment of costs which fall within an approved or agreed costs budget and where the claim for costs is less than the budgeted amount. The receiving party’s argument was that, as the costs fall within the budgeted amounts, the costs should be assessed at the amounts claimed.
What I find interesting about this Judgment is what Mrs Justice Carr says at Para 23: “The rule makes it clear that the assessment is to be by reference to the budget phases rather than the total budget. The notes to CPR 3.18 in the White Book suggest that the reference to CPR 44.3(2)(a) and 44.3(5) indicates that once pre-incurred costs outside the budget are assessed on the basis of having been reasonably incurred and reasonable in amount, and then added to the budgeted costs, the total figure is still subject to an overall assessment of proportionality.”
The costs budgeting process does involve the court looking at and taking into account the pre-incurred costs when determining a budget for future costs. If the pre-incurred costs within a phase appear to be disproportionate then the court will reflect this in a lower allowance for future costs so that the overall figure per phase is proportionate. PD 3E Para 7.4 specifically provides for this. “As part of the costs management process the court may not approve costs incurred before the date of any budget. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all subsequent costs”. And decisions such as Redfern v Corby Borough Council  EWHC 4526 and Yeo v Times Newspapers Ltd  EWHC 209 (QB) and CIP Properties (AIPT) Limited v Galliford Try Infrastructure Limited  EWHC 481 (TCC) have looked at how an excessive level of pre-incurred costs within a budget should be managed. The answer in CIP Properties seems to be the making of a direction that a lower allowance for estimated costs should be increased, pound for pound, where pre-incurred costs are reduced on detailed assessment. This is to ensure that the total budget for the phase remains intact and thus the receiving party avoids a double penalty.
Whatever the method, the fact that future costs are dictated by the level of pre-incurred costs means there has already been a determination (albeit summary) that pre-incurred costs, together with the budgeted future costs, are proportionate to the matters in issue. So why do we need the proportionality and reasonableness of the costs to be reconsidered on a detailed assessment? If the total figure is subject, once again, to an overall assessment of proportionality on detailed assessment, the paying party gets a second bite of the cherry.
CPR3.15 (3) provides “If a costs management order has been made, the court will thereafter control the parties’ budgets in respect of recoverable costs”. This, together with CPR3.17 (1) “When making any case management decision, the court will have regard to any available budgets of the parties and will take into account the costs involved in each procedural step” sets out, in mandatory terms, the Court’s obligation to control the budgets for ‘recoverable costs’ during the course of the case.
‘Recoverable costs’ in the context of CPR 3 can only mean ‘all proportionate costs’ (not just future costs). So, unless it can be said that the court has failed in its mandatory obligation to control the parties’ costs during the course of the case, the costs must be proportionate if they do not exceed a party’s last approved or agreed budget. The intention is that the court will ensure – during the course of the case – not at the end of it, that only reasonable and proportionate costs are recoverable.
The budget, therefore, represents the court’s determination of what sums (per phase) represent proportionate, recoverable costs. CPR3.18 reinforces this by removing the costs judge’s discretion to assess the costs in all circumstances except where he finds good reason to do so.
If the court has already determined what level of costs is proportionate and recoverable and, of course, as proportionality trumps reasonableness and necessity (CPR44.3(2)(a)), why should a costs judge then have free reign to assess those costs again? The costs judge’s discretion should really only extend to (a) determining what might be a good reason to assess the costs contained within the budget (including pre-incurred costs) and (b) assessing only those costs for which good reason is found or any other costs that fell outside of the agreed or approved budget.
In those circumstances, two good reasons to assess costs would be:
1. there were unforeseen applications or an opponent’s conduct resulted in additional costs.
2. the budget anticipated work that subsequently was no longer required but the costs claimed still meet or exceed the relevant budget for the phase.
However, differences in hourly in rates or time spent between the budget and the final bill should not be good reasons. If the overall costs are proportionate, and so long as there is compliance with the indemnity principle, it should not matter that certain individual items may not meet the reasonableness test.
In practice however, these issues have mattered.
On the one hand, if the overall costs are disproportionate, what may have already been assessed to be necessary or reasonable can be still disallowed.
On the other hand, where a level of proportionate costs has already been determined within the costs management process, a party’s costs can be reduce further still on a line-by-line assessment because, in accordance with the court’s obligations under CPR44.3, it cannot allow costs that appear to be unreasonably incurred or unreasonable in amount.
The receiving party is penalised in both circumstances and this is the very injustice that the particular wording of CPR 3.18 was designed to address.
If the intention was to limit the application of this rule to only those cases where the costs exceed the budget, why not just say that? Given the court’s mandatory obligation to ensure that only proportionate costs are recoverable through the costs budgeting process and the wording of CPR 3.18, it is clear that costs budgets were intended to replace the need for a detailed assessment unless there were very good grounds to the contrary. And this includes those cases where the costs are lower than budget.
After all, that would certainly be in keeping with the overriding objective of dealing with the case justly and at proportionate cost and would meet the criteria listed within CPR1.1(2):
(a) ensuring that the parties are on an equal footing;
(b) saving expense;
(c) dealing with the case in ways which are proportionate –
(i) to the amount of money involved;
(ii) to the importance of the case;
(iii) to the complexity of the issues; and
(iv) to the financial position of each party;
(d) ensuring that it is dealt with expeditiously and fairly;
(e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases; and
(f) enforcing compliance with rules, practice directions and orders.