The Court of Appeal decision in Harrison v University Hospitals Coventry and Warwickshire NHS Trust  EWCA Civ 792 held that where there is an approved costs budget, that figure will only be departed from if there is ‘good reason’ to do so. This is in line with CPR 3.18.
The key question is then, what reason can be good enough to justify going behind the approved budget?
One potential issue is hourly rates. In Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB), Mrs Justice Carr commented that:
“The fact that hourly rates at the detailed assessment stage may be different to those used for the budget may be a good reason for allowing less, or more, than some of the phase totals in the budget.”
The argument that was put forward in the recent matter of RNB v London Borough of Newham (4 August 2017, Case No: C01CL127, SCCO Ref: CCD 1702513) was that if the Judge reduces hourly rates on incurred costs (which the Judge is entitled to do), whether those same reductions should also flow through to the costs approved within the budget, regardless of whether those costs come in under budget for their respective phases.
Deputy Master Campbell applied the logic that:
“……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.”
This seems an understandable position. If the hourly rates pre budget are deemed disproportionate, then why should they suddenly be proportionate once budgeted?
Commentary on this point has suggested that this is not the correct approach, drawing attention to CPR 3E PD 7.3, which outlines that:
“The court’s approval will relate only to the total figures for budgeted costs of each phase of the proceedings, although in the course of its review the court may have regard to the constituent elements of each total figure.”
The fact is that hourly rates are specifically stated within the budget. As such, surely these must be open to assessment, regardless of whether the Court has approved a ‘total phase’. It seems likely now that any Paying Party will raise an hourly rate argument to reduce an approved budget.
However, hourly rates cannot be the only reason to consider departing from a budget. Costs budgets are prepared on assumptions which may never come to fruition, such as the number of witnesses, expert disciplines to be instructed or the extent of disclosure. Very rarely, in more complex claims, does a costs budget, at the end of the matter, reflect exactly what was envisaged when the budget was drawn.
What about where costs for an approved phase are claimed in full, despite all of the work envisaged within that phase not being undertaken? For example, where a budget is approved on the basis of three witnesses, and subsequently only two are required, should costs at the total level of the approved phase be allowed? Logic would suggest not. The Court’s approval was on the basis of three witnesses. A further prime example of this is in the ADR/Settlement phase of costs budgets. The guidance notes suggest this is the phase for if a JSM is envisaged, which would arguably be the majority of costs incurred under this phase. Where that JSM does not take place, is that enough to open up the whole budget? Or is it just the ADR phase which is assessed?
Similarly, if the original budget envisaged one fee earner having conduct of the matter for its entirety, yet a team of three have conduct in the latter parts of the litigation, can this constitute good reason? A Receiving Party may argue that by adopting a team approach to the litigation and delegating work to junior fee earners, there has been a direct cost saving. On the contrary, the Paying Party may raise issues of duplication of effort which has led to a greater number of hours incurred.
Although no doubt seeking to achieve parity of arms between the parties, the decision in RNB may well open the floodgates to a myriad of different ‘good reasons’ to depart from an approved costs budget. The consequence being that, in the future, an approved budget is very unlikely to simply be stamped through on assessment. Receiving parties must be aware that, although they may have an approved costs budget, the sums allowed within it are not guaranteed, and ultimately proportionality trumps an approved budget.