In a separate briefing we reported on the Court of Appeal's decision in Harrison v University Hospitals Coventry & Warwickshire NHS Trust that has now placed approved costs budgets at the front and centre of standard basis detailed assessments. This briefing reports on the practicalities of that decision.
To be concise, it will now be necessary on a standard basis detailed assessment to show good reason to depart from an approved costs budget of estimated costs, either upwards or downwards. The detailed assessment of incurred costs will remain the same as the courts do not approve those costs during the costs budgeting process.
In future, standard basis detailed assessments will not simply consider reasonableness and proportionality but also whether there are good reasons to depart from a budgeted amount.
It is now more important than ever for costs recovery to be fully examined and carefully considered throughout the whole claim; from instruction, during the costs budgeting process and right through to detailed assessment when the case ends.
There are simple approaches that can be followed during costs budgeting that may protect either receiving or paying parties at a later standard basis detailed assessment:
When preparing the Precedent H take care to include estimated costs that represent a realistic and proportionate amount for the work to be undertaken.
Ensure that all potential assumptions have been considered and properly explained in the Precedent H.
Make sure that objections are clearly set out in the discussion report exchanged and filed with the court.
Make sure the Costs Management Order (CMO) records all the assumptions and comments made when deciding the costs budget.
If necessary, have it recorded in the CMO any factors not considered by the court when approving the costs budget, such as hourly rates.
Take a detailed note of the issues discussed during the CCMC hearing, as it may assist with any disputes that could arise at a detailed assessment hearing regarding the interpretation of the court's decisions when approving the costs budget.
The Harrison judgment does beg one obvious question; what is a good reason to depart from an approved costs budget?
Before Harrison we received judgment in the case Merrix v Heart of England NHS Foundation Trust when Carr J addressed the point of good reason and held firstly, that an underspend was a good reason to depart from an approved budget as to allow a greater amount would breach the indemnity principle. Carr J also turned to the decision of DJ Baldwin in Jones v Harding when he held that the presumption must be that a lower figure than that in the approved costs budget is reasonable and proportionate and a high burden would remain for the paying party to show good reason to award a lesser amount. He also stated that such arguments should only be used in exceptional circumstances.
This would seem to be far too strict a test for the paying party as there are easily predicted circumstances where good reason would exist to allow an amount less than that claimed in a bill of costs, even when it is below the approved costs budget. For example, work anticipated in the costs budget that was not done, such as when a claim settles before experts meet.
Also, it must be good reason to depart from an approved costs budget in circumstances where the actual number of witnesses of fact are less than those anticipated.
In Harrison Davis LJ moved away from the stricter approach described in Merrix and described how the court on detailed assessment is empowered to sanction a departure from an approved costs budget if satisfied there is good reason for doing so. Additionally, a costs judge should not "adopt a lax or over-indulgent approach to the need to find 'good reason'" when applying that power.
Importantly, Davis LJ also held that there should be a global assessment at the end of the detailed assessment of whether the aggregate assessed figure is proportionate, taking into account CPR 44.3 (2) (a) and (5). This would be "a further potential safeguard, therefore, for the paying party".
Although Davis LJ declined to give examples of "good reason" to depart from approved costs budgets, it is clear they will be very dependent on what happens during the costs budgeting process when the costs budget is approved. This must also include what comments are made in the CMO.
The detailed assessment of budgeted costs is now, more than ever, intrinsically linked to the costs budgeting process. A knowledge and understanding of how the costs budget was approved will be a valuable tool when justifying or opposing those costs on a standard basis detailed assessment.
GM Briefing - Feb 2015
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