Costs budgeting, hourly rates and appropriate use of partner time
Mr Justice Warby comments on hourly rates and the appropriate use of partner time in the course of setting costs budgets
COSTS BUDGETING : HOURLY RATES : s7.10 PD3E
Costs Budgeting and Hourly Rates
The issue of whether and/or to what extent the court can or should look at or comment on hourly rates has been the subject of debate since costs budgeting came into being in April 2013. Practice Direction 3E Para 7.10 makes clear:
“The making of a costs management order under rule 3.15 concerns the totals allowed for each phase of the budget. It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget”
Does this however preclude the case managing judge from considering hourly rates at all?
Well, not quite.
In November 2018, Mr Justice Jacobs held in Yirenki v MOD [2018] EWHC 3102 (QB) that a Master was wrong to approve specific hours in a costs budget, subject to later argument on hourly rates, rather than overall figures for each phase, finding that:
“[this had] the effect of removing the flexibility of the party in deciding how to spend the budget in the light of the way the case develop[ed]”.
He went on to say however that:
“None of that means, of course, that it is not appropriate for the Master, when setting the budget and approving the figures, to look at the constituent parts. Indeed, it is impossible to see how a Master can sensibly come to figures without looking to see how they have been calculated by the party putting them forward. In so doing, the Master would use his or her experience as to how much time should be spent, the type of people who should be doing the relevant work, and his or her experience of hourly rates”
The issue of flexibility was commented on recently by Master Nagalingham in Rebecca Elizabeth Nash v MOD [2018] EWHC B4 (COSTS):
“By way of example, if a party budgets for 10 hours at £500/hr plus £2,000 on Counsel for future costs in the disclosure phase, the total of £7,000 is exactly the same as if the same party had budgeted for 100 hours at £50/hr plus £2,000 on Counsel. If £7,000 is approved for the budgeted (future) costs total then the court will not interfere with how that money is spent without good reason.”
Does this therefore mean that a case managing judge cannot comment on the level of fee earner who should be expected to do the work?
Well, again, no.
In the present case, Mr Justice Warby had this to say when setting the parties’ budgets [34-38]:
“Although budgeting is not the same as detailed assessment, it is almost inescapable for the court to give some thought to the hours and hourly rates that are justified for the work in question.”
“The hourly rates claimed by the claimants range from £190 (for a Grade D lawyer, a trainee) to £690 (for a Grade A lawyer, a partner). Other partners’ rates claimed by the claimants are between £510 and £635 per hour. All these figures are well in excess of the guideline rates, which are £126 for Grade D to £409 for Grade A.”
“Of course, fees in excess of the guidelines can be and often are allowed, and in this case the defendants (who themselves claim up to £450 per hour) and I both accept that fees above those rates are justified. But not to the extent of the differences here. I do not consider that hourly rates in excess of £550 can be justified, and proportionate reductions should be made in the lower partners’ rates.”
“I also consider that the claimants’ estimates reflect an unnecessary degree of partner involvement, and a degree of overmanning that cannot be justified, as between the parties, whatever may be the position between solicitors and clients. I reject the claimants’ criticism of the defendant’s use of partner time. Given the nature of the issues, the tasks to be undertaken, and the relatively modest rates charged by the defendant’s solicitors, the devotion of partner time is proportionate in their case.”
Whilst on the face of it it might appear that the Judge here was setting or capping hourly rates and by extension the number of hours which could be spent and by whom, it is important to remember both Practice Direction 3E Para 7.10 and the comments of Mr Justice Jacobs in Yirenki:
“Anyone involved in litigation knows that it is difficult to work out and predict in advance exactly who is going to be doing what and for how long. Take, by way of example, the preparation of witness statements. A party may estimate that: a grade A fee earner will have to spend 20 hours; counsel 10 hours; and a grade B fee earner 30 hours. But it may turn out, as matters progress, that the allocation of resources could be more efficient or needs to be done differently. For example, it may be more useful to have a few more hours of counsel’s time and fewer hours of the grade B fee earner’s time, or indeed vice-versa.” [19]
“[the consideration of appropriate levels of fee earner and hourly rates] feed in to the identification of all of [sic] a reasonable and proportionate figure. They do not feed in to a finding as to the specific number of hours which are to be spent in the future” [21]
Whilst doubtless persuasive, the Judge’s comments on the level of hourly rate and appropriate seniority of personnel to be deployed will not bind the costs judge at detailed assessment. So long as the parties remain within their overall budgeted figure for each phase, however that is made up, “good reason” will have to be shown to depart, in accordance with Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792.
The Case
This well publicised claim related to an application for an interim injunction by the claimants to restrain publication of an article containing allegations of misconduct, which had been the subject of non-disclosure agreements. Haddon-Cave J (as he then was) refused the application. The claimants appealed and an injunction was granted pending the appeal.
After a hearing in September 2018, the Court of Appeal reversed the Judge’s decision, and imposed an interim injunction to preserve the alleged confidentiality until after judgment in the action, directing a speedy trial, which was due to begin on 4 February 2019.
On 21 January 2019 the matter came before the court to deal with various applications for disclosure and, for the first time, costs budgeting.
Mr Justice Warby approved budgets for the remaining phases of the action, namely the PTR, Trial Preparation and Trial, in the total sums of £541,059.16 (claimants) and £495,477.38 (defendant). He went on to make the following observations:
MR JUSTICE WARBY:
34. It is unfortunate that costs budgeting in this case has only been possible two weeks before trial. That, however, is commonplace when a case begins with an urgent application for an interim injunction, and an order is made for a speedy trial. In this case there has also been the Christmas vacation, which has made it harder to get the pre-trial hearings dealt with promptly. What this means in practice is that a large proportion of the costs of the action had already been incurred by the time I came to conduct costs management. Parts of the costs of Disclosure and Witness Statements remain to be spent, but I have no figures for the split and hence I have had to treat all those costs as already incurred. For practical purposes, I have only been able to conduct an approval exercise in relation to the costs of the PTR, Trial Preparation and Trial phases. Budgeting of costs incurred by the time that costs management is undertaken is not possible: PD3E 7.4. All I can do in respect of incurred costs is make comments.
35. It is fair to note that some of the incurred costs on the claimant’s side are very high, and much higher than those incurred by the defendants. I refer in particular to the claims for witness statements, which are £472,757 which is roughly five times the defendant’s figure of £80,942.78. In the event, I do not think it helpful or fair to go further, as the time available for this part of the hearing was in the event quite short, and it was not possible to engage in any detailed examination of the reasons for such disparities or the justification for the claimants’ figures.
36. I have set approved budgets for the remaining phases of the litigation: the PTR, Trial Preparation, and Trial. I have done this on the basis of the parties’ Precedent H forms and Budget Discussion Reports coupled with (1) written summaries of their position on disputed issues, which the parties submitted last week, pursuant to my Order of 28 December 2018, (2) the oral submissions of Mr Marven QC for the claimants and Mr Jonathan Price for the defendants, and (3) a helpful schedule prepared by Mr Price, setting out among other things the hourly rates claimed.
37. The Schedules to the Order that I am making set out in detail the approved sums, with footnotes containing explanatory comments. It is unnecessary to add much more, but I will say this. In cases like this, proportionality cannot be assessed by reference to any damages claim, or any other financial yardstick.
Although budgeting is not the same as detailed assessment, it is almost inescapable for the court to give some thought to the hours and hourly rates that are justified for the work in question. The hourly rates claimed by the claimants range from £190 (for a Grade D lawyer, a trainee) to £690 (for a Grade A lawyer, a partner). Other partners’ rates claimed by the claimants are between £510 and £635 per hour. All these figures are well in excess of the guideline rates, which are £126 for Grade D to £409 for Grade A.
38. Of course,
fees in excess of the guidelines can be and often are allowed, and in this case the defendants (who themselves claim up to £450 per hour) and I both accept that fees above those rates are justified. But not to the extent of the differences here. I do not consider that hourly rates in excess of £550 can be justified, and proportionate reductions should be made in the lower partners’ rates.
I also consider that the claimants’ estimates reflect an unnecessary degree of partner involvement, and a degree of overmanning that cannot be justified, as between the parties, whatever may be the position between solicitors and clients. I reject the claimants’ criticism of the defendant’s use of partner time. Given the nature of the issues, the tasks to be undertaken, and the relatively modest rates charged by the defendant’s solicitors, the devotion of partner time is proportionate in their case.
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