Costs budgeting trumps detailed assessment… to an extent
Carr J: “On a detailed assessment on a standard basis, the costs judge is bound by the agreed or approved cost budget, unless there is a good reason to depart from it.”
Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB)
Costs Budgeting: Key Points
- The “obvious intention” of CPR 3.18 is to reduce the scope of, and need for, a detailed assessment.
- As such, the paying party would need to show “good reason” to depart from the approved figure in each phase on detailed assessment.
- However, section II of CPR 3 does not entirely replace detailed assessment – such as for out of budget considerations.
- If the receiving party spends less than the agreed or approved budget, this would amount to a “good reason” to depart from the confirmed budget under CPR 3.18.
This ruling involved an appeal against the decision of DJ Lumb, sitting as a regional costs judge in Birmingham District Registry on 13 October 2016 ( EWHC B28 (QB)). The appeal raised an important and much debated question regarding the interplay between the costs budgeting regime under Part 3 of the CPR, and the detailed costs assessment regime under Part 47 of the CPR.
The appellant in this appeal was the successful party in a claim against the respondent for damages for clinical negligence. On 19 March 2015, a costs management order was made under CPR 3.15 (2), approving the appellant’s costs budget of £128,256 – of which £74,780 related to future costs. After lay and expert witness evidence had been exchanged, but before the case went for trial, the appellant accepted the respondent’s Part 36 offer. Not surprisingly, in light of the pre-trial settlement, the bill served by the appellant was less than the total approved budget (paragraph 2).
This appeal did not focus on the actual budget in this case, nor whether the case’s facts amounted to a good reason to depart from it. Rather, the appeal focused on the preliminary question of:
“to what extent, if at all, does the costs budgeting regime under CPR Part 3 fetter the powers and discretion of the costs judge at a detailed assessment of costs under CPR Part 47”
Previously, DJ Lumb had decided that – strictly speaking – the discretion of a costs judge had not been fettered by the costs budgeting regime, save that the budgeted figures should not be exceeded unless good reasons could be shown. A fuller explanation offered by DJ Lumb was that the respondents did not have “complete discretion to attack a bill on detailed assessment” (current judgment, paragraph 31). Essentially, DJ Lumb regarded the objectives and functioning of costs budgeting to be a different costs management tool from costs assessment (paragraph 32).
In this latest hearing, the appellant offered three grounds for appeal (paragraph 33). The essence of their claim was that the starting point at detailed assessment should be the sums allowed in the relevant phase of the agreed, or approved, costs budget. The wording of CPR 3.18 (b), it was claimed, was decisive: “it is expressed in simple and unequivocal language and means what it says”. Therefore, the costs judge should only depart from that sum for good reason – and that good reason had to be raised, and established, by the party asserting it (paragraph 34).
For their part, the respondent argued that CPR 3.18 only applied if the receiving party sought to recover more than the sums budgeted (paragraph 40). This was not the case here, because the matter had settled before trial, and the bill which had been served was less than the total provided for in the approved budget (paragraph 2).
Moreover, the respondent argued, the existence of a costs budget should simply be regarded as one of a series of matters under CPR 44.4 (3) which the court will take into account when assessing whether cost are reasonably and proportionality incurred and reasonable and proportionate in their amount. The respondent claimed that the existence of a costs budget did not dispense with the need for an item–by-item assessment of the party’s costs. Nothing in Jackson’s LJ’s Final Report supported the notion that the cost budgeting regime had been intended to displace the detailed assessment exercise, it was argued, despite this “false premise” occurring in several costs judgments (paragraph 43).
After a lengthy assessment of the history of costs budgeting (paragraphs 7 – 12), the CPRs governing costs management (paragraphs 13 – 24) and detailed assessment (paragraphs 25 – 29), and existing costs case law (paragraphs 48 – 65), Carr J delivered her ruling (paragraphs 66 – 96).
Allowing the appeal (paragraph 93), Carr J effectively agreed with the respondent:
“On a detailed assessment on a standard basis, the costs judge is bound by the agreed or approved cost budget, unless there is a good reason to depart from it” 
“This applies as much where the receiving party claims a sum equal to or less than the sums budgeted as where the receiving party seeks to recover more than the sums budgeted” 
Explaining the relationship between CPR 3.18 and the detailed assessment rules set out in CPR 44.2, Carr J stated:
“the obvious intention of CPR 3.18 was to reduce the scope of and need for detailed assessment. The respondent’s approach would defeat that objective” 
“[Such an approach would] involve very significant duplication and the added burden of having to cross-refer at each stage to the costs budget as a guide, albeit not a binding one” 
Carr J’s approach was, she said, also consistent with recent judicial pronouncements, including obiter comments of the Court of Appeal in SARPD Oil (paragraph 70).
That said, Carr J also explicitly stated that costs budgeting under section II of CPR 3 did not “replace” a detailed assessment. There was, she added, “room for detailed assessment outside the budget” – for example, in relation to costs associated with interim applications which were reasonably not included in a budget (paragraph 78). However, she then reiterated that “there is nothing in CPR 44 that overrides CPR 3.18” (paragraph 79).
In her judgment, Carr declined to examine in detail what might – or might not – be considered a “good reason” to depart from an approved or agreed budget under CPR 3.18 (b). Nevertheless, she also stated that “if the receiving party has spent less than was agreed or approved in the budget” – as was the case in this case – “the need to comply with the indemnity principle would require departure from the budget.” There was, she added, “no question of a party receiving more by way of costs than was actually spent” (paragraph 74).
In the concluding words of Carr J:
“One can be confident that this decision on first appeal will not end the debate … the issue would appear to be ripe for early consideration by the Court of Appeal raising, as it does, an important point of principle or practice”