Court clarifies role of costs budgets upon detailed assessment


In the case of Valerie Merrix -v- Heart of England NHS Foundation Trust, District Judge Lumb, the Regional Costs Judge for Birmingham, has provided helpful guidance on the effect of costs budgets when undertaking detailed assessment of costs.

The case arose out of a clinical negligence claim. The successful claimant (receiving party) sought to argue that, where costs claimed in the Bill of Costs were at or less than the figure provided for in the relevant phase of the Claimant’s approved costs budget, they should be assessed as claimed without further scrutiny.

In contrast, the defendant (paying party) argued that costs budgeting was not intended to replace the detailed assessment process, and that the approved budget was merely one factor that the assessing costs judge could take into account.

Accordingly, a preliminary issue was put to the court, namely the question: ‘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’.

In a reasoned judgment, DJ Lumb commented that he accepted the defendant’s submission that costs budgeting was not intended to replace detailed assessment. The introduction of costs budgeting had merely seen a revision to CPR 44.4(3) to include an additional factor for the court to consider upon detailed assessment: ‘the receiving party’s last approved or agreed budget’.

The judge also commented that the wording of CPR PD 3E para 7.3 expressly states that, at a costs management hearing: ‘When reviewing budgets, the court will not undertake a detailed assessment in advance’. DJ Lumb commented that this indicates that the detailed assessment process must be available at the conclusion of the case.

In addition, the judge indicated that he did not accept that, as the claimant argued, where costs claimed were at or less than the budgeted figure, the effect of CPR 3.18(b) (ie that the court will ‘not depart from [a party’s] approved or agreed budget unless satisfied that there is good reason to do so’) was that those costs should be awarded without further assessment.

DJ Lumb has clarified that a party’s budget provides an ‘available fund’ which has been allocated to a particular phase of litigation. Accordingly, if a party has incurred costs below the amount allowed in particular phase, this is not a ‘departure’ from the budget, for the purposes of CPR 3.18. He indicated: ‘In the context of CPR 3.18 where the budget has not been revised by the Court before assessment, a departure in practical terms has to be something outside the original budget, which can only be to a sum in excess of the amount allowed for a phase and therefore must be upwards only.

In summarising, the judge commented that the strict answer to the preliminary issue in the case is that ‘the powers and discretion of a costs judge on detailed assessment are not fettered by the costs budgeting regime, save that the budgeted figures should not be exceeded unless good reason can be shown’.

He continued: ‘If the Claimant’s arguments were correct and that for large sections of a party’s costs the only opportunity to challenge those costs, absent “good reason”, would be at the CCMC those hearings would be at risk of being far lengthier than they already are. That cannot be consistent with the overriding objective of dealing with cases expeditiously at proportionate cost.

The judgment provides a useful reference point for paying parties seeking to argue that there is scope for further costs reductions on assessment, below the sum(s) allowed for in the receiving party’s approved budget. Whilst this is reassuring, the judgment is also a reminder that a party’s approved budget will remain one of the factors that a costs judge will take into account on assessment. It will therefore remain important for parties to take a proactive approach to costs management hearings, as this will remain the most effective method for ensuring control over costs of the litigation, and hence the overall indemnity spend.

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