Some recent guidance
In the recent case of Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792 the Court of Appeal provided some welcome guidance on the issue of costs budgeting and detailed assessment.
A key point with respect to costs “estimated” in the budget is that the court will not depart from that sum on assessment, either upwards or downwards, without good reason. Unfortunately no examples of “good reason” are given but the following provide a useful insight into what might or might not constitute good reason:
- No good reason. “The budgeted sum has only been exceeded by £x and as a % of the overall bill is negligible and should therefore be allowed.” It’s unlikely that the Courts would consider this to be good reason.
- A good reason. “Returning to Counsel shortly before a JSM to obtain advice on the effect of the change of the discount rate on the level of damages, and re-calculating the schedule of loss accordingly.” It would be difficult for a paying party to argue this wasn’t good reason.
Monitoring actual costs against budget is crucial
The effect of this judgment is that solicitors who fail to monitor their actual costs against the budget following the making of a CCMC are treading a dangerous path. Overspend on any phase and the chances are you are working for free – a situation that is less than ideal.
Take action where there is overspend as soon as possible
No matter how carefully you monitor the costs against budget this will make little difference unless you then take action to handle a potential overspend on a phase as soon as it is spotted.
There are various steps you can take to do this, including:
- Delegation of work to a more junior fee earner with a lower hourly rate to enable more work to be carried out for the same cost.
- Re-considering the scope of the work you had intended to do so as to identify steps which for the time being can be postponed.
If the above are not possible – or don’t make much impact - steps will have to be taken to prepare a revised budget. This brings its own difficulties.
What does the CPR say about revised budgets?
At the moment CPR PD 3E, 7.6 states:
“Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions.” Revised budgets are submitted to other parties for agreement and where this cannot be reached then amended budgets go to the court. Attached to the amended budget should be “a note of (a) the changes made and the reasons for those changes and (b) the objections of any other party.” After that, it’s up to the court to approve, vary or disprove the revisions, taking into account anything that has happened since the initial budget was agreed.
The issue with the CPR on amended budgets
The procedure sounds simple, but in practice there can be difficulties. The key question relates to costs incurred following the original Costs Management Order, but before the revised budget is prepared. There are three possibilities when it comes to handling these costs:
1. The incurred costs stay as they were in the original budget, the estimated costs in the revised budget commence from the date of the original budget and work up to the date of the amendment and projected forward into the future is included.
2. The incurred costs are updated as to the date of the amended budget (meaning there is a higher figure which falls outside of budgeting but will be subject to detailed assessment), and the estimated costs are only those going forward from the date of the amended budget.
3. Incurred costs stay as they were in the original budget, estimated costs are only those going forward from the date of the amended budget, and there is a period of time between the date of the original budget and the amended budget which is neither incurred nor estimated.
Of these approaches, 2 has proven popular with Claimants looking for as many costs as possible to fall in the incurred section to prevent the court “interfering with” those costs and restricting them by way of limited the budget. We have also seen 3 several times in practice although question whether this is ever the right approach.
A significant change?
Following Harrison, it is likely that it has become desirable to have as much as possible estimated when it comes to costs. Incurred costs will be subject to detailed assessment in a way that estimated costs will not be – something that could make all the difference to the final outcome and getting paid.
This article was written by Darrel Lumby, a Costs Lawyer with over 20 years’ experience in costs, dealing with a wide and varied range of cases, including Court of Protection and high value and complex Personal Injury, Clinical Negligence and Commercial Litigation. He has also been instructed in high profile and sensitive Actions against the Police and Civil Liberty Claims. His experience and knowledge has led him to be instructed in cases where costs exceed £1m.