Merrix v Heart of England NHS Foundation Trust

The issue of costs budgets continues to occupy court time with The Honourable Mrs Justice Carr DBE the latest, and most senior, judge to give consideration to what, if any, weight an approved costs budget had when the bill of costs was the subject of a detailed assessment.

Merrix v Heart of England NHS Foundation Trust was originally heard on 13 October 2016 by District Judge Lumb sitting as a Regional costs judge.

The issue – “to what extent, if at all, does the costs budgeting regime under CPR Part 3 fetter the powers and discretion of a costs judge at a detailed assessment of costs under CPR Part47” ?

The argument – The Paying Party seeking to reduce the bill of costs on assessment was required to show good reason to depart from the approved budget and absent good reason there was no requirement to undertake an assessment

The outcome – The powers and discretion of a costs judge was not fettered by the costs budgeting regime save that the figures should not exceed unless good reason shown.

Irwin Mitchell for the Claimant appealed and the matter came before Mrs Justice Carr DBE 16 February 2017 with her judgment given 24 February 2017 [2017] EWHC 346 9QB).

In a detailed judgement which includes a helpful history of costs budgeting the Court addressed the three grounds of the appeal:

  1. The provisions of CPR 3. 18(a) and (b) shifted the burden to the paying party to show good reason at detailed assessment or summary assessment why the budget should not be departed from;
  2. The provisions of paragraph 7.3 of Practice Direction 3E related to approval of a total phase in order to enable the court to identify what was a reasonable and proportionate amount to spend on each phase of the litigation
  3. The consideration of a costs budget at a costs management hearing was not only to establish an individual fund, but to give the parties an indication as to what was reasonable and proportionate to spend prosecuting or defending their claim. Therefore what was reasonable and proportionate at a detailed assessment, unless the paying party could show good reason as to why it was not the case, should be in accordance with any costs budget set?

Whilst accepting it was right to say that costs budgeting did not “replace” detailed assessment the Judge concluded that where the costs management order had been made when assessing the costs on the standard basis the costs judge should not depart from the receiving party’s last approved or agreed budget unless satisfied that there is good reason to do so. “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

The Appeal was allowed however the judge remarked that the appeal was unlikely to be the end of the debate going as far to suggest that the judgment might be ripe for consideration by the Court of Appeal; the Judge referred to the  matter of Harrison v Coventry NHS trust heard by Costs Judge Master Whalen that came to her attention only days before the hearing of the index appeal noting the same appeared to have in fact been leapfrogged to the COA albeit on a floating basis and suggested this decision could be heard alongside Harrison.

Whilst the above is a decision of significant importance it is not likely to be the final word and with many assessments stayed pending the outcome of this latest appeal further delays are likely and one can only anticipate the further case law required to define “good reason” to depart.

One thing that can almost certainly be guaranteed is that the agreement of claimant budgets in advance of any case management hearing just became even more unlikely and given this latest guidance, can the courts continue to adopt the approach that hourly rates are not to be debated at the case management hearings? Should parties now insist on a mini-detailed assessment at case management hearings whereat the location of solicitors, grade of fee earner and rates applied are debated, as rates are clearly a key element in the decision to allow profit costs for each phase,  surely X hours at Y rate must be part of the master/judge’s reasoning when arriving at an allowance for the phase in the first place?

Once again we enter a period of uncertainty during which receiving parties will consider their budgets as carved in stone (unless they should over spend) whilst paying parties are putting together their arguments as to why budgets agreed/approved should be departed from and detailed assessments should allow an item by item challenge to arrive at an appropriate sum regardless of the budget.

It would appear unlikely that many budgeted matters will be the subject of detailed assessment in the near future with one if not both parties preferring to await a decision from the Court o Appeal.