Mathew Knight

Whether a reduction in the hourly rates applied to the incurred costs within a bill is a good reason to apply the same reduced rates to the ‘budgeted’ costs (i.e. future costs) in the same bill

This question was considered by Master Nagalingam at a detailed assessment hearing which took place on 11 & 12 October 2017 in the case of Rebecca Elizabeth Nash (PR of the Estate of Graham Robert Wood (Deceased) -v- the Ministry of Defence (SCCO Ref: NEWM1703873).

This was a part heard detailed assessment in connection with a claim for damages and losses incurred as a result of a fatal accident, which was ultimately compromised by way of a joint settlement meeting. The case was subject to costs budgeting and a costs management order was made on 8 June 2016.

The approach the paying party invited the Master to take (i.e. the reduction of the hourly rates within the incurred costs part of the bill was a good reason to reduce the hourly rates within the budgeted costs part of the bill), in his view gave rise to a risk of double jeopardy, which would erode elements of the certainty which the costs budgeting regime was designed to introduce.

At the time the case managing judge sets the budget for future costs they are aware that the incurred costs are subject to detailed assessment (if not agreed) and therefore approves a budget for subsequent costs in the full knowledge that the incurred costs may be reduced on detailed assessment.

However, notwithstanding that jeopardy to the eventual receiving party, the amount allowed for subsequent costs follows a mandatory requirement for the case managing judge to take into account incurred costs – a practice which often leads to the budget for subsequent costs being reduced. It follows that whatever amount is allowed for subsequent costs by the case managing judge must, by operation of Costs Practice Direction 3E 7.4, be deemed to be reasonable and proportionate.

As such, if when claimed in a bill of cost those subsequent costs are reduced to a level below that permitted by the costs management order without good reason, it creates a double jeopardy which could only be avoided by having a full detailed assessment of the incurred costs at the budgeting stage – an exercise which would be wholly unsatisfactory and in many cases impractical to the prosecution of the case.

This, in Master Nagalingam’s view, was a factor which contributed to setting a high bar with respect to what constitutes a good reason.

In effect, the paying party were inviting the Master to go behind or second guess how the constituent elements were balanced in order for the Court to make a costs management order.

It was Master Nagalingam’s view that hourly rates hold no special status and are not to be given any elevated status on an assessment of costs with regards to estimated costs subject to a costs management order as the rates were just one of many constituent elements/underlying details which contribute to each of the budgeted phase totals.

CPR 3.15(3) provides that:

If a costs management order has been made, the Court will thereafter control the parties’ budgets.

That control is on the amount of money the parties spent, not how they spend it.

By way of an example, if a party budgets for 10 hours at £500.00 per hour plus £2,000.00 on Counsel for future costs in the disclose phase, the total of £7,000.00 is exactly the same as if the same party had budgeted for 100 hours at £50.00 per hour plus £2,000.00 for Counsel. If £7,000.00 is approved for the budgeted (future) costs total, then the Court will not interfere with how that money is spent without good reason.

The budget is set following the making of a costs management order, and Solicitors must thereafter cut their cloth accordingly.

Taking the example above, where a rate of £500.00 per hour is reduced to £100.00 per hour in the incurred costs, it cannot be logical for a budget claiming 10 hours at £500.00 per hour plus £2,000.00 for Counsel (total £7,000.00) to be reduced to £3,000.00 on assessment but where a budget claiming 100 hours at £50.00 per hour plus £2,000.00 for Counsel (total £7,000.00) would suffer no reduction at all (where say £7,000.00 is claimed in that phase in the bill of costs).

In making his decision, Master Nagalingam also took into consideration, the tension which would otherwise arise in the rules between the scenarios where the budget does not exceed £25,000.00 or the value of the claim as stated on the claim form is less than £50,000.00, and where the budget is more than £25,000.00 or the claim form value is £50,000.00 or more.

The parties must only use the first page of Precedent H in cases where a party’s budget does not exceed £25,000.00 or the value of the claim as stated on the claim form is less than £50,000.00. There is no provision or requirement to provide a breakdown of hours to be spent and rates to be applied.

It could not have been the intention of those making the rules to create a distinction between what may be challenged on assessment in cases worth £50,000.00 or more and cases worth less than £50,000.00, or between cases budgeted at more than £25,000.00 and cases budgeted below that sum. However, it came to the Master’s attention that a distinction would be created were he to adopt the path that the Master was invited to by the paying party. This was because they replied on being able to cite the rates in the estimated phases of the budget, notwithstanding that fact that no such argument would be available to him had the budget been £25,000.00 or less, or if the stated value of the claim form had been less than £50,000.00.

Master Nagalingam found that a reduction in hourly rates of the incurred costs is not a good reason to depart from the budget in respect of the budgeted (future) costs.

The above decision is not set in stone as a decision on the same question was previously made by Deputy Master Campbell in the case of RNB -v- London Borough of Newham. Deputy Master Campbell decided that a reduction in the hourly rates for incurred costs was a good reason to reduce the hourly rates for the budgeted costs as well. It may be some time before we have a definitive answer to this question as the appeal of the decision of Deputy Master Campbell in the case of RNB -v- London Borough of Newham has now been dropped.

Mathew Knight, Partner and Costs Lawyer