Merrix and paying parties

A recent High Court decision on costs has caused significant concern among paying parties, writes Emma Robinett.

Panic has spread amongst paying parties pursuant to an appeal in Merrix v. Heart of England NHS Foundation Trust [2017] EWHC 346 (QB). The proceedings had regard to the significance of costs budgeting when it came to a Detailed Costs Assessment.

The original decision, that the figures in the costs budget were not definitive and could be challenged by the paying party on assessment, was subject to appeal by the claimant. The appeal was allowed on the basis that, “Where a costs management order has been made, when assessing the costs on the standard basis, the costs judge will 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.” (Paragraph 92).

The burden is on the paying party to provide good reason at Detailed Assessment for the Court to depart from the budget as approved, unless there was no costs management order or costs have been awarded on the indemnity basis. The decision may lead to the paying party tackling the same by vigorously opposing/challenging the budget at the CCMC stage, given that they may not be given another bite of the cherry at Detailed Assessment.

A concern of the paying party is that, under practice direction 3E 7.3 hourly rates challenges are precluded at CCMC, although judiciaries may take rates into account Yeo v. Times Newspapers [2015] EWHC 209 (QB).

Could the failure to deal with hourly rates at a CCMC lead to a good reason for the Court to depart from the budget at Detailed Assessment? It is common practice for parties to reserve the issues of the rates until the Detailed Assessment stage. Merrix may lead to a conflict in the fact that paying parties are restricted from raising the challenges at CCMC, but then are not able to challenge the point at Detailed Assessment if the bill is claimed within budget. If the Courts were encouraging the correct hourly rate/grade to be set at CCMC, budgets and the Merrix decision would provide a level playing field at the later stage of assessment.

If a phase is not completed in full would this lead to good reason for the Court to depart from the budget? If the timeline of the case changes and the assumptions become incorrect would this be a good reason for the Court to depart? If the receiving party has anticipated the involvement of multiple witnesses but has used fewer would this provide for good reason for the budget to be reduced?

These are only a handful of the questions being raised by paying parties as to what would constitute a good reason for departure from the budgeted costs.

Practice direction 3E 7.4 currently prevents the Court from approving costs incurred before the date of the CCMC. Prior to Merrix, receiving parties are likely to push for as much costs to fall within the incurred section of their budget to prevent the same being challenged at CCMC. Pursuant to Merrix, the earlier a receiving party’s budget is approved the better given that the paying party may face difficulty in raises challenges to the incurred costs at Detailed Assessment.

For paying parties, the uncertainty of the potential restriction to the challenges they are permitted to bring at assessment is a cause for alarm. It must be kept in mind however that budgets were introduced to reduce the costs of litigating and to also avoid costly litigation in respect of costs – could Merrix be the answer to preventing lengthy challenges at Detailed Assessment or is this just pushing the paying parties to raise extensive questions at CCMC instead to protect their position?

Emma Robinett is a Trainee Costs Lawyer at A&M Bacon Limited.