Costs budgets and detailed assessment
The Court of Appeal has handed down judgment in an important costs budgeting case involving a NHS trust. Roger Mallalieu sets out its findings.
The case of Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA 792 is important reading in relation to the issue of how a budget affects detailed assessment.
The Court dealt with four issues (although in the judgment the second and third are dealt with as a single issue);
(i) What effect does the budgeting of costs which are yet to be incurred at the time of the budget (estimated costs) have on the assessment of costs at the conclusion of the case.
This issue had been looked at by Mrs Justice Carr in the case of Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB). Carr J concluded that where the costs claimed on assessment are, on a phase by phase basis, within the budgeted figure for the same phase as approved or agreed in a costs budget, then the court, in applying CPR 3.18 cannot depart from that agreed figure either upwards or downwards without good reason. In other words, absent good reason, the approved or agreed figure for estimated costs is to be allowed. The Court of Appeal agreed;
(ii) What effect does a case management order have on the assessment of costs which have been incurred at the time of the budget?
Master Whalan had held at first instance that these were subject to the same approach as with estimated costs. In other words, provided the final claim for costs per phase was within the total of both the incurred and approved estimated costs for the budget for the same phase, then the court should allow those costs without further assessment, unless there was good reason under CPR 3.18 not to do so. The Court of Appeal disagreed. Incurred costs are not approved by the Court. The dicta in SARPD Oil International Limited v Addax Energy SA [2016] EWCA Civ 120 which appeared to suggest that incurred costs should be given the same status was expressly disagreed with by the Court of Appeal in Harrison. Incurred costs are subject to assessment without any fetter under CPR 3.18, though any comments made by the budgeting judge will be taken into account;
(iii) How is proportionality to be approached where costs have been budgeted. In particular, provided the estimated costs remain in budget, are they excluded from any consideration of ‘global’ proportionality on assessment absent good reason, as the Claimant contended. The Court of Appeal held to the contrary. At paragraph 52 of the judgment it was expressly held that even where the estimated costs remained within budget (and therefore the budget was not to be departed from without good reason), the court must still look at the totality of the allowed estimated costs and assessed incurred costs in order to consider proportionality and therefore potentially to decide whether and if so what further reduction to make on a global basis. This is an important point and was described by the Court as a ‘further potential safeguard for the paying party’;
(iv) A subsidiary point as to when proceedings were commenced for the purpose of CPR 44.3(7) in order to decide which proportionality test applies. The Court held that proceedings for these purposes are commenced when the Court issues the claim form and not when a Claimant took steps to have the claim form issued (such as sending the documents to the Court). This may have practical importance in a number of cases given the anecdotal evidence of a rush to issue cases prior to April 2013.
The outcome of Harrison is one of mixed fortunes. The decision on the first issue follows the position established in Merrix and is an important point for receiving parties. However, the decision on the proportionality issue is a significant counterweight to that, particularly given the significant strengthening of the proportionality test post April 2013 and it is possible to see a number of cases proceeding to assessment where the only major issue will be the application of the global proportionality test.
The decision in relation to incurred costs is important to defendants, particularly in higher value claims where substantial costs may be ‘pre loaded’ by the time of any CCMC.
Roger Mallalieu is a barrister at 4 New Square Chambers. He acted for the Defendant, led by Alexander Hutton QC. Roger can be contacted on 020 7822 2000 or This email address is being protected from spambots. You need JavaScript enabled to view it..
