Out-Law News 4 min. read
26 Jun 2017, 11:14 am
The appeal court also confirmed that there was no similar need to show a 'good reason' before one of the parties could challenge the costs actually incurred by an opponent before the date of the costs management order (CMO) approving the budget.
In its long-awaited judgment, the appeal court upheld rulings by costs judges in both the present case and in the Merrix case earlier this year, which was not appealed so as not to delay the proceedings, said legal costs expert Keith Levene of Pinsent Masons, the law firm behind Out-Law.com.
"The Court of Appeal has followed the court's decision in Merrix in order to develop a pragmatic and consistent way of dealing with detailed assessment," he said.
"However, its judgment will not do away with the need for detailed assessment, for example in relation to incurred costs. The 'costs wars' over budgets will therefore continue. While parties may want courts to spend more time over costs management conferences as a result of this ruling, judges will likely be reticent to allow these to develop into some form of 'mini-assessment'," he said.
University Hospitals Coventry and Warwickshire NHS Trust had appealed against a costs award in favour of Jacqueline Harris, with whom it had settled a clinical negligence claim. Permission had been granted to appeal directly to the Court of Appeal, because of the "wider importance" of the issues raised and the "number of detailed assessments ... currently on hold pending the outcome of this appeal", according to the court.
The claim for damages was expressly limited in value to £50,000, and was ultimately settled for £20,000 plus costs. Harris' solicitor had budgeted for £197,000 in both incurred and estimated future costs, £108,000 of which had been incurred before the budget was agreed. Success fees and after-the-event (ATE) insurance premium were not included in the budget. The solicitors ultimately put forward a bill of costs for over £467,000 for detailed assessment, which included their success fee and ATE premium.
At the assessment stage, Master Whalan said that Civil Procedure Rule (CPR) 3.18 prevented him from conducting a "conventional" detailed assessment unless there was a good reason to do so. As a result, he assessed the recoverable costs at £420,168 when the success fee and ATE premium were included. The Court of Appeal backed these findings, as well as Mrs Justice Carr's conclusions in the Merrix case; with reference to the actual wording of CPR 3.18.
"I do not need to go into the competing arguments … simply because, put shortly, the system is now enshrined in the Civil Procedure Rules," said Lord Justice Davis, giving the judgment of the court.
"[T]o sanction, at detailed assessment, a departure from the budget in the absence of good reason would overlook (among other things) that budgeted costs are already required to have regard both to reasonableness and to proportionality; that the aims of costs budgeting include a reduction in detailed assessments and of issues raised in points of dispute; and that the element of certainty to clients (in the form of knowing what costs they are likely to face, in terms of payment or recovery) would be removed," he said.
"These sentiments are also reinforced by, for example, the requirement that a costs budget has to be signed and certified as being a fair and accurate assessment of the costs which it would be reasonable and proportionate for the client to receive; and by the requirement under the Rules and Practice Directions for revised budgets, upwards or downwards, to be filed and approved where the estimates change. In this regard, it is also in my view particularly important overall to bear in mind that a judge who is being asked to approve a budget at a costs management hearing must take into account, in assessing each budgeted phase, considerations both of reasonableness and of proportionality," he said.
The existence of the 'good reason' requirement provided "a valuable and important safeguard in order to prevent a real risk of injustice", the judge said. He decided against further defining 'good reason', which he said "can safely be left to the individual appraisal and evaluation of costs judges by reference to the circumstances of each individual case".
Moving on to consider costs already incurred, the judge pointed out these were "never agreed" by the parties or approved by the court by the CMO.
"On the contrary, the focus of a judge making a CMO is on estimating the costs reasonably and proportionately to be incurred in the future … In undertaking this exercise, the court may have regard to costs stated already to have been incurred: and that may in turn impact on its assessment of what may be reasonable or proportionate for the future. But paragraph 7.4 of [practice direction] 3E is quite specific: as part of the costs management process the court may not approve costs incurred before the date of the budget costs management conference," he said.
"It follows, in my view, that incurred costs are not as such within the ambit of CPR 3.18 (in its unamended form) at all. Accordingly such incurred costs are to be the subject of detailed assessment in the usual way, without any added requirement of 'good reason' for departure from the approved budget," he said.
As a final point, the court ruled that the point at which a case was 'commenced' for the purposes of the CPR was the point at which the claim form was issued, regardless of when or even whether this was then served on the other party.