Court of Appeal Guidance on Costs Budgeting and Detailed Assessment

by James Severn

The Court of Appeal handed down judgment this week of Harrison v University Hospitals Coventry & Warwick NHS Trust [2017] EWCA Civ 792 which gives the Courts welcome guidance on the principles to be followed when assessing costs in a case subject to a costs management order.

The Court considered three issues:-

  • Where costs are subject to an approved costs budget, does a paying party need to show a “good reason” at detailed assessment to reduce the costs claimed if they are within the budgeted figure?
  • Is “good reason” needed to reduce incurred costs in a budgeted claim if such costs are within the amount set in an approved costs budget?
  • When is a claim “commenced” for the purposes of assessing which test of proportionality applies?

Estimated Costs

The Court of Appeal gave very firm guidance that where costs have been approved in a Costs Management Order and the costs claimed are within that budget, a paying party must show “good reason” to depart from the budget. The paying party in this case had argued that the budgeted figure was to be seen as a cap and that a full detailed assessment should be carried out at the end of the claim to establish what the paying party should pay.  The Court of Appeal rejected this approach and held that a paying party must show good reason to reduce the costs claimed if such claim falls within the amount approved in a Costs Management Order.

Incurred Costs

On the second question, the Court favoured the arguments put forward by the paying party and held that incurred costs in an approved budget should be the subject of a detailed assessment in the usual way without the need to show a “good reason” for departure from an approved budget. This is because the Court at a Costs Management Hearing is not required to undertake a detailed review of such costs (although it may comment on them and consider them when setting the remainder of the budget).

Proportionality

The third question is when a case is “commenced” for the purposes of determining the appropriate test for proportionality. This issue is of potential importance as if a case is commenced before 1 April 2013 the test for proportionality is more favourable to the receiving party. The Court found that the date on which proceedings are commenced for these purposes is the date which the claim is issued by the Court

Guidance

At paragraph 52 of the judgment of Lord Justice Davis, the Court of Appeal gave the following guidance as to how it considers a detailed assessment should proceed:-

“… a Costs Judge on Detailed Assessment will be assessing incurred costs in the usual way and also will be considering budgeted costs (and not departing from such budgeted costs in the absence of “good reason”) the Costs Judge ordinarily will still, as I see it, ultimately have to look at matters in the round and consider whether the result in aggregate figure is proportionate, having regard to CPR 44.3(2)(a) and (5); a further potential safe guard, therefore, for the paying party.

This makes clear that once the Court has undertaken its assessment of the bill and applied the relevant test for proportionality, it should take a step back and consider whether the aggregate cost claim is “proportionate”.

Comment

It is critical that parties deal properly with costs budgeting as the figures set down in a costs management hearing are absolutely critical when it comes to assessment at the end of the claim. Parties are still entitled to challenge “incurred costs” in the usual way at detailed assessment but where a claim for costs that were “estimated” at the time of the Costs Management Hearing is within budget, the paying party will have great difficulty in persuading a Court that the claim should not be allowed in full.

That is not the end of the matter and it is important to note however that once an overall assessment of the costs has been undertaken, there will be a further consideration of whether the aggregate figure claimed is proportionate. This is a final opportunity for a paying party to challenge the costs claimed with reference to the factors set out in the Civil Procedure Rules.

If you require further information or advice regarding the contents of this article please contact James Severn whose details appear below.

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About the contributor

  • James Severn Partner

    James is a partner in our London office. He has a broad commercial litigation and dispute resolution practice with a particular focus on personal injury and fatality claims. He regularly acts for ship owners, their P&I insurers and the oil industry

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