COSTS BUDGETS:HOURLY RATES IN THE BUDGET ARE NOT DETERMINATIVE OF THE HOURLY RATES ON ASSESSMENT: A CAT AMONG THE PIGEONS HERE
In RNB v London Borough of Newham  EWHC B15 (Costs) Deputy Master Campbell made an important decision in relation to hourly rates on assessment. The rates set out in the cost budget are not determinative of the rates allowed on assessment. This highlights the importance of putting realistic hourly rates in the budget itself. Unrealistic hourly rates can still be reduced on assessment, regardless of the totals allowed in the budget.
“it is only on that occasion that a paying party has an opportunity to challenge the rate “
The claimant brought an action arising from abuse suffered by an employee of the defendant. The action was settled, after the issue of proceedings, for £250,000
THE COSTS BUDGET
The claimant filed a costs budget
- 25 July 2016 – Claimant’s costs budget filed and served : Precedent H rates per hour stated to be – partner £355 to £375, senior solicitors £235 to £280, Associate £295, solicitors £215 to £225, legal assistants £145 to £150
- 3 August 2016 – Defendant’s costs budget filed and served
- 12 August 2016 – Costs Case Management hearing (“CCMC”) ; Costs Management Order, inter alia that the Claimant’s costs budget is agreed under CPR 3.17 in the sum of £143,692.36 and that the Defendant be deemed to have serve
On assessment the hourly rates for incurred costs, up to the costs budgeting stage were reduced. Hourly rates for partners reduced to £340 : senior solicitors reduced to £275, solicitors reduced to £180 and legal assistants to £135. The court then reserved the decision as to whether those hourly rates should apply to the budgeted costs as well as the incurred costs. The date of the adjourned hearing was, coincidentally, the date on which the Court of Appeal gave judgment in arrison v University Hospitals Coventry and Warwickshire Hospital NHS Trust ((2017) 3 Costs LR 424 .
It is common ground that the Defendant’s submission cannot succeed unless it satisfies the court that there is “good reason” to depart from the Claimant’s approved costs budget. That “good reason” (so the Defendant says) is that the reduction to the hourly rates for the incurred costs should be reflected by applying them to the budgeted costs. It follows that if Mr Ridgeway is correct, the figures advanced in the bill for the post 25 July 2015 period which were agreed and then approved by the court at the budgeting stage, will be ticked through without further consideration but if Mr Clayton is right, then the reduction I have made to the hourly expense rates in Part 1 of the bill, must be applied to the budgeted costs in Parts 2.
The starting point is that the court does not approve or disapprove hourly rates when budgeting costs under CPR 3.12-18. It simply approves an amount which it is reasonable, necessary and proportionate for a party to incur for each of the ten phases of the litigation, with the exception of the incurred costs. So far as the latter is concerned, the court at the budgeting stage does not and cannot carry out a detailed assessment; what it can do is to comment on the costs under PD 7.4 and take those comments into account when fixing the budget. Here, no comments were made at the CCMC, and working out whether it was reasonable, necessary or proportionate to incur those costs has been for the court to decide at (if I may adopt respectfully, the words Davis LJ in Harrison) the “conventional detailed assessment” I have just undertaken.
In a “conventional” detailed assessment, it is frequently the case, that hourly expense rates for solicitors are at the heart of any dispute between the parties. Often it happens that if the hourly rates are resolved at the outset of the assessment together with any other so-called “bullet” points of principle (such as demonstrating that there is a valid retainer for the work), the parties are able to settle remaining issues, thereby reducing the time taken on detailed assessments.
Whether or not hourly rates are to be approved or disapproved at the budgeting hearing has been a point considered at judicial level at costs budgeting hearings. The editors of the White Book referred to by Clark J in Merrix are of the view that CPR Rule 3 PDE 7.3 and 7.10 “do not require the court to set hourly rates – indeed 7.10 makes it perfectly plain that the position is quite the reverse – it is expressly not the role of the Costs Management to fix or set hourly rates”. However that was not was not the practice adopted Warby J in Stocker v Stocker  4 Costs LR 651 in which the hourly rates were agreed and approved, as was the case in GSK Project management Ltd v QPR  4 Costs LR 729 , Stuart-Smith J. In Group Seven v Nasir  2 Costs LO 303 Morgan J also decided the hourly rates which were to apply prospectively, and gave guidance about the locality of the firms of solicitors that it was reasonable for the parties to instruct (see judgment at paragraphs 40 to 45 entitled “Solicitors Hourly Rates”). Whilst the judgment was delivered two weeks before PD 7.10 was implemented, the draft amendment would have been available prior to the date upon which the judgment was handed down in that case. It follows in my judgement, that if the court approves hourly rates in terms as was the case in Stocker and Group Seven, neither a paying nor receiving party on any subsequent detailed assessment can challenge them.
That is not the situation here. The allowances in the costs budget were made by reference to phases without the court having commented upon the hourly rates, either in respect of the incurred or budgeted costs. At the assessment hearing, I made reductions to the hourly rates claimed for the incurred costs to a level which has meant that the overall recovery by the Claimant for the period of work before the CMO has been reduced by significant amounts. Were that not to be reflected in the budgeted costs, that would mean that the Claimant will appear to recover an hourly rate as set out in Precedent H for the budgeted stage at a level that significantly exceeds the figure I consider to be reasonable and proportionate for the pre-budget stage.
Mr Ridgeway’s riposte to that is that the allowance made on the CCMC is the cost permitted for the phase and it is up the solicitor how that sum is spent. I cannot accept that submission. If, (as it is the case), the hourly rate is a mandatory component in Precedent H which is not and cannot be subjected to the rigours of detailed assessment at the CCMC, it makes no sense if it is automatically left untouched when the rates for the incurred work are scrutinised at the “conventional” assessment. Such an approach would offend against the guidance given in Harrison at paragraph 44. Indeed, as Mr Clayton points out, it is only on that occasion that a paying party has an opportunity to challenge the rate and I agree with him for the reasons given above, that that is a “good reason” to depart from the costs allowed in the Claimant’s last approved budget.
Further binding authority to support this proposition is to be found in Merrix at paragraph 73 which I repeat for convenience (the whole paragraph should be read); “… As the notes to CPR 3.18 in the White Book reflect, the fact that hourly rates at the detailed assessment stage may be different to those of the budget may be a good reason for allowing less or more, then the phase totals in the budget”. It follows that the rates allowed for the incurred costs in Part 1 will need to be applied to the budgeted costs in Part 2.
“…the court will – (a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; ..”
” (a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance.”
” “The proportionality test can be applied at the time of fixing the budget. If there is good reason to depart from that decision, the judge on detailed assessment can do so. Additionally, … as the notes to CPR 3.18 in the White Book suggest, once pre-incurred costs have been assessed on the basis of reasonableness and added to the budgeted costs, the total figure is then subject to an overall assessment of proportionality. …..””
” “where, as here, a costs judge on detailed assessment will be assessing incurred costs in the usual way and will also 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 resulting aggregate figure is proportionate, having regard to CPR 44.3(2)(a) and (5) : a further potential safeguard, therefore, for the paying party. “”
At the detailed assessment hearing , I asked Mr Ridgeway and Mr Clayton at what point should the proportionality test be applied . They were in agreement that the appropriate moment was at the conclusion of the line-by-line assessment. I also enquired whether they wished to make any further submissions about proportionality. None were received.
Having reached the conclusion of the line-by-line assessment, I have looked at and calculated as best I can, the figures for the incurred costs as claimed and as allowed in Part 1, and also at, the budgeted costs in Part 2 which, subject to my decision on hourly rate, are to be ” ticked through” upon the application of the Merrix/Harrison guidance at paragraphs 92 and 28 respectively at approximately £43,000. Having aggregated those figures and looking at matters in the round, as Harrison has directed that I must, it is my view, having regard to the CPR 44.3(5) factors, that the resulting figure if left unaltered would result costs that it would be disproportionate for the defendant to pay. Expressing the point a different way, having regard to the amount recovered and the complexity of the litigation (a part 36 offer having been made at the outset, the fact that the action was settled without a trial and that I do not consider additional work was generated by the conduct of the defendant by, for example, putting the claimant to proof at a trial about the distressing history of the allegations of abuse), it is my judgment that the aggregate of the incurred costs as assessed and the budgeted costs as assessed thus far, if left unaltered, would result in the court allowing costs that were reasonable and necessary but not proportionate. That difficulty can be addressed by permitting the Claimant to recover the sum that would have been allowed had the assessed rates for the incurred costs been applied to the budgeted costs. It follows that if I am wrong about “good reason”, the amount to be allowed on assessment must be adjusted by the application of CPR 44.3(5) so that the sum payable is the same as if the rates allowed for the incurred had been used to work out the amount to be allowed for the budgeted work.