CHALLENGING COST BUDGET PHASES ON ASSESSMENT: DECISION TODAY: PARTY CHALLENGING BUDGETED PHASE HAS AN UPHILL TASK
My colleague Paul Hughes has provided a link to a judgment today of District Judge Lumb in the case of Chapman -v- Norfolk & Norwich University Hospitals NHS Foundation Trust, available here.
The judgment considers the issue of when a judge should depart from the cost budget on assessment. In this case the judge rejected an argument by the defendant paying party that early settlement should mean a reduction of the figures set out in phases in the budget.
“It is not the role of the Costs Judge at Detailed Assessment to carry out a calculation of what, in his view, is the level of the proportion of a budgeted phase that a prudent receiving party would have incurred where that phase has not been completed. Such an approach would completely undermine the whole purpose of costs budgeting in the first place”
This was an assessment of costs in relation to a successful claim for clinical negligence. The defendant, paying party, argued that there were good reasons to depart from the budgeted costs in two phases – experts and ADR/Settlement.
DEPARTING FROM BUDGETED COSTS
The judge noted the scarcity of cases relating to departing from the budget.
“There have been few cases reported where a Court has found a good reason to depart, perhaps unsurprisingly, given that each case, to a large extent, is going to depend upon its own facts. There are no binding decisions to my knowledge or that of the advocates before me but HHJ Dight, who is the Designated Circuit Judge for Central London, has provided his views in Salmon v Barts Health NHS Trust  and I have been provided with a transcript of his unreported judgment.
The CPR and Practice Directions do not provide any detailed guidance but the Court of Appeal in Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792 per Davis LJ have made it clear that a good reason to depart from the budget is a high hurdle to overcome. His judgment provides the starting point in terms of general approach;
“where there is a proposed departure from the budget, upwards or downwards, the Court, on a Detailed Assessment, is empowered to sanction such a departure if it is satisfied that there is good reason for doing so. That, of course, is a significant fetter on the Court having an unrestricted discretion: it is deliberately designed to be so. Costs Judges should therefore be expected not to adopt a lax or overindulgent approach to the need to find good reason, if only because to do so would tend to subvert one of the principal purposes of costs budgeting and against the overriding objective.
Moreover, while the context and the wording of CPR rule 3.18 (b) is different from that of CPR rule 3.9, relating to relief from sanctions, the robustness and relative rigour of approach to expect in that context, see Denton v TH White Limited  EWCA Civ 906, can properly find at least some degree of reflection in the present context.
“Nevertheless, all that said, the existence of the “good reason” provision gives a valuable and important safeguard in order to prevent real risk of injustice, and, as I
see it, it goes a considerable way to meeting Mr Hutton’s doom-laden predictions of Detailed Assessments becoming mere rubber stamps of costs management orders, and of injustice for paying parties if the approach is to be that adopted in this present case. seek to proffer any further, necessarily generalised guidance or examples; the matter can safely be left to the individual appraisal and evaluation of Costs Judges by references to the circumstances of each individual case”
THE ROLE OF THE JUDGE WHEN COSTS BUDGETING
The judge considered the role of the court when costs budgeting.
4. The one example that Davis LJ was prepared to give for a good reason to depart was the application of the indemnity principle. That is perhaps of limited assistance beyond reaffirming that the budgeted phase is not the amount a party would automatically recover for a phase. The work still has to be done and the client still has to be primarily liable to pay for it. The budgeted figure is not a rubber stamp of automatic entitlement.
5. It may sound obvious, but before beginning to consider whether or not there is a good reason to depart from the budget, it is important to understand, so far as is possible, where you started from. This means being able to discern what the Costs Managing Judge who made the costs management order had in mind at the time that he or she set the budget and in particular each phase. This will often be apparent from the terms of the directions in the case management order but it is also very helpful to have a record of the assumptions which have been applied by the Court, which may be different from those contended for by the parties in their respective Precedents H and R, at the time ofsetting the budget.
6. The task of the Costs Managing Judge is to set a figure for each phase of the budget that has not been agreed that falls within the range of reasonable and proportionate costs for that phase. The Costs Managing Judge is not required to provide a breakdown of how he or she has arrived at the figure for each phase.
7. Once set, it is open to the party whose budget it is to spend that phase how he or she wishes. The Costs Management Judge does not need to give a breakdown of disbursements, profit costs or counsels fees but simply to arrive at a figure for that phase which falls within the range of reasonable and proportionate costs.
PROPORTIONALITY IS NOT LOOKED AT TWICE.
The judge was concerned that the issue of proportionality would be examined twice.
8. In that way, the issue of proportionality has been considered in detail at the time of setting the budget and does not fall to be considered again until the conclusion of the Detailed Assessment proceedings when the Court performs a final proportionality cross check of the costs as a whole.
9. The one exception is the incurred costs at the time of the budget which are always open to scrutiny and challenge by a paying party on Detailed Assessment as they do not form part of the “budgeted costs”.
10. Applying the strict guidance of Davis LJ in Harrison, the Court is not expected to carry out a micro-assessment of how much work has been done in each particular phase. The solicitor for the receiving party has signed a certificate on the bill to confirm compliance with the indemnity principle.
CLEAR EVIDENCE NEEDED TO DISPLACE COST BUDGET
The judge then considered what evidence would be needed to displace the budgeted phases.