27 July, 2017
Since the introduction of the Jackson reforms, costs management has become an integral part of multi track litigation. However many aspects of the new costs regime still remain unclear; in particular the relationship between cost budgeting and detailed assessment.
As a general rule, costs management rules apply to all Part 7 multi-track cases. Costs management requires the parties to prepare and exchange costs budgets (Precedent H) and budget discussion reports (Precedent R). The case is broken down into phases and the Court looks at each phase and determines the appropriate cost budget for each party. The Court then manages the case so that it proceeds within the approved budget. At the conclusion of the matter, the recoverable costs of the successful party are assessed in accordance with the Court approved budget.
In contrast, a detailed assessment is the assessment costs of a party's at the conclusion of proceedings.
The receiving party sets out their costs in a bill of costs and the costs judge considers the reasonableness of the costs claimed according to specific criteria. The paying party is then ordered to pay the assessed costs.
In Merrix v Heart of England NHS Foundation Trust  the claimant argued that if the costs in the bill were less than the budgeted costs they should be assessed as claimed, unless "good reason" to depart from the budget was established.
The Court held that on detailed assessment on a standard basis, the costs judge is bound by the agreed or approved costs budget, unless there is good reason to depart from it. This is the case whether or not the budgeted figures are or are not exceeded.
In Jacqueline Dawn Harrison v University Hospitals Coventry & Warwickshire NHS Trust  the Court of Appeal confirmed that when a costs management order has been made, the future (estimated costs) element of the costs budget is binding on a subsequent detailed assessment. The figure for those costs should not be departed from (upwards or downwards) unless "good reason" can be shown. This was the clear interpretation of CPR 3.18 and was in accordance with the purposes of costs management.
However, the incurred costs are to be subject to detailed assessment in the usual way, except the Court may take into account comments made by the Judge at the Cost Management hearing in relation to incurred costs.
There are still a number of case management questions left unanswered; and without a doubt there are to be many arguments as to what amounts to "good reason" for departing from the approved costs budget and the appropriate way to assess costs if there is "good reason" to depart.
One of the criticisms of costs budgeting is that it only deals with costs going forward. Claimant solicitors are often accused of front loading work pre-budget to avoid the budgeting process. Whilst Judges may record comment on the incurred costs element of a budget during the cost budgeting hearing, the value of this has recently been brought in to question. In Richard v The British Broadcasting Corporation (BBC) and another  Chief Master Marsh decided not to make any comment about the incurred costs in the claimant's costs budget under CPR 3.15, noting that there was little or no value in a general comment about incurred costs along the lines that the incurred costs were "substantial" or "too high". Suggesting that it might unfairly skew a later detailed assessment.
Arguments over incurred costs are likely to dominate detailed assessments in the future. In addition, disputes relating to proportionality and hourly rates are also going to loom large. Undoubtedly, further judicial guidance is required.
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