Merrix judgment "will not end the debate" on Costs Budgets and Detailed Assessments
With the spectre of fixed costs in most litigation looming large, it seems remarkable that, some four years since the inception of cost budgeting, guidance has finally been given as to the effect of an approved costs budget on detailed assessment proceedings.
In the case of Merrix v Heart of England NHS Foundation Trust, the Honourable Mrs Justice Carr DBE was asked to determine the preliminary issue, "To what extent, if at all, does the costs budgeting regime under CPR Part 3 fetter the powers and discretion of a Cost Judge at detailed assessment of costs under CPR 47?"
The Respondent's argument was that the paying party is entitled to benefit from a full Detailed Assessment, starting from the beginning, with the Costs Budget being just one factor to be considered in determining reasonable and proportionate costs on detailed assessment. They contended that the Costs Judge is not fettered by the Costs Budget and the paying party need not show a good reason to persuade the court to depart from an approved or agreed budget downwards, but the receiving party needs a good reason to persuade the court to depart from the Costs Budget upwards.
The argument of the Appellant was simply that, where costs are claimed which are equal to or less than the Costs Budget, unless the paying party could show good reason to depart downwards, they should be assessed as claimed.
Mrs Justice Carr agreed with the Appellant. She stated that the words in CPR 3.18 are "clear" and "mandatory". Therefore, 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.
On the face of it, this judgment is good news for receiving parties. However, Carr J recognised that this first instance Appeal "will not end the debate". In doing so, she suggested that any appeal from her decision could, if considered appropriate, be heard alongside the upcoming appeal (in the Court of Appeal) of Harrison v Coventry NHS Trust. Whether it will or not remains to be seen.
However, less than two weeks since her decision, the backlash has already started. With the Harrison appeal due to be heard in May, many paying parties are already making applications to stay Detailed Assessment Hearings pending the outcome.
If the Respondent's argument is correct, could the stated aim of Costs Budgeting - i.e. to reduce the scope and costs of standard basis Detailed Assessments - be achieved? The short answer to that question must surely be ‘no’. The court has available to it two systems of controlling costs - Costs Management and Costs Capping. The purpose of the latter is to limit the amount of future costs which a party may recover under an order for costs made subsequently, whereas the purpose of the former is to manage both the steps to be taken and the costs to be incurred.
There are also differences in the stated effect that each system is supposed to have. Where there is a Costs Capping Order (CCO), the receiving party's costs are limited unless there is a successful application to vary the order or a compelling reason why a variation should be made. Contrast this with the Costs Budgeting regime, where the court may not depart from a Costs Budget unless satisfied that there is good reason to do so, and it becomes clear that there must be a significant difference between the two systems.
Returning to the Respondent's submissions in Merrix - that the paying party need not show a good reason to depart from a Costs Budget downwards, but the receiving party must show a good reason to depart upwards - if that is correct then, for all practical purposes, the effect of the two systems would be near enough identical.
It must be the case that the existence of a Costs Budget does fetter the discretion of a Costs Judge on Detailed Assessment, otherwise the stated aim of reducing the scope and costs of standard basis Detailed Assessments cannot be achieved. It might well be a moot point whether Costs Budgeting can ever achieve that, since only a tiny proportion of cases actually proceed to Detailed Assessment, whereas Costs Management (and the significant costs associated with the same) will apply to most if not all multi-track cases. While that can be debated at length, we can say with some certainty that if the discretion of the Costs Judge is not fettered by the Costs Budget, then conduct of paying party's will also not be fettered and the sometimes significant costs associated with Costs Management might be entirely wasted.
Within her judgment Carr J acknowledged that, to prevent further Court and Judicial time and expense being devoted to the subject, it may be that further stays should be imposed.
If this is to happen and Costs Recovery is to be delayed, then practitioners would do well to remember, at the end of a litigation, another one of Jackson's LJ rule changes - namely CPR 44.2(8), which confirms that where the Court makes an order for costs it will order a payment on account.
To paraphrase Carr J, the wording of that rule is both clear and mandatory.
Anil Virji - Head of Costs at Civil and Commercial Costs Lawyers
Robert Patterson - Technical Advisor & Senior Costs Draftsman at Civil and Commercial Costs Lawyers
To read the judgment in full, click here.
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