The hard deck

Resembling the quest for the Holy Grail, or a hunt for a unicorn, has been the quixotic search for “good reasons” to depart from a costs budget. Although Delphic pronouncements have been made that “good reasons” will be fact sensitive, or grounded in the circumstances of a particular case, lawyers prefer principles.

I have long thought that the battle for a departure or not, on the basis of “good reasons” is largely fought and won at the time of the costs management hearing: leaving aside the obvious dispute over the levels of budgeted costs which are set at the hearing, the often neglected question of the assumptions on which the budget is set are often glossed over and rarely expressly referred to in the costs management order, by way of recital otherwise.

It would be in the interests of the likely paying party to have expressly recorded in the order at the costs management stage the assumptions on which the budget is set. If they are then invalidated by subsequent events in the litigation, the key is already in the door, to unlock the budget and argue that it should be departed from.

In the meantime, there was at the beginning of this year a fully argued judgment of a circuit judge in the county court on the vexed question of good reasons.

The judgment is probably wrong in a material respect in that the judge went too far with various dicta, which I shall explain below, but is undoubtedly right on the most important part: the budget set per phase, is the sum set on the assumption that the phase will be completed.

How could it be otherwise? And thus, if a phase is not completed, there would be a good reason for departing from the budget. The case in question is that of

Barts Health NHS Trust v Salmon County Court at Central London HHJ Dight QC 17th January 2019

It is a decision given on appeal from Master Whalen where HH Judge Dight QC decided the appeal, albeit with the assistance of an assessor. There is an interesting suggestion of a dispute between the Learned Judge and his assessor, although that is not fully explained in the judgment, over the reasons why the appeal should succeed. The ambit of the appeal was described in the following way:

2. This is an appeal against decisions made by Master Whalan, sitting as a judge of the Central London County Court, during the course of a detailed assessment which took
place on 1 and 2 November 2017. The appeal is brought with permission which I granted on 31 July 2018. The appellant is the defendant and is the paying the party, the respondent
is the claimant, the receiving party, who has not filed a Respondent’s Notice, and therefore in effect seeks to uphold the decisions of the learned Master for the reasons given by him.

3. I hear this appeal with Master Brown, sitting as an assessor. He has provided me with his expert views on some of the issues on this case, and I am extremely grateful to him. We agree on the outcome of the appeal, but not necessarily on the route to that outcome. However, the conclusions which I reach in this judgment are my own, and I take sole responsibility for them.

4. During the course of the appeal, the issues between the parties were reduced, with the result that there are three remaining grounds of appeal to be determined. This is a Claim which settled before trial, and in respect of which not all the phases of the original budget were completed. The remaining grounds of appeal for determination are: (1) whether the learned Master was wrong to conclude that there was no good reason under CPR 3.18(b) to depart from the costs budget in respect of the expert’s phase of the bill, which was part 15 of the bill, and reduce the figure below what was claimed by the receiving party; (2) whether the Master was wrong to conclude that there was no good reason under CPR 3.18(b) to depart from the costs budget in respect of the alternative dispute resolution phase of the bill, part 17 of the bill, and reduce the figure below what was claimed by the receiving party; (3) whether the Master erred in his application of the global proportionality test under CPR 44.3 in respect of phases 4 to 17 of the bill, relating to costs incurred after 1 April 2013. The learned Master in that latter respect reduced the assessed figure from £52,133.97 to £40,000, but the paying party argues that the reduction was insufficient and that the figure should have been reduced further, the sum of £25,000 approximately being contended for.

The setting of the budget was described as follows:

10. The matter came on for a costs and case management conference before District Judge Silverman on 5 February 2015, when he approved the claimant’s budget at £155,673, which included two experts per side, and, in a relatively standard way, the learned District Judge gave substantial directions relating to the steps to be taken by the experts in the lead up to trial.

The Learned Judge set out an interesting exegesis of what he considered were the appropriate principles which applied to costs management, and in particular departures from budgets approved by the court:

22. Before looking at the submissions in this case, I want to set out the principles which I derive from the authorities and the provisions that I have referred to, which will of course indicate my thinking on the submissions which I will set out in due course.

a. First, costs budgets give a figure for each phase of the proceedings, but the constituent elements of each phase are not themselves approved, and there is no finding as to the legal costs or disbursements to be incurred in each phase. I take that from PD 7.10, and the judgment of Mr Justice Jacob in Yirenki.

b. Second, when assessing costs on the standard basis, the court will have regard to the last approved budget. That is plain from the wording of CPR 3.18(a).

c. Third, the court will not depart from the budget either upwards or downwards in respect of any particular phase unless there is a good reason. That follows from CPR 3.18(b) and the reasoning of Lord Justice Davis in the Harrison case.

d. Fourth, a good reason for departing from the budget in respect of a particular phase does not lead to a right to depart from the budget in respect of another phase. A good reason for departure from that separate phase must be separately established.

e. Fifth, what amounts to a good reason is to be left to the judgment of costs judges in individual cases, having regard to all the circumstances, but they are not to adopt a lax or overindulgent approach (see Lord Justice Davis in Harrison).

f. Six, the consequences of establishing a good reason is that the court may depart from the budget for a phase when assessing costs on the standard basis. It seems to me that follows from the plain words of CPR 3.18(b).

g. Seven, once a good reason has been established, and the court is given the right to depart from the budget, it will assess the costs of that phase in the usual way, and, in that respect, it is left to the good sense and expertise of the costs judge to undertake that assessment in an appropriate and insofar as possible practical way, whether line-by-line or in a more broad-brush way The manner of undertaking that task is entirely a matter for the judge dealing with the assessment. It seems to me that the consequence of finding a good reason under 3.18(b) is that it opens this route to enable the costs judge to take this approach within the detailed assessment. The wording of 3.18(b) does not on its face dictate what course should then be taken by the learned costs judge, which, as I have already said, is a matter for the judge, him or herself, to determine in all the circumstances.

h. Eight, in my view, once the court has a right to depart from the budget, neither the receiving party nor the paying party needs to establish a further good reason within CPR 3.18 if they wish to persuade the costs judge to make a further or different adjustment to the bill. I take this from the wording of CPR 3.18(b) and the terms and reasoning of the judgment in Mr Justice Jacob in Yirenki. In my judgment this consequence applies whether it is sought to depart from the budget upwards, or, as in this case, further downwards, because the finding of a good reason opens the gateway for departure from the budget, and the rules do not stipulate that the good reason must determine the nature of the route to be followed thereafter.

So far so good, but when considering the scope that a costs judge was afforded, when for example a lesser figure than the budgeted costs was claimed in a bill, because the parties had not spent the entirety of the budget he went too far:

36. Reading those two passages together it is a little difficult to work out whether the learned Master was of the view that there had to be a good reason to depart down from a budgeted figure solely because of the operation of the indemnity principle. Insofar as he was of that view, with the greatest respect to him, it seems to me that he was wrong. In my judgment, having regard to what was said by Lord Justice Davis in the Harrison judgment, the fact that the sum claimed is lower than the budgeted figure, because of the indemnity principle, is itself capable of being a good reason. Awarding the lower figure would be, in my judgment, a departure from the budget, which requires a good reason to be established: in this case, once that had been done it was open to the paying party to challenge the figure which was then being claimed by the receiving party, and they did not have to assert a further good reason to enable the court to do so.

The reason he went too far, is because there will never, ever be a case where the costs incurred mirrors the budget set down to the last pound. If a phase has been completed and the party has come in under budget, then the purposes of costs management have been achieved If underspend opens up the budget to debate, then the receiving party loses certainty, and has a perverse incentive to incur further costs, to hit the budgetary “target”

However his further reasons are unimpeachable:

37. In any event, it seems to me that the fact that the phase of the budget relating to experts was – for the reasons given by Mr Hutton – substantially incomplete was capable of being a good reason, and it would have been open to the Master on that basis to consider whether to reduce the figure. In my judgment, he should heard submissions on what the appropriate figure should have been. That does not mean that it should have resulted in a line-by-line assessment. The Master could have taken whatever appropriate course he thought sensible in the light of his case-management powers to arrive, in the course of that detailed assessment, at the sum which was to be paid in respect of experts. Therefore ground 1 of the appeal succeeds.

The balance of the judgment deals with some interesting points about the application of the principle of proportionality, but in my view simply underline what a lottery that exercise is, particularly at first instance, but also on appeal as has been set out in earlier articles I have written, where two judges will almost inevitable disagree on what is a proportionate figure for costs, due to the sheer breadth of discretion that a properly directed judge will have open to him.

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