Basil: Can’t we get you on Mastermind, Sybil? Next contestant Sybil Fawlty from Torquay, special subject the bleeding obvious.
The recent decision of Mrs Justice Carr in the case of Merrix v Heart of England NHS Foundation Trust  EWHC 346 QB is perhaps unsurprising in its result, but has predictably caused a fluttering on the legal web dealing as it does with what is undoubtedly an important point of practice on the relationship between costs budgeting, costs management and detailed assessment.
It could also be regarded as a useful exposition of the “bleeding obvious” contained in folio after folio of beautifully written text, exploring all the nuances of what in essence is a very short point: once a costs management Order has been made, and costs budgets adjusted under it, then the criterion of “good reason” must be met for the budgeted costs on a detailed assessment, to be adjusted downwards or upwards, with the distinction between budgeted and incurred costs, now established in the revised practice direction 3E having been quite apparent from the earlier versions of the rules.
That the arguments were made at all is a reflection of the effect of the law of unintended consequences: although the higher judiciary (particularly in the TCC) anticipated in 2013 a co-operative approach to costs budgeting and costs management; in the trenches of personal injury and clinical negligence litigation, costs budgeting was only ever going to be seen as another stick with which to thump the receiving party at the outset of a case and detailed assessment its counterpart to thump the receiving party at the end of the case.
The judge’s conclusions were as follows:
The judgment below was the product of the careful and reasoned thinking of an experienced specialist costs (and clinical negligence) judge, which naturally deserves respect. However, there is on any view legitimate scope for disagreement, as other recent judgments from specialist costs judges have readily demonstrated. For the reasons set out above, I have come to the conclusion that the answer given to the preliminary issue by the Costs Judge was wrong.
In my judgment, the answer to the preliminary issue is as follows: where a costs management order has been made, when assessing costs on the standard basis, the costs judge will not depart from the receiving party’s last approved or agreed budget unless satisfied that there is good reason to do so. This applies as much where the receiving party claims a sum equal to or less than the sums budgeted as where the receiving party seeks to recover more than the sums budgeted.
The appeal will therefore be allowed.
To use a preliminary issue in a factual vacuum for resolution of issues such as this is inevitably to apply a blunt tool. There are so many potential variables and nuances that the answer on any particular given set of facts might require refinement. But the central message is that set out in CPR 3.18, namely that the approved or agreed budget will bind the parties at the detailed assessment stage (on a standard basis) whether the costs claimed are for less than, equal to or more than the sums approved or agreed by that budget, unless there is good reason otherwise.
One can be confident that this decision on first appeal will not end the debate. I respectfully make the perhaps obvious point that the issue would appear to be ripe for early consideration by the Court of Appeal raising, as it does, an important point of principle or practice. Indeed, I learned only days before the appeal came before me that there is in fact an appeal already listed to be heard in the Court of Appeal this May against Master Whalan’s decision in Harrison (by way of “leapfrog” direction and albeit on a “floating” basis only). It may be that any appeal from this decision could be listed alongside that matter, if that were thought appropriate.
Whatever the future holds, however, it is important that a growing body of judgments on the same issue does not emerge in piecemeal manner. It is essential that there is procedural co-ordination. The same solicitors and/or counsel are involved in many of these matters in what is a relatively small world. I am told that many stays of detailed assessments are already in place, pending the outcome of this appeal. The parties may accept my judgment as binding for their purposes. Alternatively, it may be that further stays need to be imposed, to prevent unnecessary court and judicial time and expense being devoted to a debate which the Court of Appeal is very shortly going to consider.
The effect of the decision is likely to be limited in two particular respects. The first is that the topic is likely to be revisited by the Court of Appeal in at least one appeal in the next three months.
Secondly, the decision only applies to what are now termed by Practice Direction 3E “budgeted costs”. Incurred costs, which have been expressly left out of the budgeting process are not subject to the test applied in rule 3.18.
Conversely the decision could prove to be quite important in two other respects. The first and narrower point is the requirement now for a paying party to be quite specific whether in the Points of Dispute or a witness statement as to why there should be a departure downwards from budgeted figure for costs on a detailed assessment, addressing with particularity the reason which is said to be a “good reason”.
The second wider point is that the decision will surely prompt a change in litigation behaviour. If incurred costs are not subject to the “good reason” requirement, or the stringencies of a costs management process, there will be an enhanced incentive to front load the preparation of a case, so that as high a percentage of the costs as possible, are in the incurred column, rather than potentially subject to the strait jacket imposed by a robust costs budgeting exercise.