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Articles | Fri 23rd Jun, 2017
The long awaited decision in the case of Harrison v University Hospitals Coventry and Warwickshire Hospital NHS Trust  EWCA Civ 792 has been released this week providing clarity to the issue of incurred costs at detailed assessment.
The substantive claim was a clinical negligence action which was issued on 9th April 2013 and settled shortly before trial in July 2015 having undergone costs management in August 2014. The bill of costs submitted by the claimant (who was the respondent in this appeal) was before Master Whalan on 16 August 2016 for detailed assessment. In the first instance Master Whalan found that a budget should not be departed from unless good reason could be demonstrated. He extended this test to apply to the incurred costs as well as the future costs, and referred to their “certain status” due to their overall feature in the assessment of proportionality of the entire budget.
Future budgeted costs
Lord Justice Davis, providing the only judgment with which Lady Justice Black and Sir Terence Etherton MR agreed, confirmed Master Whalan’s judgment that future costs in a budget are considered to be definitive and should not be departed from (either upwards or downwards) without good reason. This decision has also therefore reinforced the comments made by Carr J in the case of Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB),  1 Costs. The Court of Appeal preferred a plain interpretation of CPR 3.18 alongside PD3E paragraphs 7.3 and 7.4.
Davis LJ also commented at para 36 that, if the appellant’s arguments were right they would lead to “a most unappealing lack of reciprocity”. In that:
“a receiving party may only seek to recover more than the approved or agreed budgeted amount if good reason is shown; whereas the paying party may seek to pay less than the approved or agreed budgeted amount without good reason being required to be shown. It is difficult to see the sense or fairness in that.”
Impact on Judicial discretion?
Davis LJ was clear in his agreement with Carr J in Merrix, namely that approval of a budget does not operate to replace the detailed assessment but rather it influences how the assessment will be approached. He commented that the Court’s empowerment to sanction departure from a budget on assessment if there is good reason to do so will thus significantly fetter their discretion. Davis LD stated that it is “deliberately designed to be so. Costs Judges should therefore be expected not to adopt a lax or over-indulgent approach to the need to find ‘good reason’.”
The second issue in this appeal was whether costs incurred prior to the budget are also subject to the requirement of good reason for a later costs judge at detailed assessment to depart from the amount put forward at the earlier costs management hearing.
The Court of Appeal was clear: incurred costs are not approved by the Court and are not subject to the requirement of ‘good reason’ to depart from the approved budget. Davis LC also disagreed with the dicta in SARPD Oil International Limited v Addax Energy SA  EWCA Civ 120 which seemed to suggest that incurred costs should in fact be given the same status. Incurred costs are therefore subject to assessment without any fetter under CPR 3.18, though any comments made by the budgeting judge will be taken into account. The reasoning for the same was that under paragraph 7.4 of PD 3E the court cannot approve costs incurred before the date of any CMC and so did not form part of the ‘agreed or approved’ costs referenced in CPR 3.18(b).
Davis LJ provides helpful comments on the purpose of budgeting hearings and thus detailed assessments. In his judgment he confirms that at the budgeting stage a judge must take into account both reasonableness and proportionality when approving a budget. The aim being that such an exercise reduces the number of detailed assessments and provides clients with some certainty – both of these aims would be removed if a CMO were in effect “summary orders which at best give no more than a snapshot of the estimated range of reasonable and proportionate costs”.
A further “potential safeguard for the paying party” was also provided within this judgment by the Court of Appeal. Namely, that even where the estimated costs remained within budget, the court must still look at the totality of the allowed estimated costs and assessed incurred costs to consider proportionality and potentially decide whether to reduce further on a global basis and to what level.
This judgment provides a degree of certainty and clarity to lawyers following a period of uncertainty. It is an especially important decision in high value cases, notably for defendants, where substantial costs could be incurred by the time of any CCMC.
The decision on the first issue follows Merrix and is a clear interpretation of the rules for practitioners. Perhaps more importantly, the decision regarding proportionality may have a significant impact on detailed assessments given the strengthened status of the proportionality test post-April 2013.