Within this article, recently featured in the latest Paragon Cost Solutions newsletter, Suzanne Staunton considers – Precedent H does not set the precedent for costs.
In Merrixv. HeartofEnglandNHSFoundationTrust  EWHC B28 (QB), the Regional Costs Judge, District Judge Lumb, addressed the degree that an approved Precedent H costs budget hampered a costs’ Judges ability to consider the detailed assessment of costs under CPR part 47.
The judgment itself grapples with the connexion between (1) the costs budget; and (2) the detailed assessment of costs.
In essence, whilst a costs’ budget outlines the “available fund” of costs recoverable, it does not replace the need for detailed assessment.
The relevant parts of the CPR in relation to costs management is at CPR 3, and those related to detailed assessment can be found in CPR 44- 47.
The parties’ arguments were as follows:
The Defendant’s position[G1]
The Defendant submitted that CPR 47 provides that parties mustcomply with the detailed assessment procedure, rendering the detailed assessment mandatory. They argued that CPR 44 and 47 makes no reference to there needing to be good cause for costs to be reduced or rejected where the costs budget is approved or agreed. Rather, the costs budget merely sets a limit on recoverable costs, instead of creating a presumption of reasonableness and proportionality.
The Defendant acknowledged that in CPR 44.1 makes reference to the seeming conflict between PR 44.1 and CPR Part 3.18. Nonetheless, they argued that ultimately, the relevance of an agreed or approved costs budget on detailed assessment is limited to CPR 44.4 (3) (h), and is only one facet of the detailed assessment procedure.
The Defendant referred to CPR PD 3E, outlining that detailed assessment does not occur during a costs management hearing, and during this, courts cannot fix hourly rates, which supports the need for a detailed assessment.
They argue that CPR 3.18 (b), that is, a departure from the costs budget, only occurs where the bill of costs goes beyond any phase of the costs schedule.
The Defendants first referred to Master Rowley’s judgment in MayandMayvWavellGroupplcandanother EWHCB16 (Costs), essentially concluding that the new overriding objective, and proportionality test would be impossible to apply if the cost budget was fixed. They then referred tothe judgment of Moore-Bick LJ in HenryvNewsGroupNewspapersLtd EWCACiv 19 (affirmed in TroyFoodsVManton EWCACiv 615, also referred to) which outlined (with reference to a practice direction akin to CPR 3.18):
“… Ontheotherhand, costbudgetingisnotintendedtoderogatefromtheprinciplethattheCourtwillallowonlysuchcostsashavebeenreasonablyincurredandareproportionatetowhatisatstake… Thusifthecostsincurredinrespectofanystagefallshortofthebudget, toawardnomorethanhasbeenincurreddoesnotinvolveadeparturefromthebudget; itsimplymeansthatthebudgetwasmoregenerousthanwasnecessary. Budgetsareintendedtoprovideaformofcontrolratherthanalicencetoconductlitigationinanunnecessarilyexpensiveway‘??“Itwillbeforthecostsjudgetodecideinwhatrespectsandtowhatextenttheappellantshouldbeallowedtorecovercostsinexcessofthosewhichthebudgetallows. Thatwilldependprincipallyontheextenttowhichthecostsactuallyincurredwerereasonableandproportionatetowhatwasatstakeintheproceedingsandontheextenttowhichtheycouldhavebeenreducedifthepracticedirectionhadbeenproperlyfollowed.”?
Thus they submitted that cost judges cannot regard an approved cost budget, in of itself, as an indication that the costs incurred are or proportionate.
The Defendants contended that SarpdOilInternationalLtdvAddax EWCACiv 120does not apply as the relationship in that case was between a security of costs and the costs budget, not detailed assessment
District Judge Lumb summarised the Defendant’s final point in the following terms:
The Claimant contended that cost budgeting was a mechanism of dealing with costs in a proportionate and reasonable way. Instead cost budgeting’s aim was to limit the remit of detailed assessment to those issues outside of the costs budget process
The Claimant relied upon Warby J’s comments in Simpson v MGN Ltd  EWHC 126
“It is clear that if costs management is to work, conclusions reached upon reviewing costs budgets must be adhered to, and not second-guessed at a later stage. The wording of CPR 3.18 (b) that if a figure has been agreed or approved for a particular phase of proceedings the amount recoverable by the receiving party in respect of that phase will be capped at that figure, unless there is good reason to depart upwards. (If the receiving party has incurred costs less than budgeted there will be good reason to depart downwards.)”?
The Claimant argues that costs being dealt with at detailed assessment stage is inconsistent with the time and expense in engaging with the costs management process.
The Claimant also argued that CPR 3.18 is clear, and that departure (up or down) will only occur if there is a “good reason” for doing so, pursuant to Sarpd Oil.
District Judge Lumb found that had costs budgeting sought to replace detailed assessments, CPR parts 44- 47 would have been subject to “wholesale changes”, rather than to simply deal with it at CPR 44.4 3 (h). He notes that Sarpd Oil makes reference to the budget being a “strong guide on the likely costs to be made after trial” which indicates that the budget did not fix the costs.
He found that PD 3E outlines that costs budgeting is not a detailed assessment in advance of the cases’ conclusion, and so is not a replacement for detailed assessment, but instead should assist effective cost management.
He notes that the new proportionality test as outlined in May would be impossible without having a separate detailed assessment. He notes that efficient and considered costs management would result in close results.[G2] [G3] [G4] [G5] [G6]
He defines budget as an available fund, which is within the reasonable range of proportionate costs, but not a fixed assessed amount. As a definition, a departure from the budget is any sum outside of that allocated, which he considered to be consistent with Warby J’s approach in Simpson. He notes that cost budges are a “living document”, which should be reviewed, and revised when there is a good reason to depart from it. He considered that the Claimant’s arguments relating to the paying party needing to show “good reason” for paying the lower figure, pursuant to CPR 3.18 were misconceived.
DJ Lumb, at paragraph 56, explains the relationship between costs budgets and detailed assessment as such: “A helpful analogy may be to view costs budgeting as setting out the general landscape for the claim, whereas the assessment of costs performs a different function by surveying the terrain within that landscape in more detail.”
He notes that Sarpd Oil does not address the assessment of costs, and that when dealing with security for costs, it was apposite to use the budget as an indication of where to set the figure. [G7] [G8] [G9]
DJ Lumb notes that a costs judge’s discretion is not hampered by a costs budget, save that budget should not be exceeded without good reason.
He explains that parties should always act pursuant to the overriding objective when negotiating the costs budget, so that it is so reasonable, proportionate and accurate, which would negate the need for a detailed assessment and the associated work and costs that would be inevitably incurred.
Critiques of this approach note that both the Precedent H and the detailed assessment are meant to identity reasonable and proportionate costs. However, Precedent H is forward looking. When drafting a Precedent H, one imagines the most likely courses of action throughout a case, and how long would be reasonable to spend over it. Because of that, the complexities envisaged when drafting the Precedent H may not occur. For example, it may be that six hours’ worth of time of a grade B is allocated to taking witness statements, but if issues have narrowed, and it was only reasonable and proportionate to spend three hours of proofing and drafting that statement, by a lower grade of fee earner, then it would be unreasonable to seek the full six hours, even with it had been incurred, simply because it was agreed during a Precedent H hearing. The whole purpose of this two-pronged approach is to continue to keep costs proportionate and reasonable.
Whilst some people consider that costs budgeting is not cost effective, and superfluous, I consider that it focuses legal professionals’ minds ahead of working on cases. In essence, it means that more work undertaken is actually recoverable. The two-pronged approach does not preclude arguments to the effect of, saying: ‘exactly what we thought would happen, happened. It was a proportionate and reasonable use of our time. We should be entitled to those costs.’
Further, what is agreed within the budget can be useful when assessing what is proportionate, when assessing the time used, if it has been used in the way described in the Precedent H. If much detail has been provided for the rationale of the hours, and that still applies, that is still persuasive under CPR 44.4 3 (h) in showing that the time spent is reasonable and proportionate. [G10] Therefore, the use of Precedent H can be a mechanism which results in less time being used for detailed assessments. For this reason, it is always worth-while negotiating costs at this stage attacking your opponents’ bill. In taking this approach, you could effectively be afforded two bites of the cherry at cutting down your opponents’ costs bill.[G11]
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