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I blogged at the end of last year about a controversial decision in which it was determined that on detailed assessment, the court was unfettered by the existence of a budget save that the budgeted figures could not be exceeded unless good reason were shown. In particular, the paying party did not have to demonstrate a good reason for departure from a budget where the receiving party came in under budget – they were free to attack the bill in the normal way.
As reported, the matter was subject to appeal, and the judgment in Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB) has recently been published.
The ‘analysis’ section of the judgment ran to 24 pages, but really it could have stopped after two:
66.The starting point for any analysis must be section II of CPR Part 3 which contains the regime under which costs budgeting was introduced. The effect of a costs management order is addressed in CPR 3.18 :
"3.18 In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party's last approved or agreed budget for each phase of the proceedings; and
(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so."
67.The words are clear. The court will not – the words are mandatory - depart from the budget, absent good reason. On a 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. No distinction is made between the situation where it is claimed that budgeted figures are or are not to be exceeded. It is not possible to square the words of CPR 3.18 with the suggestion that the assessing costs judge may nevertheless depart from the budget without good reason and carry out a line by line assessment, merely using the budget as a guide or factor to be taken into account in the subsequent detailed assessment exercise. The obvious intention of CPR 3.18 was to reduce the scope of and need for detailed assessment. The Respondent's approach would defeat that object.
A clearer, more common sense judgment would be hard to envisage.
The judgment continued to make clear that there was to be no windfall in the sense of receiving parties recovering more than they had been charged – it is still a requirement to comply with the indemnity principle, and the need to do so would amount to a good reason to depart from the budget.
The court dealt with the first instance characterisation of a budget as an ‘available fund’ by stating that whilst that phrase accorded with the plain meaning of ‘budget’, it was hard to see how the ability to reduce the costs on assessment below the budgeted sum rendered the budget anything other than a cap – an argument I foreshadowed in the earlier blog on this case.
If the plain interpretation of the rules was not sufficient, the judgment also focussed on the policy considerations underpinning budgeting. The budgeting exercise should reduce the cost of detailed assessments, and it is hard to see how the first instance decision achieves this. Secondly, the budgeting process should promote predictability of recovery as well as exposure, and again it is difficult to see how the first instance decision achieves this.
What does it mean?
This decision has to be viewed with some caution. A previous first instance decision has been listed for hearing by the Court of Appeal in May via the leapfrogging procedure, and it is inevitable that the debate will need to be settled by that court. However, it would be no great surprise if the decision on appeal in Merrix were upheld.
Is this the end of Detailed Assessment?
This decision does not mean the end of detailed assessment between the parties. The following categories of costs remain subject to detailed assessment:
The last of these merits special attention. When faced with costs which are under budget, it will be necessary for the paying party to plead their good reasons for departure in their points of dispute. This is likely to require reference to the manner in which the course of the litigation has differed from the assumptions made when budgets are set. In suitable cases, it may need to be accompanied by a witness statement from the litigator, and will often require determination as a preliminary issue.
Is the Practice of Front Loading Cases Beneficial?
A second point to note is that is seems to be perceived wisdom that front-loading cases is beneficial, as it takes those costs outside of the scope of costs budgeting. That perceived wisdom really should be challenged. Given that costs judges are no longer bound to allow reasonable or necessary costs on assessment, and can reduce costs on the grounds of proportionality, any costs not included within the scope of costs budgeting are surely at much greater risk on assessment. Even if a particularly harsh budget is set in the costs management phase, at least the parties have the benefit of foresight in respect of the limit on recoverable costs.