Does a reduction in hourly rates for incurred costs mean a reduction will of necessity follow for budgeted costs too at assessment?

‘Yes’ or ‘No’ seems to be the answer at the moment, as there have been decisions either way, all at first instance.

In August last year Deputy Master Campbell in the case of RNB v London Borough of Newham gave an affirmative answer to the question posed above.

The position in RNB was that;

  1. The Claimant’s costs which were payable by the Defendant pursuant to a Consent Order, had had the hourly expense rate for costs incurred before the date of a Costs Management Order, reduced on a detailed assessment.
  2. Therefore to what extent, if at all, should that reduction be reflected in the costs between the parties or approved by the court for costs incurred after that date, in the Claimant’s costs budget ie ‘budgeted costs’?

The Defendants case – the hourly rates allowed for the incurred costs should be applied to the Claimant’s budgeted costs, thereby reducing the amount claimed in the bill.

The Claimants case – The budget should be left untouched and that the rates allowed for the incurred costs should not apply to the budgeted costs.

Both parties agreed that the Defendant’s argument could only have any chance of succeeding if it could satisfy the court that the reduction in the hourly rates claimed, was a ‘good reason’ to depart from the figures in the Claimant’s budget. (At the time of giving his judgment in RNB, Master Campbell had had the benefit of having available to him, the judgment in ‘Harrison’ which established that where there is an approved budget, that figure will be awarded upon assessment unless there is ‘good reason to depart from it.’)

Counsel for the Defendant submitted that it was irrelevant that the judge at the CCMC had not made any comment about the incurred costs. The fact was that the rates had not been approved or agreed by anyone until the detailed assessment. An adjustment to the hourly rate, as had happened here, was a ‘good reason’ to depart from the budget, since rates had not been assessed at the CCMC and the assessment was thus the only opportunity that a paying party would have to challenge them.

Counsel for the Claimant’s view was that when a costs budget is put under judicial scrutiny, a figure is set for the work done in each of the phases identified in Precedent H. What the court is not doing is fixing hourly rates and the number of hours to be spent doing the work.

In finding for the Defendant, Master Campbell stated that;

‘At the assessment hearing, I made reductions to the hourly rate claimed for the incurred costs to a level which has meant that the overall recovery by the Claimant for the period of work before the CMO has been reduced by significant amounts. Were that not to be reflected in the budgeted costs, that would mean that the Claimant will appear to recover an hourly rate as set out in Precedent H for the budgeted stage, at a level that significantly exceeds the figure I consider to be reasonable for the pre-budget stage.’

He also accepted the contention of Counsel for the Defendant that it is only on assessment that a paying party has the opportunity to challenge the rate and therefore, that was a ‘good reason’ to depart from the costs allowed in the Claimants last approved budget.

However more recently we had the opposite view from District Judge Lumb in Bains v Royal Wolverhampton NHS Trust. Although an apparently still unreported matter, helpfully the solicitor acting for the Claimant has made known the important points laid down by DJ Lumb and it would appear that he was concerned that if he were to reduce the hourly charging rates for budgeted costs to the same levels as those allowed for the incurred costs, he would be second guessing the thought process of the costs managing judge, thereby imputing a risk of ‘double jeopardy’ into the detailed assessment. DJ Lumb made the point that the ‘good reason’ bar was a ‘high one.’

Within the past month, a detailed judgment on the same facts has been handed down by Master Nagalingam in an SCCO matter, Nash v Ministry of Defence. Again the basic points are almost identical to those in the matters above.

  1. The Claimant’s budget was agreed prior to a CCMC.
  2. On assessment the Master reduced the hourly rates in respect of the incurred costs.
  3. The Defendant argued through Counsel that the fact that the Master had reduced the hourly rates for incurred costs was a ‘good reason’ why the same reduced rates should be applied to the budgeted costs.
  4. The Defendant relied on the fact that the budget was agreed and that as a result the budget for future costs had never been assessed or subject to the scrutiny that would have been required had the budget for future costs not been agreed, which would have required submissions by the parties to be decided upon by the case managing Judge.
  5. Accordingly, the Defendant contended, the fact that the agreed budget had merely needed ‘recording’ as such, meant that it did not hold the same status as a costs management order where budgets had not first been agreed.
  6. The Defendant sought to advance the argument that although the budget had been agreed that agreement related to the phase totals for budgeted costs, save for the hourly rates.

Master Nagalingam decided that;

  • A reduction in hourly rates of the incurred costs was not a good reason to depart from the budget in respect of future costs.
  • To follow the Defendant’s arguments would expose the receiving parties to double jeopardy.
  • Hourly rates hold no special status and are not to be given any elevated status on an assessment of costs with regard to estimated costs subject to a costs management order.
  • He too referred to setting a ‘high bar’ with respect to what constitutes good reason.
  • Given the wording of CPR 3.18 (2016 or 2017 versions), a costs management order holds the same status regardless of whether that order came about as a result of a budget being agreed in full, or whether it was approved following revisions by the case management court.
  • Helpfully the Master took the opportunity to highlight the importance of parties, when agreeing budgets, to do so in clear and unambiguous terms and ensuring that case managing courts are fully informed of the terms of any agreement so that the extent of agreement may be correctly recorded in the costs management order.

The Judgment in Nash runs to 97 paragraphs and is certainly well set out. Nevertheless, it too is a first instance decision like RNB and Bains.  As detailed and well-reasoned as the judgment in Nash is, a higher court decision is needed as soon as possible. We might well have had one to discuss here, as the RNB appeal was due to be heard in the High Court only a matter of weeks ago. However the case settled when the Defendants made a much improved offer a few days before the hearing and it was accepted. In the meantime, it is a matter of ‘watch this space.’

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