News | Budgeting

Costs Budgets, Detailed Assessments And Hourly Rates

27 September 2017

Back in July we reported on the Court of Appeal’s decision in Harrison v University Hospitals Coventry & Warwickshire NHS Trust that on a standard basis detailed assessment it will be necessary to show good reason to depart from an approved budget of estimated costs, either upwards or downwards. 

This showed how fully costs budgets and detailed assessments are linked and the importance for parties to understand and record the process followed when approving/agreeing costs budgets. This is now highlighted by conflicting judgments on how to deal with hourly rates in budgeted cases. 

The case of RNB v London Borough of Newham [2017] appears to open the door to reducing hourly rates for budgeted costs on detailed assessment. 

Deputy Master Campbell undertook a ‘conventional’ detailed assessment of the Claimant’s costs that were subject to a Costs Management Order (CMO) where the Claimant’s costs budget was agreed at £143,692.36. The Judge did not use powers under PD 7.4 to comment on hourly rates in the CMO. 

On assessment the Master decided to reduce the hourly rates claimed for incurred costs as he held that they were excessive having regard to the CPR 44.4 (3) factors. The paying party then sought to have those reduced hourly rates applied to the estimated costs, which raised the question, was there “good reason” to depart from the approved budget and reduce the hourly rates claimed? 

Importantly, the detailed assessment took place on the same day the Harrison judgment was handed down and the Master and both parties had the opportunity to speed read that decision.  Thus this judgment was made in the knowledge of the Court of Appeal’s decision that good reason would be needed to reduce budgeted costs on assessment.

Both parties therefore accepted that good reason would be needed to reduce the hourly rates on the estimated costs and the paying party argued that it would be reasonable to apply the same hourly rates to incurred and estimated costs. Also, the hourly rates had not been approved or agreed by anybody prior to the detailed assessment. 

Master Campbell was sympathetic to this argument. CPR Rule 3 PD 7.3 and 7.10 do not require the court to set hourly rates when budgeting.  Indeed PD 7.10 expressly states that it is not the role of the court to fix or approve hourly rates. 

Master Campbell also noted that no comment had been made in the CMO and in paragraph 21 of his judgment he accepted that if hourly rates were approved during costs budgeting neither a paying party nor receiving party would be able to challenge those rates on any later detailed assessment. 

Master Campbell considered all the above factors and determined that there was good reason to depart from the approved costs budget and allow the same hourly rates for estimate costs as assessed as reasonable for incurred costs. Not to do so would give the appearance that the receiving party was recovering hourly rates for estimated costs significantly in excess of the rates considered reasonable and proportionate for incurred costs. 

Master Campbell’s decision is apparently being appealed and it is debatable whether his decision is at least contrary to the intention of Harrison to place greater reliance on the approved costs budget during detailed assessment. 

The case of Bains v Royal Wolverhampton NHS Trust was recently reported on the Litigation Futures website (www.litigationfutures.com) where District Judge Lumb, sitting as regional costs judge, held that the reduction of hourly charging rates for budgeted costs would be second guessing the thought process of the costs managing judge and impute a risk of double jeopardy into the detailed assessment. 

We expect the RNB appeal will resolve the conflict between the approaches used to assess budgeted hourly rates, but for the time being the differing approaches are likely to continue.  However, could this conflict be avoided by using wording within the CMO such as:

“This approved costs budget is calculated on the basis of a reasonable and proportionate amount of time spent and no determination has been made on the hourly rates claimed”

We believe so. After all, we can now see how important it is to show on detailed assessment what thought process was followed by the Judge or the parties when approving/agreeing a costs budget.