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Court Of Appeal Decides When Costs Budgeting Trumps Detailed Assessment

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The decision of Carr J on Merrix v Heart of England NHS Foundation Trust did not reach the Court of Appeal, however the decision of Master Whalan in Harrison v University Hospitals Coventry & Warwickshire NHS Trust was appealed and judgment was handed down on that appeal on 21 June 2017. 

The Trust’s appeal raised three issues; (1) Is good reason needed on detailed assessment to reduce estimated costs claimed if they are within the amount estimated in an approved Costs Management Order (CMO)? (2) Is good reason needed on detailed assessment to reduce the incurred costs claimed if they are within the amount set out in an approved costs budget? (3) When has a case commenced in the context of assessing proportionality? 

The Court of Appeal dismissed the first ground but allowed the appeal on the second and third grounds. The Court of Appeal’s decision is summarised as follows: 

  1. Good Reason – Estimated Costs It was held that where a CMO has been made and estimated costs have been agreed/approved, the court is required under CPR 3.18 not to depart from that budget, either up or down without good reason. It had been commonly accepted that the court on detailed assessment would not exceed the approved budget without good reasons but now good reason will also be needed for the court to reduce estimated costs if that amount is within the estimated phase costs in the CMO.
  2. Good Reason – Incurred Costs Master Whalan had held that if the claimed costs on detailed assessment are within the total incurred and estimated costs of a phase in a CMO, then that amount should be allowed unless there is good reason not to do so. The Court of Appeal held that this approach was wrong as incurred costs are not budgeted or approved by the court. This decision is consistent with the latest amendment of the CPR that defines budgeted costs as future costs in the costs budget.
  3. Proportionality This point was to provide clarity to the somewhat vague wording of CPR 44 (7) (a) which states that the new test of proportionality should not apply to cases “commenced” before 1 April 2013. The Court of Appeal held that “commenced” should be defined for the purpose of proportionality as the date when proceedings are issued by the court.Although not strictly a point on appeal, the Court of Appeal’s judgment does provide guidance that there should be a global test of proportionality at the end of a detailed assessment of budgeted costs under CPR 44.3 (2) (a) and (5) to further safeguard the interests of the paying party.


This has been a successful appeal for paying parties. It was not unexpected that good reason would be needed to depart above or below approved estimated or ‘budgeted’ costs, however there was some doubt as to how the Court of Appeal would deal with the incurred costs and proportionality. Following this appeal, not only can paying parties seek the detailed assessment of incurred costs, even when the costs claimed are within the amount set out in the approved costs budget, but also on detailed assessment the court will be expected to undertake a global assessment of proportionality even when estimated costs have been allowed as claimed as they were within the amount estimated in the CMO.

What Next?

Receiving Parties will no doubt be presented with Point of Dispute seeking the detailed assessment of incurred costs within the CMO and good reasons to depart from the costs budget downwards will become a very common fixture in Points of Dispute in respect of the estimated costs. Proportionality will also continue to be the most important issue and in all cases the Court will be asked to undertake a global assessment of proportionality at the end of the detailed assessment where the amount allowed still appears disproportionate.

Interesting times lay ahead to see how receiving parties and paying parties approach costs assessment following this appeal. If you have any questions arising from this judgment please do not hesitate to contact us.

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