Costs Budgeting in the Court of Appeal: Harrison v University Hospitals [2017] EWCA Civ 792

As any civil lawyer will know, a fundamental aim of the “Jackson Reforms” was to limit parties’ expenditure on costs in an attempt to keep the costs of litigation proportionate to the value and issues at stake.  Since 2013 parties in multi-track cases (generally speaking those with a value over £25,000) have been required to complete detailed “costs budgets” which set out to the penny both the costs which have already been incurred and those which it is estimated will be incurred up until the conclusion of the case.

As part of this process a “costs and case management hearing” (CCMC) will be arranged.  The parties are required to exchange their budgets before this in order to try and agree their costs.  Crucially, the incurred costs are not subject to agreement or approval and so whilst they may be referred to during the CCMC the Judge is not entitled to interfere with them: the court’s approval can only be given on the estimated costs.

If agreement is reached between the parties prior to the CCMC the court has no authority to interfere with the figures and can only approve or note them (hence the often frantic attempts to agree budgets literally at the door of the court!).  However where there is no agreement the CCMC will involve often lengthy submissions on the costs budgets followed by the Judge making amendments to them (often involving drastic reductions in the parties’ estimates) before giving the court’s approval.  At the final conclusion of the case the general rule is that whilst detailed assessment of costs will still be carried out, the successful party’s costs will be capped at the figures in the approved costs budget.

Inevitably the implementation of the costs budgeting process has not been without problems and has itself led to litigation as lawyers and litigants alike have attempted to negotiate their way through the waters of Sir Rupert’s reforms.  For instance, the ruling in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 was an early shot across the bows from the Court of Appeal and a salutary reminder that the costs budgeting process is here to be followed.

The latest decision of note is again from the Court of Appeal and provides important guidance to parties on the interplay between the costs budget and detailed assessment.  In Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792 the Court found that:

  1. When detailed assessment is undertaken at the conclusion of proceedings the court must have “good reason” to allow either more or less than the figure that was approved for the estimated costs part of the budget.
  2. However the costs which had already been incurred by the time the costs budget was submitted are not approved by the court during the costs budgeting process and so will be subject to assessment in the usual way and can be reduced down at the court’s discretion.
  3. The overall proportionality of the costs budget is to be considered at detailed assessment.  Therefore, if the estimated costs (which of course can’t be reduced without “good reason”) are wholly disproportionate the court is entitled to reduce the incurred costs in order to arrive at a globally proportionate figure.

It would appear then that what the Court of Appeal gives with one hand, it takes away with the other:  whilst the receiving party is assisted by the ruling on estimated costs the paying party will benefit from the Court’s conclusion on incurred costs and global proportionality.

So what does this mean for lawyers and their clients?  It suggests that detailed assessment hearings will be focused on the incurred costs, hourly rates and also the overall proportionality of the sums claimed.  It also reminds us all that proper consideration must be given to expenditure on costs from the very outset of litigation and that the temptation to “front-load” costs in order to get as much into the incurred phase of the budget comes with risk.  Parties also need to be prepared to raise points about the incurred costs at the CCMC and should reserve their position on both this part of the budget and also the hourly rates claimed (I always request that this is explicitly provided for in the Order made at the CCMC).

No doubt Harrison is merely the latest in a long line of cases on costs budgeting as parties continue to seek clarification and confirmation on how the Jackson Reforms should be implemented in practice.