Harrison interpreted – hourly rates a good reason to depart from the budgeted costs at Detailed Assessment
So you thought that following the decision in Harrison v University Hospitals Coventry and Warwickshire Hospital NHS Trust ((2017) 3 Costs LR 424, you would generally recover the budgeted costs amount allowed for each phase upon assessment? Think again.
So seems to be the impact of the decision of Deputy Master Campbell in RNB v London Borough of Newham, SCCO ref CCD 1702513, judgment 4 August 2017.
In a case which had been costs managed, upon detailed assessment the paying party challenged the hourly rates sought in Part 1 (the” incurred costs” at the time of the Budget preparation) and was successful in securing reductions. It then sought to reduce the costs in Part 2 (the “budgeted costs”) on the basis that the decision on hourly rates was a good reason to depart from the Budget (the CPR 3.18(b) test).
The submissions made were that in accordance with Practice Direction at 7.10, it was not the role of the court at a CCMC to fix or approve the hourly rates. Further, 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 anybody until the detailed assessment and “the budget is a budget not a costs cap” meaning that the rate allowed when the reasonableness of the rates came to be assessed at a detailed assessment hearing, needed to be applied equally to the incurred and budgeted costs.
The Deputy Master was in no doubt that this was the correct approach. If the Court had previously specifically approved hourly rates then the situation would be different, but here the allowances in the costs budget were made by reference to phases without the court having commented upon the hourly rates, either in respect of the incurred or budgeted costs. Were the reductions in hourly rates as made upon assessment to the incurred costs not to be reflected in the budgeted costs, that would mean that the Claimant would appear to recover an hourly rate as set out in Precedent H for the budgeted stage at a level that significantly exceeded the figures the Deputy Master considered to be reasonable and proportionate for the pre-budget stage.
He went on that he could not accept the receiving party’s submission based upon the premise that the allowance made on the CCMC is the cost permitted for the phase and it is up the solicitor how that sum is spent. If the hourly rate is a mandatory component in Precedent H, which is not and cannot be subjected to the rigours of detailed assessment at the CCMC, it makes no sense if it is automatically left untouched when the rates for the incurred work are scrutinised at the “conventional” assessment
The Depute Master found that Merrix at paragraph 73 supported this proposition “… As the notes to CPR 3.18 in the White Book reflect, the fact that hourly rates at the detailed assessment stage may be different to those of the budget may be a good reason for allowing less or more, then the phase totals in the budget”.
Deputy Master Campbell also decided that even if he was wrong on that approach, the same result could be achieved by consideration of proportionality, saying:
“..it is my judgment that the aggregate of the incurred costs as assessed and the budgeted costs as assessed thus far, if left unaltered, would result in the court allowing costs that were reasonable and necessary but not proportionate. That difficulty can be addressed by permitting the Claimant to recover the sum that would have been allowed had the assessed rates for the incurred costs been applied to the budgeted costs. It follows that if I am wrong about “good reason”, the amount to be allowed on assessment must be adjusted by the application of CPR 44.3(5) so that the sum payable is the same as if the rates allowed for the incurred had been used to work out the amount to be allowed for the budgeted work”.
It is notable that the judgment refers to the possibility of an application for permission to appeal – perhaps we have not yet seen the end of this argument? For now, there is fresh hope for paying parties that they can have that second bite of the cherry whilst trying to reduce the payable costs.