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Effect of Budget at Detailed Assessment - Nash v Ministry of Defence (SCCO 22/2/18).

In a further decision as to how a Costs Management Order (“CMO”) should be interpreted upon Detailed Assessment, Master Nagalingam has delivered a thoughtful judgment in the case of Nash v Ministry of Defence (SCCO 22/2/18).

In particular he stressed the need for any agreement in relation to Budgets in advance of a CCMC, to be in clear and unambiguous terms. Further, he determined that hourly rates should not be given any pre-eminence over and above other factors at play when phase totals within a Budget were set.

These issues have become increasingly important following the decision in Harrison, such that “incurred costs” to the date of the Budget fall to be assessed in the traditional way, but that “budgeted costs” (or “estimated” or “future” costs) are to be allowed as provided for within the agreed or approved Budget unless there is good reason to depart.

It has become fairly common practice for the party opposing a Budget to reach some agreement (or advance proposals) on the basis that hourly rates are not a matter for determination at a CCMC and that the “paying party” would reserve its right to advance arguments on the hourly rate at assessment.

The potential difficulty with this is that it can be said to undermine the whole purpose of the budgeting regime. A “receiving party” should have some certainty as to the figures within which to work in bringing the claim and could have a reasonable expectation that the figures within the approved or agreed Budget would be allowed upon assessment unless there was a good reason to depart from them.

It is probably true to say therefore that in many instances the parties have a very different view as to the effect of agreement of a Budget before the CCMC. The paying party will consider it to be provisional upon a later determination of hourly rates, whilst the receiving party will consider that the figures set within the Budget have fallen within a reasonable and proportionate range and therefore should stand.

In the case of RNB v London Borough of Newham (SCCO 4/8/17), Deputy Master Campbell determined that his finding in relation to the appropriate hourly rates when assessing the incurred costs was good reason for departure from the Budget in relation to budgeted costs. That case was to be the subject of an Appeal this month, but will no longer proceed following settlement between the parties.

In Nash, dealing with a case in which there had been a CMO based upon a situation where the parties had agreed figures for the Budgets, the Master was asked to consider whether there was good reason to depart from the figures given for budgeted costs. The Claimant did not pursue an argument that more should be allowed upon assessment then provided for within the Budget and it was accepted that where the sums claimed in the Bill were below the budgeted amount, then that was of itself a good reason to depart from the Budget (such that only that lower amount should be recoverable).

However, the Defendant argued that the Budget had been agreed strictly subject to arguments on hourly rate to be advanced at assessment and that if the hourly rates were reduced at assessment (in relation to incurred costs) then that was good reason to depart from the Budget. The suggested approach was that the Court should look at the underlying detail within the Budget (hours agreed, disbursements) and re-calculate the figures using the allowed hourly rate.

The Master therefore had to look at the terms upon which the Budgets had been agreed. There was no mention in the CMO of any terms of agreement other than that the Budget had been agreed in certain amounts. The Court has power pursuant to CPR 3.15 (2) (a) to record the extent of any agreement reached between the parties. The Master considered the correspondence leading up to agreement of the Budgets, but was unable to find clear evidence as to whether the Budgets had been agreed strictly subject to determination of hourly rates or not.

He therefore stressed the importance of the parties putting before the Court a proper picture of the agreement reached. It would be helpful if the CMO recorded on its face the precise terms of the agreement.

Nevertheless, the Master was content that the Defendant retained the right to advance an argument for departure from the Budget based upon “good reason” and that this could be advanced in relation to hourly rates.

In relation to an argument advanced by the Defendant that agreed Budgets should have some lower status than approved Budgets (because the Court had not scrutinised the underlying detail) the Master rejected that and found that in either circumstance, the status of the Budget was the same. He considered that the Court retains the right not to approve even an agreed Budget and therefore by making a CMO, the agreed Budget had implicitly been approved.

The Master was also critical of the argument that the budgeted costs should be reduced on the basis of an hourly rates argument alone. Such an approach eroded the certainty of the budgeting regime. Within the context of the Rules and the decision in Harrison, the task of the Court at a CCMC was to set a figure for the budgeted costs which were within a reasonable and proportionate range. There was a high bar set for any argument of “good reason” to depart from that figure. In effect, the Defendant was asking the Court upon assessment to second-guess the approach of the Court at the CCMC as to why certain figures were allowed for each phase. Neither party had sought to vary the Budget during the course of the proceedings and in those circumstances, it was very difficult to see why there should be a departure from the budgeted amount.

Hourly rates held no particular status amongst all the other underlying detail supplied in relation to the figures within the Budget and therefore there was no good reason to depart from the budgeted figures purely on that basis alone. In further support of this finding, in smaller cases only the front page of Precedent H is to be supplied (a mandatory requirement). It could not have been the intention for there to be different processes upon assessment depending upon whether a full Precedent H had been supplied or simply the front page. Where only the front page been supplied, the underlying detail was absent and therefore the approved figures must be those which fall within a reasonable and proportionate range.

However, the Master did find that the paying party was entitled to advance arguments on proportionality based upon the overall figure (that is both the incurred costs and the budgeted costs together) allowed upon assessment which could provide further reductions. That may be due to circumstances being different at the time of assessment as compared to how they appeared at the time of the CCMC.

Finally, the Master commented that the approach suggested by the Defendant was not in accordance with the overriding objective. In essence, it would render the budgeting process of little benefit and disproportionate expense.

This case therefore demonstrates the need for care in language when agreeing Budgets. It also serves to substantially support the budgeting regime by giving receiving parties a good measure of comfort that should the case be won, there would be a strong element of certainty as to the extent of recoverable costs in line with those provided for within in the Budget.


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