WHAT IS THE POINT OF COSTS BUDGETING (2)? – MacInnes v Hans Thomas Gross [2017] EWHC 127 (QB)

February 13, 2017

 WHAT IS THE POINT OF COSTS BUDGETING (2)?

 

“One of the main benefits to be gained from the increased work for the parties (and the court) in undertaking the detailed costs management exercise at the outset of the case is the fact that, at its conclusion, there will be a large amount of certainty as to what the likely costs recovery will be.”

 

Per Coulson J in MacInnes v Hans Thomas Gross [2017] EWHC 127 (QB)

 

In our blog post of 24 October 2016, we considered the judgment of District Judge Lumb in the County Court at Birmingham case of Merrix v Heart of England NHS Foundation Trust. Looking at the role of Costs Budgeting in Detailed Assessment, DJ Lumb found that the discretion upon assessment was not fettered by the Budget and that only if the bill exceeded the budgeted amount in any phase was that to be treated as a “departure” for the purposes of the rules. Thus, upon assessment, he found no particular difficulty in assessing the claim for costs down below the Budget figures, but the receiving party would have to show good reason why more should be allowed.

 

Whilst the practical application of the rules will obviously depend upon the circumstances of the particular case, the approach of Coulson J in MacInnes is radically different on the point of principle.

 

In MacInnes, there was no dispute between the parties that a payment on account of costs should be made, but the amount to be ordered was disputed. The receiving party contended that the award should be made based upon the approved Budget of £570,000 and sought 95% of that, together with an additional £65,000 for interest and the effect of currency fluctuations. The paying party argued, basically following the Merrix approach, that any assessment would start from scratch.

 

Coulson J rejected the submissions of the paying party and found that CPR 3.18 was relevant:

 

“The significance of this rule cannot be understated. It means that, when costs are assessed, the costs judge will start with the figure in the approved costs budget.”

 

He went on:

 

“So when making an interim payment on account of costs in a case with an approved costs budget, the days of the educated guesswork identified by Jacob J in Mars UK Limited v TeKnowledge Limited [1999] 2 Costs LR 44 are now gone. Instead the court can be confident that there is a figure for costs which, because it has already been approved, is both reasonable and proportionate.”

 

In accordance with this finding, he allowed 90% of the approved Budget and then added a further figure of £15,000 to reflect the order for interest that he had made and thus the payment on account was ordered at £528,000.

 

The approaches in Merrix and MacInnes are, on the face of it, hard to reconcile. In the former, the Budget was treated as an available fund in the context of which the assessment could be carried out and the costs award made; in the latter, the Budget was treated as an almost conclusive view of what would be reasonable and proportionate costs and that provided the costs claimed at conclusion fell within the Budget, there would be little or no need for assessment.

 

The Budgeting process is explicitly said not to be a detailed assessment in advance (PD 3 E, 7.3). Further, as part of the costs management process, the court may not approve costs incurred before the date of any budget (7.4). In those circumstances, the approach of Coulson J seems to go further than the rules anticipate in the extent to which the Budget may be relied upon at conclusion.

 

Much will surely depend upon the approach which was adopted when the Budget was set. If the budget has been carefully set and perhaps case managed by the same Judge throughout, with the Trial Judge having a very good feel for what has been required to bring the matter to conclusion, then it might be the case that the Trial Judge (in light of his experience in similar cases) would have a very good feel for the appropriate level of costs.

 

However, what of those myriad cases passing through the busy hands of County Court District Judges where a more global and general view has been adopted; perhaps with the idea in mind that detailed assessment would be required upon conclusion in any event? Can the Coulson approach apply equally to lower value matters (in terms of both damages and costs)? We understand that the Merrix case is destined for Appeal and therefore this is an issue which may remain contentious for some time to come.

 

It is worth noting here that in addition to this aspect, Coulson J also considered the application of the rules as to when Indemnity Basis costs should be applied (following authority that conduct of the case would have to be “out of the norm”); he also declined to make an Order such that the recoverable costs could be adjusted due to currency fluctuations between the time of judgment and determination of costs.

 

Finally, he considered the question of interest both before and after judgment. In relation to the latter, he followed the approach of Leggatt J in Involnert Management Inc v Aprilgrange Limited and Others [2015] 5 Costs LR 813; [2015] EWHC 2834 (Comm)  in finding that it was not appropriate to award interest on unpaid judgment debts before the paying party could reasonably be expected to pay the debt and thus deferred the time from which interest would run until 3 months after judgment.

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