The High Court has provided guidance to Judges as to how they should set Budgets.
In Yirenki v Ministry of Defence  EWHC 3102 (QB) Jacobs J firmly shut the door on the practice of approving budgeted costs subject to further argument on hourly rates at detailed assessment. He also warned against the danger of micro-managing in the budget process.
He was dealing with an appeal from the decision of Master Davison who had stated at the CCMC that he would deal with the budget in his usual way, which led to him expressing his approval of the budgets as summarised here:
“Save that the parties reserve their positions as to incurred costs and as to hourly rates, the Master approved the budgets subject to the proviso that it remains open to them to dispute those matters (and to that extent the figure for each phase) at a detailed assessment, the claimant’s cost budget is approved in the total sum of £206,669.72 and the defendant’s cost budget is approved in the total sum of £100,639.”
It has been a common approach, particularly for Defendants likely ultimately to be the paying party, to rely on the provision that the purpose of costs budgeting is not to set hourly rates, in support of an argument that hourly rates are something to be dealt with at detailed assessment. Therefore, in accordance with that argument, the budget should be set subject to future revision at a later stage.
Interestingly, the appeal was not contested by the Defendant with its advocate conceding that there was no legitimate argument to support that approach. Jacobs J however delivered his judgment with a view to informing the process in future.
In reviewing the provisions of CPR 3.15 (2) (b) and 3PD 7.3, 7.10 he found that the position was clear that the exercise required a finding of a figure for each phase which fell within the range of reasonable and proportionate costs. The parties should be entitled to rely on that figure for each phase with a degree of certainty (subject to arguments on good reason) in the litigation.
He identified a number of “vices” with the approach of the Master. Leaving the hourly rates for later arguments undermined the requirement for certainty. Further, it had been clear that in view of this approach, the Master had attempted to approve particular hours from particular fee earners, the fees of Counsel and experts individually rather than looking at them together in order to come up with an overall figure for the phase:
“It is clear ..... that the ultimate goal of the cost budgeting exercise is for there to be a figure which is given for the costs for each phase of the proceedings. The constituent elements are part of the road to reaching that goal, but they are not an end in themselves, and those constituent elements are not the subject of approval.”
He also quoted with approval a comment from a lecture by Jackson LJ:
“At the conclusion of the exercise the court should approve a single total figure for each phase of the proceedings. The party is then free to spend that sum as it sees fit. The court should not specify rates or numbers of hours. That adds to the length of CCMCs and is unnecessary micromanagement.”
This issue again is something which has been a common feature of argument at and before assessment, namely whether once a budget has been set is receiving party entitled to treat that as a fund to be disbursed as necessary/ appropriate or whether the paying party is entitled to look at the detail and argue, for example, that the fees of Counsel are claimed higher than were within the approved budget.
This decision is firmly worded in support of the former approach. Lest there be any suspicion that what was being required of the Court when setting a budget was nothing more than guesswork and approximations, Jacobs J sets out the importance of the underlying detail:
“Indeed, it is impossible to see how a Master can sensibly come to figures without looking to see how they have been calculated by the party putting them forward. In so doing, the Master would use his or her experience as to how much time should be spent, the type of people who should be doing the relevant work, and his or her experience of hourly rates. However, all of those matters feed in to the identification of all of a reasonable and proportionate figure. They do not feed in to a finding as to the specific number of hours which are to be spent in the future, or a finding as to specific figure for disbursements to be incurred in the future”.
This is an important and welcome addition to the information available as to how budgets should be set. It has to be said that if this were not the correct approach, there would be real doubt as to the purpose and relevance of the budgeting exercise. It is an extremely expensive part of litigation and if it does not serve to provide some certainty as to the fund available in order to fight the litigation, then it is difficult to see the benefit over and above simply having a detailed assessment at the end of the case.
We are still left with the considerable number of cases which have been budgeted in the same way as the approach of Master Davison. Where there have been no appeals, those decisions will stand. However, where a receiving party contends that the figure provided does indeed represent one which is within a reasonable and proportionate range, this case will certainly add support to that argument.
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