News | Budgeting

The Budgeting Saga Continues – Now For Hourly Rates!

05 January 2018

Another issue has arisen as to what amounts to good reason to depart from an approved costs budget with currently conflicting decisions. This time it is whether the alteration of hourly rates on detailed assessment is good reason for depart from an approved costs budget.

One of the conflicting decisions is from Deputy Master Campbell (RNB v London Borough of Newham [2017] EWHC B15 (Costs)) and the other from DJ Lumb sitting as Regional Costs Judge (Baines v Royal Wolverhampton NHS Trust (unreported and according to Mr. Fletcher)). 

Whilst neither decision is binding, they demonstrate that there remains a certain tension in the way courts approach the question of how budgets are to be treated on assessment. 

In RNB, the Deputy Master considered the rules and the decisions of Harrison v University Hospitals Coventry and Warwickshire Hospitals NHS Trust [2017] EWCA Civ 792 and Merrix v Heart of England Foundation NHS Trust [2017] EWHC 346 (QB). He concluded that the starting point is that the court does not approve or disapprove hourly rates when budgeting costs, but rather approves an amount that is reasonable. Indeed, that proposition is supported by CPR 3, PD 3E, 7.10 and the White Book, which states ‘it is expressly not the role of the Costs Management to fix or set hourly rates’. 

Despite this, there have been instances where the court has looked into the hourly rates at the budgeting stage (see for example Stocker v Stocker [2015] EWHC 1634 (QB) and GSK Project management Ltd v QPR [2015] EWHC 2274 (TCC)). 

The Deputy Master therefore found that if the court approves the hourly rates at the budgeting stage, then it would not be open to either party to challenge them at a later stage. However, if the rates are not approved previously, then they are open to be considered at the assessment stage. 

If the judge on the assessment considers that the rates in the pre-issue costs are too high and those rates continue throughout the other stages of the budget, then that would be good reason to depart from the budget and reduce the costs of the budgeted stages downwards accordingly. In coming to this conclusion, the Deputy Master referred to the decision in Merrix and the notes on the decision in the White Book which state ‘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 (sic) the phase totals in the budget’. 

The Deputy Master also considered that he could reach the same decision through the route of the new proportionality test. 

In Baines, no copy of the judgment has been circulated and the reports of the decision do not provide the rationale, so the decision must be viewed with more than a little pinch of caution.  It has been reported that the Regional Costs Judge determined that reducing the costs for budgeted costs to the same level as those allowed for the pre-issue costs would be to second-guess the thought process of the judge who undertook the budgeting process and risk importing a double-jeopardy into the detailed assessment. 

It is hard to see on what basis this latter decision could be correct, given the very reasoned comments set out by the Deputy Master in RNB. 

If the principle in Baines was the one opted for by the Court of Appeal, then any party who wished to challenge the hourly rates would have to persuade the court that they should reduce the rates at the budgeting stage. The difficulty is that, despite the cases noted in RNB, doing this is contrary to the rules and some judges may be reluctant to go down that road. 

If the hourly rates were not dealt with at the budgeting stage, it would then mean that even if a party successfully argued on assessment that the hourly rates were too high the budgeted sections, including the excessive rates would still be allowed as claimed, opening the door for parties to charge any hourly rate they wanted to, safe in the knowledge it would never be challenged. 

In addition, such arguments would lengthen the budgeting hearings themselves and tie up the court timetable, leading to lengthy delays in all cases. 

If the principle in RNB is the one adopted, however, the judge at the budgeting hearing can follow the PD in leaving the hourly rates alone and these would then be open to be challenged by either party on the assessment. 

The core problem underlying all of these cases is that there is no way to wholly reconcile budgeting with assessments. However, although the court previously suggested that the bar for good reason should be set high, it should not be the case that parties are left in the position of having to ask the court to disregard the PD at the budgeting stage, and it can only be hoped that when the Court of Appeal consider RNB they will not only provide some clarity, but also that common sense will prevail.