Budgeting v Assessment – Merrix V Heart Of England NHS Foundation Trust

colin_richmond By Colin Richmond

I promised at the recent Zenith Chambers Annual PI Update Conference (hosted by Zenith Chambers, Yorkshire Legal Awards’ Chambers of the Year, no less), that I would add the case of Merrix to the PI blog. So here it is. I am grateful to my colleague Gordon Exall for supplying me with details of the case. A link to the judgment can be found via his Civil Litigation Brief blog.


The Issue

The court, with District Judge Lumb sitting as Regional Costs Judge, was asked to decide as a preliminary issue, “to what extent, if at all, does the costs budgeting regime under CPR Part 3 fetter the powers and discretion of the costs judge at a detailed assessment of costs under CPR part 47.”

Important Points To Take Away

  • Costs budgeting and assessment are not mutually exclusive. Rather, they are different tools available to the court to manage costs to ensure that ultimately any costs to be paid by a paying party are reasonable and proportionate
  • The powers and discretion of a costs judge on detailed assessment are not fettered by budgeting, save that the budgeted figures should not be exceeded unless good reasons are shown
  • There is a duty on the parties to narrow the issues
  • By way of negotiation and the preparation of the preparation of budget discussion reports the parties should generally be able to produce proportionate budgets which are so accurate when compared to the actual, yet still proportionate, costs that the difference between the parties should be so negligible that it would not be worth risking a detailed assessment

I understand that permission to appeal was granted and that the appeal is likely to be expedited and heard in November or December of this year.

The Parties’ Positions


  1. In summary, the Claimant receiving party submits that if her costs are claimed at or less than the figure approved or agreed for that phase of the budget then they should be assessed as claimed without further consideration. The budget fixes the amount of costs recoverable and the costs can only be reduced if the Defendant paying party satisfies an evidential burden that there is a good reason to depart from the figure in the budget.


The Defendant paying party’s position is that the Costs Judge’s powers and discretion are not fettered by the budgeted figure for the phase but that the budget is but one factor to be considered in determining reasonable and proportionate costs on assessment.

Discussion and conclusion

  1. The Defendants must be correct in their submission that cost budgeting was not intended to replace detailed assessment. There are numerous examples to support this not least that had that been their intention the Rules Committee would undoubtedly have made wholesale changes to CPR parts 44 and 47. They did not. The amendment that was made was to CPR 44 was to include an additional factor (h) in the “pillars of wisdom” under CPR 44.4 (3). The receiving party’s last agreed or approved budget is just another factor that the Court will have regard to. No special weight is attached to that budget. The rules were not amended to say that “first consideration” would be given to the budget or that it would be “of paramount importance” which are familiar terms in family law when weighing up the interests of children. No amendment was made to CPR 47.


  1. That it was envisaged that there was always a possibility of detailed assessment is supported in paragraph 52 of the judgment in Sarpd Oil that “the budgets approved by Blair J and appended to his order will be a strong guide on the likely costs to be made after trial.” The words “strong guide” and “likely costs” are a clear indication that the budget does not fix the costs and that a later assessment is not excluded.


  1. Further evidence that there was no intention to preclude the availability of detailed assessment can be found in the Practice Direction. PD 3E expressly states that in budgeting the Court is not carrying out a detailed assessment in advance. The words “in advance” must mean that this will be available at the conclusion of the case. PD 3E also states that the hourly rates and time to be expended are for guidance purposes only to assist the Court in setting a budget. The time to consider those in detail must therefore come later, at assessment.


  1. What undoubtedly was intended was that effective costs and case management would greatly reduce the need for detailed assessment of some or all of the parties’ costs by ensuring that the costs budgets were within the range of reasonable and proportionate costs for each phase. In so doing the scope for disagreement should be reduced to a level where a paying party would be unwise to risk incurring the significant costs of the detailed assessment process for what would only be limited potential gains.


  1. There is no doubt that the factors in CPR 44.4 (3) to be taken into account when deciding the amount of costs to be allowed apply both at the budgeting and assessment stages. However, as the tests are applied at different times when considering different documents (a budget and a bill) there is no certainty that they would produce identical results. The most obvious difference is the need to apply the new proportionality test as explained by Master Rowley in May at the conclusion of any assessment. It would appear impossible to apply this test if the Claimant’s arguments are correct, for the reasons argued by the Defendant. The more effective and considered the costs management at the case management stage the closer the results of these two exercises should be.


  1. I do not agree with either party’s definition of “budget”. It does not mean either a cap or a fixed amount. The ordinary meaning is more of an available fund. A costs budget for CPR purposes comprises the available fund reflected in the form precedent H, the assumptions accompanying that form, any budget discussion report and any recorded comments by the case managing judge. The available fund is considered to be within the reasonable range of proportionate costs but nowhere is it stated to be a fixed assessed amount. If that had been the intention then the rules would surely state as much.


  1. It is not helpful in the context of this debate to consider “departure” within the meaning of CPR 3.18 as being upwards or downwards. It is important to understand that the departure refers to a departure from the budget not from a fixed sum. Just because a party has incurred costs that come in at under the total for a phase is not a departure from the budget. Applying the ordinary meaning of the words the party is still within the budget unless or until the Court revises the budget. It is not the replacement of one fixed sum with another fixed sum. The purpose of the form Precedent Q is to set out the differences between the actual expenditure and the budgeted figures for each phase. It is not intended to be some advanced assessment of the recoverable costs. If having completed a line by line assessment of the reasonable costs the Court considers that the costs are still disproportionate, the Precedent Q could be a useful breakdown for the Court to use to make adjustments to ensure the resulting figure is proportionate.


  1. A costs budget is a living document that the parties and the Court are obliged to keep under review throughout the case. If in a serious injury case there is a material change such as an admission of liability where previously all matters were in issue that would be a good reason to depart from the original budget and set a revised (lower) one. Similarly, if there was an unexpected deterioration in a Claimant’s medical condition which now meant that there was need for evidence from an accommodation expert, that would be a good reason to depart from the original budget and set a revised (higher) one. This further demonstrates that the Claimant’s contention that the figure is fixed at the first CCMC must be incorrect.


  1. In the context of CPR 3.18 where the budget has not been revised by the Court before assessment, a departure in practical terms has to be to something outside the original budget which can only be to a sum in excess of the amount allowed for a phase and therefore must be upwards only.


  1. Budgeting and assessment of costs of any phases are not mutually exclusive. There are different tools available to the Court to manage costs to ensure that ultimately any costs to be paid by a paying party to a receiving party are reasonable and proportionate. A helpful analogy may be to view costs budgeting as setting out the general landscape for the claim, whereas the assessment of costs performs a different function by surveying the terrain within that landscape in more detail.


  1. Viewed in that way the perceived tension between the wording of the provisions for costs budgeting and assessment falls away. The comments made by Moore-Bick LJ in Henry and Troy Foods are as true today as they were at the time that he made them. The attempt to distinguish those comments as being under a previous pilot regime and from a bygone age was a brave but mistaken submission.


  1. The analogy of landscape for budget and examination of the terrain for assessment also holds true when considering the comments of the Court of Appeal in Sarpd Oil. Paragraph 50 of the judgment makes clear “costs budgets are to be important instruments for all case management decisions” and that if parties “wish to take issue with others budgets they should do so at the first CMC when there is to be [that] debate.” That debate is about the budget not about the costs in a future bill for assessment. That distinction is important. What the Court of Appeal do not say is that costs budgets fix the amount to be allowed at an assessment of costs. Indeed the judgment in Sarpd Oil does not mention assessment of costs at all. A security for costs order is a case management order and it was entirely appropriate that the Court should use the case management tool of budgeting as a reference point of the general landscape in setting the level of security.


  1. “Departure” in CPR 3.18 refers to a departure from the budget as defined above as an available fund – the landscape – not a departure from a fixed sum or a sum claimed in a bill that happens to be within the budget. This is also consistent with the comments of Warby J in Simpson. It also follows that the arguments raised by the Claimant that CPR 3.18 raises an evidential burden on the paying party to show a “good reason” to contend for a lower figure on assessment are misconceived.


  1. The approach of HHJ Simon Brown QC in Slick Seating Systems can be explained as a summary assessment by a judge in the Mercantile Court who had been involved throughout the case, first in approving the budget at the case management stage in line with the case management directions that he gave, all the way through to the trial itself. He had a unique understanding and feeling for the case and the proportionate costs of it such that he felt confident to be able to summarily assess the costs at the end of the trial. It is also doubtless of relevance that the Defendant paying parties did not attend nor were they represented at the trial. In such circumstances where the Court felt equipped to carry out a summary assessment, to direct a full detailed assessment where the other party was no longer engaging in the litigation would only have caused further delay, expense and taken up a disproportionate share of the Court’s resources contrary to the overriding objective.


  1. The strict answer to the question of the preliminary issue in the present case is that the powers and discretion of a costs judge on detailed assessment are not fettered by the costs budgeting regime save that the budgeted figures should not be exceeded unless good reason can be shown.


  1. However, the full answer to the issue is more nuanced than the Defendant’s position of “open season” and complete discretion to attack a bill on detailed assessment and the Claimant’s opportunistic attempt to impose a straight-jacket on the costs judge and claim a fixed figure. There is some merit in elements of both parties’ arguments in the present case. At the same time, their entrenched positions illustrate why some observers consider that costs budgeting has failed to be as successful in practice as it ought to have been. The analysis in this judgment demonstrates that the preliminary issue question itself as posed was based upon a misunderstanding of the objectives and function of costs budgeting which is a different costs management tool from costs assessment. If the Claimants arguments were correct and that for large sections of a parties costs the only opportunity to challenge those costs, absent “good reason”, would be at the CCMC those hearings would be at risk of being far lengthier than they already are. That cannot be consistent with the overriding objective of dealing with cases expeditiously at proportionate cost.


  1. It is the duty of the parties to help the Court to further the overriding objective by narrowing the issues between them. By adopting an ADR like philosophy in negotiation and the preparation of budget discussion reports it should then be possible, in the majority of cases, to produce a proportionate budget that is so accurate when compared to the actual, yet still proportionate costs, incurred at the conclusion of the case that the difference between the parties should be so negligible that it would not be worth the time, trouble or risk to pursue a detailed assessment.


  1. To get to that ideal position requires a realistic engagement by the parties and by the case managing judge who has not only the experience of effective case management but also of the proportionate sums involved in the efficient conduct of the case. The benefits to all, if this panacea can be achieved, are obvious. Costs will be far more likely to be agreed or the remaining issues between the parties will be narrow and dealt with much more quickly. Receiving parties will be paid earlier. Paying parties including insurers and the NHSLA will be able to reserve on a more accurate basis, save costs by avoiding preparing points of dispute, protracted negotiations and further hearings when the claim itself has been resolved and Court resources will be freed up through fewer detailed assessment hearings.






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