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Costs Budgets: So, hourly rates do form part of a CMO...? Court says a reduction in rates is a good reason to depart

View profile for Marc Harris
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RNB –v- London Borough of Newham [2017] EWHC B15 (Costs)

Background

The Claimant brought a claim against the Defendant for abuse suffered by an employee of the Defendant. Proceedings were issued, a Costs Management Order was made with the Claimant’s Costs Budget being agreed in the sum of £143,692.36 and the matter settled shortly after for damages of £250,000.

Issue

The matter proceeded to a Detailed Assessment Hearing and the judgment addressed the issue of whether any reduction in the hourly rates in the costs incurred before the CMO should be reflected in the costs incurred after the Claimant's Costs Budget (“future budgeted costs").

Hourly Rates

The Claimant in their approved Costs Budget was claiming the following hourly rates:

  • Partner - £355 - £375
  • Senior Solicitor - £235 - £280
  • Associate - £295
  • Solicitors - £215 - £225
  • Legal Assistants - £145 - £150

On assessment the hourly rates were reduced to the following:

  • Partner - £340
  • Senior Solicitor - £275
  • Solicitors - £180
  • Legal Assistants - £135

Deputy Master Campbell then reserved the decision of whether the reduced hourly rates should also apply to the future estimated costs as well as the incurred costs.

Submissions

The Defendant argued that the hourly rates allowed for the incurred costs should also be applied to the future costs as well. On this basis there would need to be a further reduction to the future costs.

The Claimant argued that a figure is set by the court for each of the phases identified in the Precedent H and those figures are a proportionate amount to spend for that phase. The court is not fixing hourly rates or the number of hours a solicitor can spend. The Costs Budget exercise is simply approving an amount and how a party spends that sum is up to them.

Decision

The Deputy Master stated that the Defendant's submission cannot succeed unless it is satisfied that there is "good reason" to depart from the Claimant's approved Costs Budget. The Defendant argued that the good reason to depart was that the reduction in hourly rates for the incurred costs should be applied to the future costs as well.

The Deputy Master acknowledged that the starting point was the court does not approve or disapprove hourly rates when budgeting costs and simply approves an amount which is reasonable and proportionate to incur under each phase.

The Deputy Master then turned to the question of whether the reduced hourly rates should be reflected in the future costs. The court held they should be and gave the following reasoning:

1. The Deputy Master acknowledged that CPR PD 3E para.7.10 “does not require the court to set hourly rates”.

2. The Deputy Master then referred to Stocker v Stocker [2015] 4 Costs LR 651 and GSK Project management Ltd v QPR [2015] 4 Costs LR 729 where the courts approved the hourly rates and the case of Group Seven v Nasir [2016] 2 Costs LO 303 where the court gave guidance on the reasonableness of hourly rates in like of the locality of the firms. The Deputy Master acknowledged that these cases were decided before the implementation of CPR PD 3E para.7.10, but held that if a court approves hourly rates then they cannot be subsequently challenged on assessment.

3. The hourly rates were not approved in the present case and no comments provided. The Deputy Master reduced the hourly rates for the incurred costs and stated that if these were not to be reflected in the future costs then that would mean the Claimant would appear to recover hourly rates as set out in the Precedent H.

4. The Deputy Master could not accept the Claimant’s submission that the amount allowed by the Court under each phase was up to the solicitor as to how they spend that sum.

5. The Deputy Master agreed with the Defendant that where the hourly rates have been reduced on assessment that this is good reason to depart from the last approved budget.

6. The Deputy Master finished by saying if he is wrong then the same conclusion would be reached when applying the test of proportionality.

Commentary

According to Deputy Master Campbell a reduction on hourly rates is a good reason to depart from the budgeted costs.  Our Advocates were surprised by this decision given our interpretation of the rules and our own experiences.

The Master rejected the Claimant's submission that the allowance made under each phase at the CCMC is to be spent however the party wishes, however CPR PD 3E para.7.10 is abundantly clear that the making of a Costs Management Order concerns the totals allowed for each phase of the budget and the underlying detail in the budget is no more than for reference purposes only. In our opinion the agreement or approval of the budget is not an acceptance than any particular aspect if reasonable, but rather that the total is reasonable and therefore, on assessment, a determination of the elements within that phase is not required. After all, the Judge at the CCMC may have already had in mind that the rates were too high and that may have been taken into account when setting the budget for that phase. If the Deputy Master is correct then good reason will be easy to establish by simply persuading a Costs Judge that any element of "budgeted costs" could be reduced. In effect the budget becomes a cap which appears to be contrary to the conclusion in Harrison.

The Master then held at the end that the same conclusion would have been reached when applying the proportionality test. In effect the total costs were disproportionate and could therefore be reduced to a proportionate level. This appears to undermine the concept that an agreed or approve budget is proportionate. Assuming the approved costs at the CCMC were proportionate, having regard to the incurred costs, then this is proof that on an assessment a Costs Judge can effectively overrule the previous finding of proportionality based on the facts now known.

An appeal on the basis of proportionality is of course an uphill struggle. The proportionality test is so broad and subjective, would a party risk appealing a decision when the Master has applied their general discretion under proportionality?

Even if the Master thought he was right in his decision, it's quite concerning that the Court can use their wide discretion under proportionality to go behind a Costs Management Order and create the type of uncertainty that Costs Management is supposed to avoid.

This judgment shows that an approved budget is not quite the end of the road and for those firms who claim enhanced rates, they may find they suffer a double discount.

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