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Good Reason is a High Hurdle - Chapman v Norfolk and Norwich University Hospitals NHS Foundation Trust [2020]

View profile for Mark Holloway
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Underspending in a phase, or not completing a phase, should not open that phase to a full detailed assessment of the costs therein. The figure allowed is for the parties to spend as they see fit.

Practical Implications

District Judge Lumb’s judgment is the antithesis of HHJ Dight’s decision in Barts v Salmon. HHJ Dight’ decision set out that if a party is able to establish good reason to depart from a phase then it would open that phase to detailed assessment. Good reason according to HHJ Dight could include a reduction the costs claimed as per the indemnity basis where the costs being claimed are less than in the budget or if the work undertaken in that phase has not be substantially complete.

District Judge Lumb’s view is that the Judge, when setting future costs, will give thought to a reasonable and proportionate figure based on the directions and their assumptions. This figure is set for the parties to spend as they see fit. If a party does not spend all the costs allowed for that phase it does not open it up for assessment, a reduction will be applied in line with the indemnity principle. If the work in the phase is not complete this does not necessarily constitute good reason, even if the costs incurred are higher than would be anticipated for that work. There would have to be a deliberate overspend or costs building exercise to use up the allowance in the budget for there to be a consideration of good reason.

Background

The Paying Party sought good reason to depart from the budget, in respect of the expert and ADR phases, as per CPR 3.18 (b). District Judge Lumb’s decision is as follows:

Harrison & Good Reason

District Judge Lumb confirmed there was no binding decision to date on good reason to depart and that there was no guidance in the CPR or practice directions. However, the Court of Appeal in Harrison v University Hospital Coventry & Warwickshire NHS Trust 2017 EWCA Civ 792 did provide some guidance. Good reason to depart from a budget either up or down is a high hurdle to overcome, it is a safeguard to injustice and is case specific. The one example of a good reason given in Harrison was the indemnity principle.

Process to Consider Good Reason

It is important to consider the Judge’s thought process when the Costs Management Order (CMO) was made. The directions order and any assumptions recorded by the Court in the Costs Management Order will be a good place to start. It is important to note these assumptions can differ from those in the Precedent H & R.

The Judge when setting the budget will record a reasonable and proportionate figure for any phase that has not been agreed by the parties. The Judge is not required to provide a breakdown of how this figure was arrived at or the constituent parts of a phase e.g. Counsel’s fees or profit costs. The Judge by undertaking this process, has already dealt with proportionality and the parties are able to spend in that phase how they see fit.

The Judge at assessment is not required to carry out a micro assessment of the work that has been carried out in each phase and clear evidence of overspending would be required in a phase before the Court would entertain any argument that there was good reason to depart if the costs were within the budget phase limit. To do so goes against the purpose of the budgeting process.

Decision

No assumptions were recorded on the Costs Management Order but it was evident from the reductions made that clear consideration was given to reasonable and proportionate costs.

The figures claimed within the phases in the bill were higher than may be expected for the work undertaken but there was no evidence of overspending. If the Receiving Party had continued to spend in the manner they had then they would have exceeded the budget and would have been unlikely to recover the additional costs.

“It is not the role of the Costs Judge at Detailed Assessment to carry out a calculation of what, in his view, is the level of the proportion of a budgeted phase that a prudent receiving party would have incurred where that phase has not been completed. Such an approach would completely undermine the whole purpose of costs budgeting in the first place.”

Comments on Salmon

District Judge Lumb commented on the recent decision of HHJ Dight in Barts Health NHS Trust v Salmon. HHJ Dight decided that if the costs incurred in a phase were less than allowed in the budget and therefore reduced in line with the indemnity principle, it opened the phase up for assessment and submissions from the Paying Party on an appropriate figure for the phase. District Judge Lumb disagrees with this approach as it would lead to more cases going to assessment and would incentivise Receiving Parties to overspend to avoid an assessment.

Conclusion

Good reason to depart from a budget should relate to a substantial and specific point and not a general point. If a lax approach is adopted it could lead to opening up at the assessment the decision of the Costs Management Judge as well as considering the constituent elements of the Precedent H. This approach would undermine the costs budgeting process and could lead to a risk of double jeopardy regarding issues already decided at the Costs Management Hearing.

Opinion

This decision attempts to restore the importance of the costs budgeting process and to minimise the need for detailed assessments where any minimal underspend could open up all the costs to assessment, in essence punishing the Receiving Party for keeping within the budget.

Unfortunately, as this is also a further non-binding decision it will only serve to be a counter argument to Paying Parties seeking good reason to depart based on the decision by HHJ Dight.

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