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Guidance on the Relationship between Costs Budgeting and the Assessment of Costs

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District Judge Lumb, sitting as Regional Costs Judge, recently handed down Judgment in the case of Merrix v Heart of England NHS Foundation Trust wherein he was asked to consider the following 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?". Judge Lumb considered the issue generally and noted a lack of clear guidance one way or another. He noted the Claimant’s submissions that, if the sums were more or less in line with the budget, then they should be assessed as claimed. Whilst the Defendant submitted that, while the budget was a factor to be considered, it in no way fettered the Costs Judge's powers. He described these polar opposite opinions as being representative of the various factions within the legal profession.

Judge Lumb opined that the Defendants were correct in their assertion that there was clearly no intention for costs budgeting "to replace detailed assessment." He then pointed to various examples in support of this point and stated that "the receiving party's last agreed or approved budget is just another factor that the Court will have regard to." He further stated that “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"".

Judge Lumb continued to outline his interpretation of the rationale behind costs budgeting as being 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." This, he reasoned, would reduce the scope for disagreement to the level that the paying party would only make limited gains at detailed assessment, so would be less likely to pursue that course of action.

Judge Lumb concluded that the answer to the preliminary question asked of the court was 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.” He went on to state, however, that the effect of costs budgeting was more nuanced than the positions held by Claimants and Defendants respectively.

Judge Lumb went on to state that it was the duty of the parties to narrow the issues between them and that "by adopting an ADR like philosophy" in relation to the preparation and agreement of costs budgets, it should be possible to produce a proportionate budget that matched closely the final costs of the claim. This, he said, would mean 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.”

So, in effect, Judge Lumb has urged both parties to produce honest and accurate budgets that then turn into honest and accurate bills and to agree, without much fuss, on an appropriate amount of settlement for these bills without resorting to detailed assessment. Whilst this may be taken as a little vague and perhaps idealistic, the take away point here is that the costs budget does not fetter the costs judge's discretion at detailed assessment, save that they cannot award more for a phase than was allowed in the budget, without good reason to do so.

Judge Lumb also made some interesting remarks about the nature of costs budgeting: “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.” Make of that what you will…