The recent appeal in the matter of Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB) considered the extent of the application of the Detailed Assessment procedure when a CMO is in place.
In essence, the Court was asked to consider to what extent the costs budgeting regime under CPR Part 3 fetters the power and discretion of the costs judge at Detailed Assessment under CPR part 47.
The original decision- Merrix v Heart of England NHS Foundation Trust  EWHC B28 (QB)
By way of background to the appeal, District Judge Lumb was of the view that cost budgeting was not intended to replace the Detailed Assessment process. DJ Lumb commented that ‘the powers and discretion of a cost judge on detailed assessment are not fettered by the cost budgeting regime, save that the budgeted figures should not be exceeded unless good reason can be shown.’ In effect he was of the view that the budgeted figure should be considered to be an ‘available fund’, which was one factor that the Court should consider when undertaking an assessment of costs.
In a nutshell, it could be said the DJ Lumb was of the view that the budget was, in effect, a cap on recoverable costs, save for the provision of a good reason. But when the costs of undertaking an action come in under or on budget, this does not preclude the receiving party from having their costs scrutinised.
The appeal - Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB)
On appeal Justice Carr overturned DJ Lumb’s Judgment. In considering her reasoning it is first necessary to consider the precise wording of CPR 3.18-
In any case where a costs management order has been made, when assessing costs on the standard basis, the court will-
(a) have regard to the receiving party’s last approved or agreed budget for each phase of proceedings; and
(b) not depart form such approved or agreed budget unless satisfied that there is good reason to do.
Justice Carr determined that there was nothing in the wording of CPR 3.18 that differentiated between costs that come in over or under budget. As such, she was of the view that the parties will be bound to the cost budget at assessment either way. In effect, Justice Carr’s judgment determined that it was not possible to interoperate CPR3.18 with the suggestion that a costs judge may depart from a budget without good reason and carry out a line by line review when the costs came in under budget.
Justice Carr did however determine that the receiving party’s compliance with the indemnity principle would be a good enough reason to not allow the full costs provided for within the budget. Thus if costs come in under budget the fact that payment of the total budget figure would breach the indemnity principle is a good reason to depart downwards from the budgeted figure.
It should be noted that this judgment only relates to estimated costs and those costs that have already been incurred prior to the CMC will still require assessment. It is clear from Justice Carr’s judgment that she perceived one benefit of applying CPR 3.18 this way is that it would reduce the need for assessment by simply by reducing the costs in dispute. It appears the Justice Carr was of the view that if a good reason to depart from the cost budget cannot be found then the parties would be less likely to require an assessment if only incurred costs were still in dispute. However, proportionality will still be applicable in relation to the total costs figure. As such, the Courts may consider both budgeted and incurred costs to be disproportionate and reduce the receiving parties cost entitlement on that basis.
While Justice Carr’s reasoning provides for some degree of certainty and may reduce the Detailed Assessment process, this will surely be a worrying development for paying parties.
At the forefront of such concern will be the often rough and ready form that cost budgeting can take along with what is arguably a lack of sufficient time for a judge to conduct a CCMC and consider the proportionate level of costs for a claim.
In addition, it is likely that this judgment will create further satellite litigation in auguring what is a good reason to depart from the budget. We may also see an increase of back loading in certain phases. And certain unscrupulous practitioners may undertake unnecessary actions in order to avoid providing good reasons to depart from the budget. For example, instructing a fifth expert as per the agreed directions when one isn't strictly required.
While Justice Carr’s judgment cannot be faulted for interpreting the plain and ordinary meaning of the CPR this is nonetheless a judgment that looks as if it will be appealed; as Justice Carr commented herself. For the time being it demonstrates requirement for the paying party to be specific in their Points of Dispute when addressing 'good reasons’ to depart from a budget. It also highlights the importance of properly pleading and challenging costs at the CCMC as it is likely that it will be too late when the matter reaches Detailed Assessment.
It terms of the receiving party’s approach to the assessment of costs, it is possible that we will see an increase in tactical bills that come in under budget in order to avoid a line by line assessment. This approach may well be based on Justice Carr’s comments that there will be a presumption that costs that come in or under budget will be awarded unless good reason is shown to depart from them; this may be too high of a bar for the paying party.
Once again it appears that there is another aspect of cost budgeting that is in desperate need of clarification from the Courts as it was arguably not the intention of the rule drafting committee to allow bills to be in effect rubber stamped when there is such an onus on reasonable and proportionate costs at the moment.
In any event, it raises the question as to when the cost budget will become effective for the purpose of awarding costs. For example, if a matter settles shortly after CCMC, it is highly likely that the receiving party's costs will come in under budget. Does this then mean that the costs claimed will be awarded? or will this be a good enough reason to depart from the budget? If this is a good enough reason, what approach will be taken when assessing costs? If 70% of the expert phase was completed, does that mean the receiving party is awarded 70% of the future expert costs? Or will the receiving party then be subject to a line by line assessment of reasonableness and necessity? Further, what will the process be when a CMO awards a lump sum for all future costs rather then by phases? Once again, this judgment raises more questions then it answers.