The recent case of Harrison v University Hospitals Coventry caused quite a stir in the legal press. This surprised my colleagues and I as it only confirms what we already believed – the new cost budget rules mean what they say.

The case concerned related to medical negligence, but the principles apply to any type of case.

How it works:

The new budget rules dictate that in any multi- track case (essentially claims over £25,000) the court must set a budget for legal costs early in the procedure. Both sides must prepare a breakdown of costs already incurred and those expected by the end of the case. The budgets may be agreed or, if not, fixed by the judge.

The court sets a budget for future costs, but not for what has already been done. If there are unexpected developments then the parties need to return to court for a new budget. At the end of the case, the court will normally order the loser to pay the winner’s costs and, unless they are agreed, there will be a hearing to assess those costs. The rules say that on detailed assessment the court will not depart from the budgeted costs unless there is “good reason”.

Why the change?

The budget rules are meant to prevent costs spiralling out of control. They do not limit what a party can spend, but they do limit what can be recovered from the opponent.

The counter-view to this is that they have added a layer of complication, which in turn adds cost.

In the Harrison case, the court had approved an overall budget of £197,000, including £89,000 for future costs. The case settled just before hearing at £20,000 plus costs. The losing defendant argued that the budgeted figure was totally out of proportion to the sum recovered and so the budget should be ignored. They argued that the budget was just a broad brush indication and was, at best, guesswork. The point of principle went to appeal.

The Court of Appeal stated that the future element of the budget is binding and should not be departed from unless there is “good reason”. The budget did not consider work already undertaken (£108,000) so that part of the bill could be challenged in a detailed assessment in the usual way. Having given its guidance the Court of Appeal sent the case back to be re-assessed, so we do not know how the final figures will be resolved.

What does it mean?

The rules do not define “good reason” and the Court of Appeal declined to give any opinion, so we are left to speculate. There is no doubt that the budget of £89,000 for future costs included a figure for the final hearing. The case settled before that hearing. This is a “good reason” to deduct that element from the budget. You cannot claim for work that was not done simply because the budget allowed for it.

The Court of Appeal said that knowing that budget figures are binding will help parties to reach agreement without going to an assessment hearing.

At GA Solicitors we have always worked on the assumption that the court would stick to budget figures on detailed assessment and thus have always gone to great trouble to ensure budgets are correct and agreed.

Many lawyers, especially those working for defendant insurers, argued that budgets were only intended to give a broad idea, leaving every opportunity to argue anything at the end of the case. They would fight over the budget and then fight every point again on assessment. That was never the intention of the new rules.

My view is that the new rules are an unwieldy sledgehammer which forces the parties into an early, long and detailed argument over costs that may never be incurred. Most cases settle well before the final hearing and most cost issues are settled by agreement without arguing in court.

Under the old regime, there were relatively few cost assessment hearings in civil cases, but they inevitably included cases with outrageous figures. Cost judges, therefore, formed an impression that all cases were like that. Now nearly all cases have budget hearings, including those with modest, sensible costs. The result is that the average cost in cases that come to a hearing has come down, so the rule makers feel they have had a great success. Meanwhile, the poor old clients with the modest, sensible cases have to pay for at least one extra hearing, with its own complicated technicalities that have nothing to do with the merits of the case.

It seems perverse to claim that a budget hearing at the start of the case can help avoid an assessment hearing at the end. The system has a built- in contradiction. Budget hearings deal with future costs, even though no one knows what will happen, but later the court is bound by that decision, unless there is “good reason”. On the other hand, the budget hearing does not consider costs already incurred, even though the court knows exactly what they are and is surely able to say what was reasonable up to that point. In other words, the court cannot make a decision on things that it knows, but must make a binding decision on things that it does not know…

We do not know how the final figures will be assessed in Harrison’s case. I suspect that while those “future” costs that were incurred will be allowed, a court is likely to say that £108,000 for pre-budget cost was excessive in the overall scheme and so should be heavily disallowed.

The impact on future cases remains to be seen. Will lawyers for the losing party readily agree that costs are as set in the budget, or will they continue to fight every possible point on assessment, claiming that they have “good reason”? Watch this space…

Stephen Allen

Stephen Allen, Partner

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