A Good Reason to Depart From a Costs Budget:

Chapman v Norfolk & Norwich University Hospitals NHS Foundation Trust

 

Introduction

The case of Harrison v University Hospitals established how cases should be dealt with at Detailed Assessment when subject to costs management, and provided guidance for Costs Judges on deviating from the anticipated costs allowances provided at the CCMC. It was confirmed that a Costs Judge could only depart from a costs budget when there was a “good reason” to do so. The Court did not however, provide any guidance on what exactly would constitute a “good reason” to depart from a costs budget.

It has been almost three years since this judgment and there have been many conflicting cases, discussing the question “exactly what constitutes a good reason to depart from a costs budget?” RNB v London Borough of Newham was one of the first cases which dealt with this question. The issue was whether a reduction in the hourly rates for the incurred costs amounted to a “good reason” to deviate from a costs budget.

In this case, Master Campbell held that it was a good reason to depart from a Costs budget as the assessment was the only opportunity that a paying party had to challenge the rate. He further stated:

“At the assessment hearing, I made reductions to the hourly rate claimed for the incurred costs to a level which has meant that the overall recovery by the Claimant for the period of work before the CMO has been reduced by significant amounts. Were that not to be reflected in the budgeted costs, that would mean that the Claimant will appear to recover an hourly rate as set out in Precedent H for the budgeted stage, at a level that significantly exceeds the figure I consider to be reasonable for the pre-budget stage.”

There were conflicting decisions on the issue of whether a change in hourly rates would impact upon budgeted costs, and ultimately the decision of RNB was contested in other senior cases, with preference given to the outcome that a change in hourly rates should not alter budgeted costs, on the basis that otherwise this would lead to most cases proceeding to detailed assessment.  This was precisely against the purpose of costs management, to avoid the number of cases going to a detailed assessment hearing. 

Barts Health NHS Trust  v Salmon

In the case of Barts Health NHS Trust, it was held on assessment that there was a good reason to depart from the costs budget, when the sum claimed on assessment was lower than the figure stated on the costs budget.

On appeal, HHJ Dight found that, under CPR 3.18 (b), the fact that the anticipated work had not been completed, was considered a good reason to depart from the costs budget.  This was on the basis that the Budget had already been deviated from to allow a lesser amount by virtue of the indemnity principle, and thus that no further ‘good reason’ had to be provided to reduce the phase further.

He stated the following:

“Awarding the lower figure would be, in my judgment, a departure from the budget, which requires a good reason to be established: in this case, once that had been done it was open to the paying party to challenge the figure which was then being claimed by the receiving party, and they did not have to assert a further good reason to enable the court to do so.”

This inevitably caused complications, the natural result being that in order to recover your budgeted costs, one would have to overspend in each of their phases.  It would also lead to the undesirable result of more cases to proceeding to detailed assessment, as Costs Budgets would be re-opened and subject to scrutiny.

Chapman -v- Norfolk & Norwich University Hospitals NHS Foundation Trust

The decision of HHJ Dight in Salmon was challenged in the case of Chapman v Norfolk and Norwich. District Judge Lumb held that early settlement of a case could not constitute a good reason to depart from a costs budget and therefore, there should not be a reduction of the cost’s figures, set out in the phases within the budget.

DJ Lumb stated:

“In so far as HHJ Dight at paragraph 36 of his judgment in Salmon has concluded that if a party has not spent the totality of the budgeted figure for a phase that amounts to a good reason per se and the door is therefore open for the paying party to make further submissions on an appropriate figure for the phase, I respectfully disagree. If that approach was correct virtually every case would go to Detailed Assessment and there would be a perverse incentive to a prospective receiving party to overspend and marginally exceed every phase in order to avoid a Detailed Assessment.”

He also made comments regarding the role of the Judge when costs budgeting, and stated the following:

“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”

In terms of the proportionality test, he stated, “the Court is not expected to carry out a micro-assessment of how much work has been done in each particular phase.”

What Can We Learn from the case of Chapman?

Case law and common law have been quite ambiguous on the issue of ‘good reason, and it is well established that a ‘good reason’ is a high threshold to overcome.

To be successful in departing from a Costs Budget, it must be demonstrated that when the Budget was prepared, that the change in circumstances could not have been foreseen. 

In addition, if efforts have been made to amend the Cost Budget promptly following the change in circumstances (but the Cost Budget has not been approved due to the conclusion of the case), then this will benefit your case.

 

How Can ARC Costs Assist?

If you would like to find out more about best practice in preparing  your Cost Budget, please feel free to view the section on our website for further guidance or have a look at our frequently asked questions to find out more, including making amendments to a CPR Costs Budget and finding a good reason to depart from a costs budget.

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