A Polite Fiction: Hourly Rates, Costs Budgets and Precedent R
When a case is subject to Costs Management, how should judges, and Costs Lawyers, approach the question of hourly rates? Will the judge’s determinations on the Costs Budget restrict the ability of the assessing judge to determine the hourly rates appropriate for the case, or can the budgeted figures be revised to accord with the assessed hourly rates? These questions have caused continuing difficulty and there have been significant variations in judicial approach. In this blog I set out how the land lies on the vexed interaction between hourly rates and Costs Budgeting.
As ever, it is important to bear in mind that, in reviewing the budgeted costs at the Costs and Case Management Conference, the court “will not undertake a detailed assessment in advance” and its approval “will relate only to the total figures for budgeted costs of each phase of the proceedings” (Practice Direction 3E, 7.3). A general overview of each phase, rather than a forensic examination of each component of the costs, is what is required. PD 3E, 7.10 makes it explicit that “it is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget”. A total figure should be set for each phase, and the details of hourly rates left to be determined after full argument upon detailed assessment.
This may seem straightforward, yet there is something of a polite fiction in the idea that the judge undertaking Costs Management can determine whether a given figure for a phase is “within the range of reasonable and proportionate costs” (PD 3E, 7.3) without some view on what constitutes reasonable and proportionate hourly rates for the case. The Costs Budget sets out the rates charged and the hours anticipated to be spent by each grade of fee earner: if the judge intimates a reduction to profit costs when considering the detail of the phase, it follows that either the hourly rates or the time anticipated to be spent are considered to be too high. In practice, following a CCMC a Costs Lawyer will often have a fairly clear idea of what the judge thinks of the rates charged.
It was partially in recognition of this problem that Master Davison in the Queen’s Bench Division adopted the practice of setting out the number of hours allowed for each grade of fee earner, making clear in his Costs Management Order that approval of the budgeted figures was subject to the parties’ ability to dispute the hourly rates upon detailed assessment. The effect of such an Order was intended to be that, if the hourly rates were reduced on assessment, the budgeted figures would of necessity be reduced also.
Master Davison’s approach had the advantage of avoiding what might be termed an “hourly rates assessment by stealth” at CCMC, but upon an appeal against his decision in Yirenkyi v Ministry of Defence [2018] EWHC 3102 (QB), it was found that this approach was contrary to PD 3E, 7.3 and that “the ultimate goal of the cost budgeting exercise is for there to be a figure which is given for the costs for each phase of the proceedings” (paragraph 12).
The appeal judgment in Yirenkyi follows the more common practice at CCMC, and provides a degree of certainty for practitioners, who following Harrison v University Hospitals Coventry & Warwickshire Hospital NHS Trust [2017] EWCA Civ 792, can be confident that, absent good reason to depart from the Costs Budget, the costs for each phase will be allowed upon detailed assessment in the budgeted amounts, or at the level of the actually incurred costs, whichever is the lower. The Court of Appeal in Harrison declined to proffer guidance as to what may constitute “good reason”, although in the earlier High Court case of Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB) (approved in Harrison) it had been noted obiter that “the fact that hourly rates at the detailed assessment stage may be different to those used for the budget may be a good reason for allowing less, or more, than some of the phase totals in the budget” (paragraph 73).
At a detailed assessment before Costs Judge Campbell in RNB v London Borough of Newham [2017] EWHC B15 (Costs), following a moderate reduction to the hourly rates claimed, the Defendant argued that this reduction constituted a good reason to depart from the budgeted phases, as the issue of hourly rates had not been addressed by the Court when the Budget was set. The Costs Judge had reference to Merrix in finding in the Defendant’s favour on that point, the effect of which was that the budgeted costs were required to be recalculated at the allowed hourly rates.
If RNB were to be followed, good reason would be found in the majority of detailed assessments, and the Court would be justified in going behind the budgeted phase totals. An appeal against the Costs Judge’s decision was pursued but subsequently abandoned following an attractive settlement offer being made by the Defendant.
There have, however, subsequently been a number of judgments of other Costs Judges which have contradicted RNB. In Jallow v Ministry of Defence [2018] EWHC B7 (Costs) Costs Judge Rowley acknowledged “the tension between the need to allow reasonable and proportionate costs on an item by item basis in detailed assessments and the need for certainty of recovery as expected by the use of [Costs Management Orders]” (paragraph 32), but he did not consider reduction to the hourly rates to be a good reason to depart. In Nash v Ministry of Defence [2018] EWHC B4 (Costs), Costs Judge Nagalingam found that “hourly rates hold no special status in the making of a costs management order” (paragraph 72) and as such “a reduction to hourly rates in the incurred costs, is not a good reason to depart from the budgeted costs” (paragraph 92; see also Bains v Royal Wolverhampton NHS Trust (2017, Unreported)).
The preponderance of the authority would therefore appear to suggest that the judge upon Costs Budgeting will not (explicitly) consider the hourly rates, but will simply allow a total figure for each phase. On detailed assessment, a reduction to the hourly rates is unlikely to constitute a good reason to depart from these phase totals, so it is to be expected in most cases that the budgeted costs will be recovered as claimed, provided the phase totals have not been exceeded. A single, coherent approach therefore appears to have emerged.
Unhappily, however, doubt has now been cast on this approach by the new form Budget Discussion Report (Precedent R), which will come into use on 25 April 2019 as part of the 104th Update to the Civil Procedure Rules. While the previous Precedent R allowed the parties to make an offer, in simple money terms, for each phase of the proceedings, the new document requires the offers to be broken down into “Time £” and “Disbs £” and makes provision for the judge to give allowances for “Time (hours)” and “Disbs”. There is a clear conflict, therefore, between the judgment in Yirenkyi and the new Precedent R: is the judge to state the number of hours which have been allowed, or not? The form is also likely to lead to more difficulties at detailed assessment, as where the parties have been considered to be free to spend their allowance for a given phase as they see fit, objections are now likely to be raised where the split between time and disbursements differs from that set out in the Precedent R. Renewed arguments of the kind that was successful in RNB may also be seen, having regard to the fact there is, at present, no higher court authority on the point.
Although the updated Precedent R is likely to cause confusion, it should be remembered that the form does not, of itself, constitute authority. The relevant Civil Procedure Rules and Practice Directions will remain unchanged, so the cases which have applied them are good law. Nevertheless, as long as there are divergences of approach between practitioners, judges, and those tasked with designing court precedents, further hourly rates skirmishes can be expected.
