Costs Budgeting and Detailed Assessment: the Questions Harrison did (and did not) answer
Costs appeals : Four down, six to go : that is the Court of Appeal’s tally of costs appeals listed in 2017 and of these, Harrison v University Hospitals Coventry & Warwickshire NHS Trust  3 Costs LR 424, (2017) EWCA Civ 792 will be on the top table in terms of importance. Leap-frogged from Master Whalan’s first instance decision, Davis LJ tackled the vexed issue of how a Detailed Assessment is to be conducted when some of the costs have been approved in a costs budget but those incurred before the budget, have not. It also considered whether Carr J’s decision on this point in Merrix v Heart of England Foundation NHS Trust was correct.
Clinical negligence claim, liability limited in value to £50,000, settled for £20,000 : incurred (pre budget) costs £108,000 : budgeted costs approved at £89,000 : total bill for Detailed Assessment including success fee and ATE premium £467,000 !
- On a Detailed Assessment, can the paying party challenge the budgeted costs as of right, without showing a “good reason” why they should not be allowed in full; and
- When the line-by-line assessment has been completed, can the Court apply the CPR 44.3(5) proportionality test to the aggregate of the costs assessed or only to the incurred costs, leaving the budgeted costs untouched?
- At paragraph . The paying party has no absolute right to challenge budgeted costs : the Court will not depart from the last agreed or approved budget unless satisfied that there is a good reason to do so.
- At  “Where… a Costs Judge on Detailed Assessment will be assessing incurred costs in the usual way and will also be considering budgeted costs (and not departing from such budgeted costs in the absence of “good reason”), the Costs Judge will still, as I see it, ultimately have to look at matters in the round and consider whether the resulting aggregate figure is proportionate having regard to CPR 3(2) and (5) : a further potential safeguard, therefore, for the paying party.” (Davis LJ).
So that is all clear. Budgeted costs will be ticked through unless a good reason is shown not to do so, but if the aggregate of the incurred costs and budgeted costs as assessed are not proportionate after applying the CPR 44.3(5) factors, the total can be reduced further to make them reasonable, necessary and proportionate.
Or is it? The Unanswered Questions
- What is “good reason“?
Help is at hand!
Merrix at  – “There is no need for present purposes to examine in any detail what might and might not be “good reason” for the purpose of CPR 3.18.”
Harrison at  – “As to what will constitute “good reason” in any given case, I think it much better not to seek to proffer any further, necessarily generalised, guidance or examples.”
Some help indeed!
- The hourly rates conundrum
If rates are reduced for the incurred costs, is that a “good reason” to make consequential reductions to the budgeted costs where those included in the Budget Format Precedent H are higher, or is the budget sacrosanct? As one commentator has said “How can a budget be based on an assessment that doesn’t use hourly rates and then be assessed on a basis that does?”. Harrison does not tell us.
(3) Does it matter anyway?
Even if the rates allowed for the incurred costs cannot be applied to the budgeted costs, Harrison means that the same result can be achieved by reducing the aggregate costs under the proportionality test to the same level that they would have been had those rates been allowed throughout.
All this gives the appearance of being another fine mess in the making!