The Importance of Getting Your Costs Budget Right
Some of you may have heard a bit of noise being made about Merrix -v- Heart of England NHS Foundation Trust  EWHC 346 (QB) recently concerning the impact on your Cost Budget, the Judgment for which can be found here.
But what’s all the noise about?
Well, the case is actually a strong result for all receiving parties, and emphasises the importance of getting your Costs Budget right and getting it agreed/assessed before settling. For years paying parties have argued that the Costs Budget should not and cannot be exceeded in any circumstance, and that on assessment, the costs claimed are still subject to detailed scrutiny. This is true however, the impact of Merrix is that it clarifies the position as to how a Costs Judge is to deal with costs on detailed assessment when a Costs Management Order has been made.
So what’s new?
Well it’s not so much new, but a renewed focus on CPR 3.18 (b), to “not depart from such approved or agreed budget unless satisfied that there is good reason to do so”. The intent of this inclusion in the CPR was with the purpose of reducing the need for detailed assessment, and the whole purpose of budgeting was to set reasonable and proportionate amounts of expenditure in the early stages of litigation (see para. 68 of the Judgment, and CPR 3 PD 3E 7.3). It was ultimately concluded by Mrs. Justice Carr that this could only be interpreted as meaning that a Budget should not be departed from, either upwards or downwards, unless there is good reason to do so.
And how does this affect you?
Detailed assessment is still a detailed assessment, the Court can and will continue to remove any unreasonable costs. But if a Budget has already been set and your end costs are within the boundaries of this Budget, then to argue they are disproportionate (and thus subject to the dreaded second-phase of the new proportionality test) is to conflict with Merrix. One should take heed however, as in para. 82 of the Judgment it is stated that if good reason is given, the new proportionality test could still rear its head on assessment, or it may infact simply be applied sooner in the budgeting process, rather than later on assessment. It is also anticipated that the matter may now be appealed go to the Court of Appeal for a more senior decision to be made, so this may not be the last we hear of this issue.
What can we learn from this?
Get your Costs Budget right and get it agreed if possible before settling your case. If a paying party has agreed a Budget and your costs remain within the same, then your position on proportionality is significantly stronger. It may also be worthwhile electing for your costs to be subject to Costs Management (remember PD 3E (2)(a)!) even when it’s not mandatory, especially in low-value cases, such as Fast Track clinical negligence matters where costs are often much higher than standard PI litigation.
Here at Legal Practice Support we can offer free advice on the issue and whether you are able to overcome the fixed costs hurdle. Further, if your case has prospects we are able to draft and negotiate the Bill of Costs prepared as a result.
Contact our Legal Costs Director at Robert.Collington@legalpracticesupport.co.uk for further information.