Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792
A highly anticipated Judgment which confirms the principles established in Merrix v Heart of England, regarding the relationship between Cost Management and Detailed Assessment
Within the Merrix judgment handed down earlier this year (article available here), Justice Carr acknowledged that her decision was unlikely to end the debate revolving around whether approved budget figures were binding on judges at detailed assessment.
She was right. Despite her detailed, comprehensive and well thought out judgment, genuine doubt remained as to whether the principles established were correct. All such doubt should now fall by the wayside as the Court of Appeal in Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792 have followed the same reasoning and reached the same conclusions.
The impact this will have on how costs are dealt with is significant.
The case itself was a relatively ‘normal’ clinical negligence claim revolving around an incorrectly performed caesarean section. The matter went through cost management and the Claimant’s budget was approved in the sum of £197,000.00, £108,000.00 of this being incurred costs. Following settlement of the substantive claim, a Bill of Costs was presented to the Defendant in the sum of over £467,000.00. The Parties disagreed over how the approved cost budget influenced the assessment of costs. Further to the above, the parties disagreed over the appropriate proportionality test to apply, as the issue documents were sent to court 28th March 2013 but the claim was not issued until 9th April 2013.
The Court of Appeal were asked to provide rulings on three distinct issues:
Where a Cost Management Order approving a cost budget has been made, to what extent is a cost judge at detailed assessment bound by the estimated (future) costs figures therein?
Similarly, where a Cost Management Order approving a cost budget has been made, to what extent is a cost judge at detailed assessment bound by the incurred costs figures therein?
For the purposes of CPR 44.3(7)(a), being transitional provisions relating to proportionality, when specifically is a claim treated as commenced?
Lord Justice Davis, Lady Justice Black and Sir Terence Etherton (Master of the Rolls) provided comprehensive rulings on each of the issues.
Are Estimated (Future) Costs Within an Approved Budget Binding?
The Justices considered the rule at CPR 3.18. The Defendant submitted that there was ambiguity in the wording of the rule, however Justice Davis disagreed:
“I do not consider there to be any real ambiguity in the words at all”
In line with the decision in Merrix, the wording of CPR 3.18 is clear and is to be given its usual meaning.
3.18 In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party’s last approved or agreed budgeted costs for each phase of the proceedings;
(b) not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so;
Quite simply, pending ‘good reason’ to the contrary, a Judge on assessment is bound by the estimated (future) figures within the approved budget. The Justices go a step further and specifically comment on the unfairness that any other finding would have, at paragraph 36 of their judgment they confirm that the approved figure must be binding on both a receiving party seeking to recover more than the approved figure and a paying party seeking to pay less.
The Justices clearly took a dislike to the Defendant’s arguments relating to this issue, and a result consistent with Merrix is unsurprising.
Are Incurred Costs Within an Approved Budget Binding?
With approved estimated (future) costs in the budget binding on a judge at assessment, the Justices turned their attention to whether incurred costs within the approved budget should also be binding subject to ‘good reason’.
In what appears to have been a fairly straightforward decision, the Justices confirmed that there is a distinction between approved incurred and estimated costs. Costs included within the incurred section of a budget are neither approved nor agreed as part of the cost management process as such CPR 3.18 by definition does not apply.
Confirming that this was the intent of the rule, the Justices refer to paragraph 7.4 of Practice Direction 3E which states:
7.4 As part of the costs management process the court may not approve costs incurred before the date of any costs management hearing…
Accordingly incurred costs are, according to Justice Davis:
‘subject to detailed assessment in the usual way, without any added requirement of good reason for departure from the approved budget.’
It is worth noting obiter comments made in Sarpd Oil v Addax Energy, which suggested that incurred costs within an approved budget should be binding at assessment, were directly referred to by the Justices and contradicted. Any reference to the comments in Sarpd from this point should therefore be treated with the utmost caution.
When is a Claim Commenced for Proportionality Purposes?
The reason this has any relevance is because if a matter is ‘commenced’ prior to April 1st 2013 the old proportionality test applies. The old proportionality test is considered less onerous on Claimant’s and as such the Claimant sought to apply the same. In Harrison the specific definition mattered, as the issue documents were sent to court prior to April 1st 2013 but were not received or stamped until afterwards.
As per CPR 7.2, the general position is that a claim is commenced when the court issues a Claim Form. A Claim form is issued on the date entered on the form by the court.
The Justices determined that no exceptions apply and as such:
‘A claim is commenced for the purposes of CPR 44.3(7)(a) when the relevant proceedings are issued by the court.’
Thus in Harrison the new proportionality rules apply.
After Merrix there were fundamental changes to the approach which needed to be taken to cost management all the way through to detailed assessment. These changes may have been somewhat muted while the decision in Harrison was awaited, however they will now be in full force.
We addressed some of the key changes likely to take place after Merrix and based on our experiences over the last few months our observations are as follows.
What will be considered good reason to depart from a budget?
This will be key in determining whether the decision in Harrison will achieve any real cost/time saving for either the parties or the court. If ‘good reason’ emerges as a high barrier to overcome, detailed assessments could well be streamlined considerably; with non-exceeded estimated (future) costs very likely to be agreed before the assessment. On the other hand, if ‘good reason’ is a low barrier then determining ‘good reason’ may become little more than a synonym for detailed assessment, with no significant reduction in the arguments being heard. Unfortunately the Justices in Harrison elected not to provide any guidance as to what ‘good reason’ is.
“The matter can safely be left to the individual appraisal and evaluation of costs judges by reference to circumstances of each individual case”
We anticipate significant litigation on what constitutes ‘good reason’ over the next few years.
What will need to be done at cost management conference now?
Additional considerations will certainly be required at Cost Management Conferences as a result of the decision. While the Judiciary in Merrix and Harrison indicate that this should not add considerably to the time and complexity of the conference, in reality it is difficult to see how this will be the case. With decisions made in relation to estimated (future) costs at the CMC binding, both sides have an enormous interest in the outcome and are likely to want to argue tooth and nail over anything which affects the final approved figures. In reality the ruling is likely to result in far less phases being agreed prior to the conference, which will therefore require consideration at the same.
With the added importance placed on the outcome of the case management conference, it would be wise to prepare for the conference not only by considering the overall budgeted figures, but by considering reasonableness and proportionality in detail much as would be done in preparation for a detailed assessment, this is especially true in relation to estimated (future) costs.
Budgets at MRN are collaboratively prepared with clients to an exceptional standard. As such the budgets stand up to the scrutiny of modern Costs Management Conferences with thoroughly itemised entries clearly demonstrating the breakdown of costs. Furthermore, all work is checked by an experienced advocate providing reassurance that the Budget is accurate and proportionate in light of this judgement.
As a receiving party, what impact will this have on detailed assessment?
By confirming the principles established in Merrix, the judgment has likely improved most receiving party’s positions at detailed assessment. If no good reason is provided for a Judge to go behind the approved figures in the budget, then all costs incurred post Cost Management Order should be assessed as claimed. This is of course conditional on the costs being within the approved figures in the estimated (future) part of the approved budget. If costs are claimed in excess of the approved figures then it is highly likely they will be assessed in accordance with the approved figure only.
This stresses the care which should be taken to try and stay within budget and the importance of filing updated/amended budgets if a claim proceeds in a way which was not anticipated at the time of the original Cost Management Conference.
It proves just how imperative it is to regularly update your costs draftsman with the progress of your litigation. Our collaborative approach to Cost Budgeting means that our clients are always on our minds, but we don’t need to be on theirs. As such, we will ensure to contact our clients for regular updates following the approval/agreement of the original Precedent H to ensure your case is running as anticipated. Since this decision only hours ago, we have already experienced Defendant’s accepting Part 36 offers out of time, MRN are ideally placed to respond to legislative changes and advise clients immediately when circumstance change.