Case No: C01CL127, SCCO Ref: CCD 1702513

IN THE CENTRAL LONDON COUNTY COURT
SENIOR COURTS COSTS OFFICE

Thomas More Building,
Royal Courts of Justice, Strand,
London, WC2A 2LL

Date: 4 August 2017  

Before :

DEPUTY MASTER CAMPBELL
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Between :

	RNB	Claimant
	
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	LONDON BOROUGH OF NEWHAM	Defendant	

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Mr Ridgeway (instructed by Bolt Burdon Kemp) for the Claimant
Mr Clayton (instructed by Browne Jacobson) for the Defendant

Hearing date: 21 June 2017
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Judgment Approved

Deputy Master Campbell, Costs Judge: 
1.	This judgment addresses the following issue which arose during the course of the detailed assessment of the Claimant’s costs payable by the Defendant, pursuant to a Consent Order dated 4 January 2017: where the hourly expense rate claimed for costs incurred before the date of a Costs Management Order (“CMO”) are reduced on detailed assessment (“the incurred costs”) to what extent, if at all, should that reduction be reflected in the costs agreed between the parties or approved by the court for costs incurred after that date in the Claimant’s costs budget (“the budgeted costs”)?
2.	It is the Defendant’s case that the hourly rates allowed for the incurred costs should be applied to the Claimant’s budgeted costs, thereby reducing the amount claimed in the bill below the sum agreed at £143,692.36 and reflected in a CMO made on 12 August 2016 .  For the Claimant, it is argued that the budget should be left untouched and that the rates allowed for the incurred costs should not apply to the budgeted costs. 
3.	It is common ground between the parties that the Defendant’s submission can only succeed if it can satisfy the court that the reduction in the hourly rates claimed for the incurred costs is a “good reason” to depart from the figures in the Claimant’s costs budget.
Background
4.	The point arises in this way.  The Claimant had suffered abuse as a teenager perpetrated by an employee of the Defendant when a resident in a home which it then operated.  
5.	So far as it impacts upon  to the issue for decision, the following chronology is relevant: 
•	16 July 2015 - Letter of claim;
•	29 October 2015 - Issue of proceedings; 
•	2 February 2016 – Particulars of Claim and schedule of loss served
•	6 March 2016 - Defence served pleading a limitation point and putting the Claimant to proof of any allegations of abuse in respect of which the perpetrator had not been subject to a criminal conviction in the Crown Court; 
•	25 July 2016 – Claimant’s costs budget filed and served : Precedent H rates per hour stated to be – partner £355 to £375, senior solicitors £235 to £280, Associate  £295, solicitors £215 to £225, legal assistants £145 to £150 
•	3 August 2016 – Defendant’s costs budget filed and served
•	12 August 2016 – Costs Case Management hearing  (“CCMC”) ; Costs Management Order, inter alia that the Claimant’s costs budget is agreed  under CPR 3.17 in the sum of £143,692.36 and that the Defendant be deemed to have served a costs budget comprising only applicable court fees under CPR 3.14; 
•	23 November 2016 – Defendant’s Part 36 offer in the sum of £125,000
•	2 December 2016 – Claimant’s Part 36 offer in the sum of £295,000
•	4 January 2017 - Consent Order settling the claim on terms that the Claimant receive damages of £250,000, plus costs to be assessed if not agreed;
•	8 May 2017 – Costs hearing listed for one and a half days commencing on 21 June 2017 in respect of the Claimant’s bill of costs seeking £121,051.40; the Defendant’s points of dispute take issue with the proportionality of the bill. 
•	21 June 2017 - parties attend for detailed assessment; bill assessed  : Hourly rates for partners reduced  to £340 : senior solicitors reduced to £275, solicitors reduced to £180 and legal assistants to £135 : reserved  decision on whether those rates should apply to the budgeted costs as well as the incurred costs [in brief, the  reasons  for the reductions were that the uplift on outer London guideline rates was excessive on the standard basis, having regard to the CPR 44.4(3) factors, and the increases year on year were too high given the level of inflation, were unexplained and could not be justified by reference to, for example exceptional overhead expenses].
6.	At the detailed assessment hearing, Mr Ridgeway appeared for the Claimant and Mr Clayton represented the Defendant.  Since this was a case to which Costs Case Management under CPR 3.12-18 applied and having been subject to the CMO, the bill was split into parts to coincide with the phases in the costs budget as detailed in Precedent H. That meant that Part  I contained the costs sought up to the date of the Claimant’s costs budget, itself being subdivided into 13 parts, with Part 2  containing the incurred costs by phase, being subdivided into 14 parts. As a result it was submitted that drafting the bill had taken longer than otherwise would have been the case and that had accounted for the high level of bill preparation and consideration which sought £11,032. That was a fair point in my view.  Indeed it was my impression that the need to draw the bill in this way had had the potential to lengthen the detailed assessment, but the advocates must take credit for the sensible and co-operative manner in which the hearing was conducted which meant that assessment was concluded within the allocated court time. 
7.	By coincidence, 21 June 2017, the date of the hearing, was also the day on which the Court of Appeal handed down its judgment in Harrison v University Hospitals Coventry and Warwickshire Hospital NHS Trust ((2017) 3 Costs LR 424 which had approved the decision in Merrix v Heart of England Foundation NHS Trust [2017] 1 Costs LR 91 (Carr J).  That had taken place at 10.00am with the detailed assessment listed to start at 10.30am (which it did).  As will be well known, Harrison provided the guidance by   the Court of Appeal about the way in which detailed assessment proceedings should be conducted when a CMO has been made under CPR 3.17 and costs budgets have been fixed.  By the time of the short adjournment, the transcript was in the public domain and over lunch, we (that is to say, Mr Ridgeway, Mr Clayton and myself) were in a position independently to speed read the decision, albeit, speaking for myself, I did not have sufficient time to absorb the full detail of the judgment, nor the manner in which it might impact upon the issue before me for decision that day which is now the subject of this judgment.  For that reason, I heard the parties’ submissions on the point and reserved judgment on the basis that a further hearing could be convened, hopefully by telephone to save costs, about which any outstanding points could be resolved.
The Law
8.	The law with which this judgment is concerned is Costs Management under Rules 3.12-3.18 of Part 3(ii) Civil Procedure Rule 1998 (as amended).  The relevant Rules and Practice Directions in force when the CMO were made were the following:-
“3.15(1)   In addition to exercising its other powers, the court may manage the costs to be incurred by any party to the proceedings.  
(2)   The court may, at any time, make a “Costs Management Order” where costs budgets have been filed and exchanged, the court will make a Costs Management Order unless it is satisfied that the litigation can be conducted justly and at proportionate cost in accordance with the overriding objective without such an order being made.  
By a Costs Management Order, the court will: 
(a)   record the extent to which the budgeted costs are agreed between the parties;
(b)   in respect of budgets or parts of budgets which are not agreed, record the court’s approval after making appropriate revisions.
(3)   If a Costs Management Order has been made, a court will thereafter control the parties’ budgets in respect of recoverable costs. 
…
CPR 3.17(1)    When making any case management decision, the court will have regard to any available budgets of the parties and can take into account the costs involved in each procedural step.
(2)   Paragraph (1) applies whether or not the court has made a Costs Management Order. 
…
CPR 18    In any case where a Costs Management Order has been made, when assessing costs on a standard basis, the court will:
(a)    have regard to the receiving parties’ last approved or agreed budget for each phase of the proceedings;
(b)    not depart from such approved or agreed budget unless satisfied that there is good reason to do so.”
9.	Practice Direction 3E.6(a) provides as follows:-
“Unless the court orders otherwise, a budget must be in the form of Precedent H annexed to this Practice Direction …”
10.	PD 7.3 to CPR 3:
“If the budgets or parts of the budgets are agreed between all parties, the court will record the extent of such agreement.  In so far as the budgets are not agreed, the court will review them and, after making any appropriate revisions, record its approval of those budgets.  The court’s approval will relate only to the total figures for each phase of the proceedings, or while in the course of its review, the court may have regard to the constituent elements of each total figure.  When reviewing budgets, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs are within the range of reasonable and proportionate costs.”
11.	PD7.4:
“As part of the Costs Management process, the court may not approve costs incurred before the date of any budget.  The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all subsequent costs.”
12.	PD7.10:
“The making of a Costs Management Order under Rule 3.15 concerns the totals allowed for each phase of the budget.  It is not the role of a court in the costs management hearing to fix or approve the hourly rates claimed in the budget.  The underlying detail in the budget for each phase used by a party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.”
13.	Precedent H (see pages 184-186 The Civil Court Practice Volume 1 (2017) sets out the form of Precedent H, including the requirement to indicate the rate (per hour) in respect of fee earner’s time.
Harrison
14.	The following guidance given by Davis LJJ with whom Etherton MR and Black LJ agreed, is relevant to the issue for decision:
“[2]   … Where a “CMO” … approving a costs budget has been made in the course of civil proceedings, is a Costs Judge on a subsequent detailed assessment precluded from going below the budgeted amount unless satisfied that there is good reason for doing so?  Or is there an entitlement to do so without any prior requirement of good reason for going below the budgeted sum? 
…
[17]   Master Whalan took the view that as far as costs budgets were incurred, CPR 3.18 precluded him from subjecting them to “conventional” detailed assessment at the behest of the Appellant as paying party, unless good reason for doing so was shown. 
…
[25]   So far as the first issue before us is concerned, that was precisely the point for the decision in the case of Merrix, decided on 24 February 2017 by Carr J.  There is no room for distinction on the facts; either that case was rightly decided or was wrongly decided. 
…
[28]   I am in no real doubt that Master Whalan reached the right conclusion on this issue and that the conclusion of Carr J [44] in Merrix was also correct, for the reasons she gave.
…
[44]   Where there is a proposed departure from a budget – be it upwards or downwards – the court on detailed assessment is empowered to sanction such a departure if it is satisfied that there is good reason for doing so.  The Costs Judges should therefore be expected not to adopt a lax or over-indulgent approach to the need to find “good reason”; if only because to do so would tend to subvert one of the principle purposes of costs budgeting and hence the overriding objective.  Moreover, in the context of the wording of CPR 3.18(b) is different from that of CPR.9 relating from relief from sanctions, the robustness and relative vigour to be expected in that context (see Denton v White) can properly find the same degree of reflection in the present context.  Nevertheless, all that said, the existence of the “good reason” provision gives a value and an important safeguard in order to prevent a real risk of injustice; and, as I see it, it goes a considerable way to meeting Mr Hutton’s [counsel for the Appellant] doom-laden predictions of detailed assessments becoming mere rubber stamps of CMOs and of injustice to paying parties if the approach is to be that adopted in the present case. As to what will constitute “good reason” in any given case, I think it is much better not to seek to proffer any further, necessarily generalised, guidance or example.  The matter can safely be left to the individual appraisal and evaluation of Costs Judges by reference to the circumstances of each individual case.
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[51]   I would dismiss the appeal on the first ground advanced …”
Merrix
“[66]   The effect of a Costs Management Order is addressed in CPR 3.18 …
[67]    The words are clear.  The court will not – the words are mandatory – depart from the budget absent good reason.  On a detailed assessment on a standard basis, the Costs Judge is bound by the agreed or approved costs budget unless there is good reason to depart from it.  No distinction is made between the situation where it is claimed that budgeted figures are or are not to be exceeded.  It is not possible to square the words of CPR3.18 with the suggestion that the assessing Costs Judge may nevertheless depart from the budget without good reason and carry out a line by line assessment, merely using the budget as a guide or factor to be taken into account in the subsequent detailed assessment exercise.  The obvious attention of CPR 3.18 was to reduce the scope of and need for detailed assessment.  The Respondent’s approach would defeat that object.  
[68]   This straightforward conclusion reflects the fact that costs budgeting involves the determination of reasonableness and proportionality (see paragraph 7.3 of Practice Direction 3E and paragraph 3 of the Guidance Notes to Precedent H).  It is important to remember at the outset (and also in the context of the debate as to the meaning of the word “budget” addressed below) precisely what a Judge is doing at the costs budgeting stage.  He/she is not identifying what is the maximum amount by way of future costs considered to be reasonable and proportionate.  He/she is identifying what future costs are reasonable and proportionate.  
…
[73]    Nothing in paragraph 7.3 of Practice Direction 3E, where it is stated that when reviewing budgets the court will not carry out a detailed assessment “in advance”, impinges on this approach.  The Practice Direction is there setting out the nature of the assessment exercise at the costs of budgeting stage.  The court will not carry out any detailed assessment at that stage; rather it will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.  It is not stating that, whatever costs budget is approved or agreed, there will be an unfettered detailed assessment in due course.  The fact that hourly rates are not fixed at the costs budgeting stage is no obstacle to such conclusion.  As the notes to the CPR 3.18 in the White Book reflect, the fact that hourly rates at the detailed assessment stage may be different to those for the budget may be a good reason for allowing less or more, than the phase totals in the budget.  
…
[92]   In my judgment, the answer to the preliminary issue is as follows: where a Costs Management Order has been made, when assessing costs on the standard basis, the Costs Judge will not part from the Receiving Party’s last approved or agreed budget unless satisfied that there is good reason to do so.  This applies as much where the Receiving Party claims a sum equal or less than the budgeted sums as where the Receiving Party seeks to recover more or less than the sums budgeted.  [Original emphasis].”
The Submissions for the Defendant
15.	Mr Clayton submitted that the hourly rates that I had allowed for the incurred costs should be applied to the budgeted costs. That would mean, by way of example, that the rate for the partner would be £340 throughout the bill in circumstances where £355 to £375 had been advanced in Precedent H to the judge at the CCMC on 12 August 2016. Thus there would need to be a further reduction to the budgeted costs in Part 2 in addition to those I had made during the line-by-line assessment.  In this context, he drew my attention to the Practice Direction at 7.10 that it was not the role of the court to fix or approve the hourly rates. What was more, it was irrelevant that the judge at the CCMC had not made any comment about the incurred costs.  The fact was that the rates had not been approved or agreed by anybody until the detailed assessment: as he expressed it, “the budget is a budget not a costs cap” meaning that the rate allowed when the reasonableness of the rates came to be assessed at a detailed assessment hearing, needed to be applied equally to the incurred and budgeted costs. An adjustment to the hourly rate, as had happened here, was a “good reason” to depart from the budget since rates had not been addressed at the CCMC and the assessment was thus the only opportunity that a paying party would have to challenge them, 
The Submissions for the Claimant 
16.	Mr Ridgeway took a different view about the hourly rate. It was his submission that when a costs budget is put under judicial scrutiny, a figure is set for each of the phases identified in Precedent H, for example, witness statements or trial preparation, which is a proportionate amount to spend for that phase. What the court is not doing is fixing hourly rates and the number of hours to be spent doing the work. On the contrary, the exercise carried out simply approves an amount and how a party to the litigation spends that sum is up to that party. That means that so long as a party completes the work to be done for each phase within the amount agreed or approved by the court, that sum is proportionate for the phase and must be allowed. Only if “good reason” were to be shown, is the court on assessment permitted to depart from that agreed or approved figure. Applying the hourly rate as assessed by the court here for Part 1 to Part 2 would be a departure without “good reason” having been shown. That is not the intention of costs management and is contrary to binding authority in Merrix at paragraph 92 and approved by the Court of Appeal in Harrison. 
Decision
17.	It is common ground that the Defendant’s submission cannot succeed unless it satisfies the court that there is “good reason” to depart from the Claimant’s approved costs budget. That “good reason” (so the Defendant says) is that the reduction to the hourly rates for the incurred costs should be reflected by applying them to the budgeted costs.  It follows that if Mr Ridgeway is correct, the figures advanced in the bill for the post 25 July 2015 period which were agreed and then approved by the court at the budgeting stage, will be ticked through without further consideration but if Mr Clayton is right, then the reduction I have made to the hourly expense rates in Part 1 of the bill, must be applied to the budgeted costs in Parts 2.  
18.	The starting point is that the court does not approve or disapprove hourly rates when budgeting costs under CPR 3.12-18.  It simply approves an amount which it is reasonable, necessary and proportionate for a party to incur for each of the ten phases of the litigation, with the exception of the incurred costs.  So far as the latter is concerned, the court at the budgeting stage does not and cannot carry out a detailed assessment; what it can do is to comment on the costs under PD 7.4 and take those comments into account when fixing the budget.  Here, no comments were made at the CCMC, and working out whether it was reasonable, necessary or proportionate to incur those costs has been for the court to decide at (if I may adopt respectfully, the words Davis LJ in Harrison) the “conventional detailed assessment”  I have just undertaken.
19.	In a “conventional” detailed assessment, it is frequently the case, that hourly expense rates for solicitors are at the heart of any dispute between the parties.  Often it happens  that if the hourly rates are resolved at the outset of the  assessment together with any other  so-called “bullet” points of principle (such as demonstrating that there is a valid retainer for the work), the parties are able to settle remaining issues, thereby reducing the time taken on detailed assessments. 
20.	Here, I have explained briefly why the hourly rates were reduced (see paragraph 5).   The issue now is to decide is whether they should be reflected in the budgeted costs.  I am in no doubt that they should be for the reasons advanced by Mr Clayton.  
21.	Whether or not hourly rates are to be approved or disapproved at the budgeting hearing has been a point considered at judicial level at costs budgeting hearings.  The editors of the White Book referred to by Clark J in Merrix are of the view that CPR Rule 3 PDE 7.3 and 7.10 “do not require the court to set hourly rates – indeed 7.10 makes it perfectly plain that the position is quite the reverse – it is expressly not the role of the Costs Management to fix or set hourly rates”. However that was not was not the practice adopted Warby J in Stocker v Stocker [2015] 4 Costs LR 651 in which the hourly rates were agreed and approved, as was the case in GSK Project management Ltd v QPR [2015] 4 Costs LR 729 , Stuart-Smith J. In  Group Seven v Nasir [2016] 2 Costs LO 303   Morgan J also decided the hourly rates which were to apply prospectively, and gave guidance about the locality of the firms of solicitors that it was reasonable for the parties to instruct  (see judgment at paragraphs    40 to 45 entitled “Solicitors Hourly Rates”).   Whilst the judgment was delivered two weeks before PD 7.10 was   implemented, the draft amendment would have been available prior to the date upon which the judgment was handed down in that case. It follows in my judgement, that if the court approves hourly rates in terms as was the case in Stocker and Group Seven, neither a paying nor receiving party on any subsequent detailed assessment can challenge them.   
22.	That is not the situation here.  The allowances in the costs budget were made by reference to phases without the court having commented upon the hourly rates, either in respect of the incurred or budgeted costs.  At the assessment hearing, I made reductions to the hourly rates 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 and proportionate for the pre-budget stage.  
23.	Mr Ridgeway’s riposte to that is that the allowance made on the CCMC is the cost permitted for the phase and it is up the solicitor how that sum is spent. I cannot accept that submission. If, (as it is the case), the hourly rate is a  mandatory component in Precedent H which is not  and cannot be subjected to the rigours of detailed assessment at the CCMC, it makes no sense if  it is automatically left untouched when the rates for the incurred work are scrutinised at the “conventional” assessment. Such an approach would offend against the guidance given in Harrison at paragraph 44. Indeed, as Mr Clayton points out, it is only on that occasion that a paying party has an opportunity to challenge the rate and I agree with him for the reasons given above, that that is a “good reason” to depart from the costs allowed in the Claimant’s last approved budget.
24.	Further binding authority to support this proposition is to be found in Merrix at paragraph 73 which I repeat for convenience (the whole paragraph should be read); “… As the notes to CPR 3.18 in the White Book reflect, the fact that hourly rates at the detailed assessment stage may be different to those of the budget may be a good reason for allowing less or more, then the phase totals in the budget”.  It follows that the rates allowed for the incurred costs in Part 1 will need to be applied to the budgeted costs in Part 2. 
25.	If   I am wrong,   the same conclusion can be reached by a different route, as I have said in paragraph 5 above, proportionality was raised by the paying party in the points of dispute. With regard to costs incurred on the standard basis, CPR 44.3(2) provides  that :-
“…the court will – (a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; ..”
26.	Additionally, where, as here, the work has been undertaken from 1 April 2013 onwards, under CPR 44.3(5) costs incurred are proportionate if the bear a reasonable relationship to  :-
“ (a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance.”
27.	Guidance about the way in which the proportionality test under this rule is to be applied at detailed assessment in a matter in which the party's costs have been subject to approved or agreed costs budgets, is to be found in both Merrix and Harrison. 
28.	In Merrix at [82], at [52] Carr  J said this:
“ "The proportionality test can be applied at the time of fixing the budget. If there is good reason to depart from that decision, the judge on detailed assessment can do so. Additionally, ... as the notes to CPR 3.18 in the White Book suggest, once pre-incurred costs have been assessed on the basis of reasonableness and added to the budgeted costs, the total figure is then subject to an overall assessment of proportionality. ....."”
29.	In Harrison at [28] the Court of Appeal held that Merrix had been correctly decided and went on to say at [52] that:- 
“ "where, as here, 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 ordinarily 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 44.3(2)(a) and (5) :  a further potential safeguard,  therefore,  for the paying party. "”
30.	At the detailed assessment hearing , I asked Mr Ridgeway and Mr Clayton at what point should the proportionality test be applied . They were in agreement that the appropriate moment was at the conclusion of the line-by-line assessment. I also enquired whether they wished to make any further submissions about proportionality. None were received.  
31.	Having reached the conclusion of the line-by-line assessment, I have looked at and calculated as best I can, the   figures for the incurred costs as claimed and as allowed in Part 1, and also at, the budgeted costs in Part 2 which, subject to my decision on hourly rate, are to be " ticked through” upon the application of the   Merrix/Harrison guidance at paragraphs 92 and 28 respectively at approximately £43,000. Having aggregated those figures and looking at matters in the round, as Harrison has directed that I must, it is my view, having regard to the CPR 44.3(5) factors, that the resulting figure if left unaltered would result costs that it would be disproportionate for the defendant to pay. Expressing the point a different way,  having regard to  the amount recovered and the complexity of the litigation (a part 36 offer having been made at the outset,  the fact that the action was settled without a trial and that I do not consider additional work was generated by the conduct of the defendant by, for example, putting the claimant to proof at a trial about the distressing history of the allegations of abuse), it is my judgment that the aggregate of the incurred costs as assessed and the budgeted costs  as assessed thus far, if left unaltered,  would result in the court allowing costs that were reasonable and necessary but not proportionate. That difficulty can be addressed by permitting the Claimant to recover the sum that would have been allowed had the assessed rates for the incurred costs been applied to the budgeted costs. It follows that if I am wrong about "good reason", the amount to be allowed on assessment must be adjusted by the application of  CPR 44.3(5) so that the sum payable is the same as if the rates allowed for the incurred  had been used to work out the amount to be allowed for the budgeted work.
          Next steps 
32.	The parties must now agree the figures having regard to my decisions. They indicated that they would need time to discuss who should pay the costs of the assessment under CPR 47.20.  This judgment has been distributed to them in draft and both are at liberty to restore the detailed assessment by letter for the purposes of permission to appeal and the costs of the assessment if the principle of who should pay them and in what amount, cannot be agreed.