Kerry Underwood

HOURLY RATES IN BUDGET CAN BE CUT ON ASSESSMENT

with 10 comments


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In RNB v London Borough of Newham [2017] EWHC B15 (Costs)

The Senior Courts Costs Office Master said that the hourly rates in the Costs Budget could be cut on assessment, irrespective of the totals allowed in the budget.

This was an action arising from abuse suffered by the Claimant as a teenager at the hands of an employee of the Defendant in a residential home.

I set out below the Claimant’s hourly rates in the budget and the amounts allowed on assessment:

Type of Lawyer                                           Claimed                                                               Allowed

 

Partner                                                        £355.00 to £375.00                                             £340.00

 

Senior Solicitor                                            £235.00 to £280.00                                             £275.00

 

Solicitors                                                      £215.00 to £225.00                                            £180.00

 

Legal assistants                                           £145.00 to £150.00                                             £135.00

Here the court first reduced the incurred costs, that is those incurred before the budget and then considered the question of whether that reduction should then be reflected in the costs agreed between the parties or approved by the court for costs incurred after the budget, that is the budgeted costs.

It was irrelevant that this would have the effect of reducing the Claimant’s overall costs to a sum below the sum agreed in the budget.

It was common ground between the parties that the reduction could only be made if there was a “good reason” to depart from the figures in the Costs Budget.

The “good reason” point arises from the decision of the Court of Appeal in

Harrison v University Hospitals Coventry and Warwickshire Hospital NHS Trust (2017) 3 Costs LR424

which in turn approved the decision in

Merrix v Heart of England Foundation NHS Trust [2017] 1 Costs LR91.

 

Here the court pointed out that it neither approves nor disapproves hourly rates when budgeting costs under CPR 3.12 to 18, but rather simply approves an amount which is reasonable, necessary and proportionate for a party to incur for each of the 10 phases of the litigation, with the exception of the incurred costs.

Here the Senior Courts Costs Office pointed out that different practices have been adopted by different courts in relation to approving, disapproving or not considering the hourly rates.

This was set out in detail in paragraph 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.”

 

Thus here the SCCO said that if the court specifically approves hourly rates at the budget, then neither party can challenge those agreed approved rates on any subsequent detailed assessment.

That was not the position here, where allowances in the Costs Budget were made by reference to phases, without the court commenting on the hourly rates, either in respect of the incurred costs or the budgeted costs.

At the Assessment hearing the Master reduced the hourly rate for the incurred costs and made the point that if he was not allowed to interfere with the budgeted costs that would mean that the Claimant recovered an hourly rate for the budgeted stage at a significantly higher level than the rate which the Master considered to be reasonable and proportionate for the pre-budget stage, that is incurred costs.

It is only on detailed assessment that a paying party has an opportunity to challenge the hourly rate and here the Master held that that is a “good reason” to depart from the costs allowed in the Claimant’s last approved budget.

It is irrelevant that the total of costs at the hourly rate as previously set still came within budget.

The setting of a budget for each phase did not mean that the Claimant automatically got that sum.

The court held that if it was wrong on this point it could, and would, have achieved the same result on proportionality grounds and would have achieved proportionality by reducing the hourly rate for budgeted costs to the same hourly rate as for incurred costs.

Guideline Hourly Rates

Here, the court relied on the outer London guideline rates and said that the rates claimed were too high as the year on year uplift on the outer London guideline rates was excessive.

This also gives cause for concern – that the court appears to have relied on guideline hourly rates, which have more or less been abandoned and had not been raised for seven years now.

The decision also involves a circular argument.

It was the judge himself who reduced the level of incurred costs, which had obviously not been budgeted, and reduced the hourly rate allowed for those incurred costs.

He then used the fact that if he did not cut budgeted costs as well, then the Claimant would be getting a higher level for budgeted costs than incurred costs.

That is true, but only because the judge had cut incurred costs.

The logic of this is that an assessing court can simply avoid the Harrison and Merrix decisions altogether by cutting incurred costs and using that as a “good reason” to cut budgeted costs.

This is a poorly argued and illogical decision which should be treated with considerable caution.

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Written by kerryunderwood

August 9, 2017 at 8:47 am

Posted in Uncategorized

10 Responses

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  1. I appeared for the paying party in this case and can say that I think the point has been missed here. If the court does not interfere with rates at the CMC stage at what point can paying parties contest unreasonable and disproportionate hourly rates? The deputy master did not allow guideline rates – I asked him to but what he actually did was use the guidelines as starting points and thereafter applied the proportionality test. This is a good, common sense decision which confirms what we all already know – hourly rstes are a matter for detailed assessment.

    • Christopher

      Thank you very much for commenting. It is always very welcome when parties who have appeared in cases that I report take the time and trouble to comment.

      I take your point that if the court does not interfere with rates at the CMC stage then a paying party would not have an opportunity to contest unreasonable hourly rates; the issue of proportionality is of course a separate point.

      I appreciate that the court did not allow guideline rates; on my post I said that “The court relied on the outer London guideline rates and said that the rates claimed were too high as the year on year uplift on the outer London guideline rates was excessive”.

      I took that statement directly from paragraph 5 of the judgment.

      My point remains valid – Guideline Hourly Rates were only ever meant to be used in summary assessment and the official guidance for use of the guideline hourly rates says exactly that – see my blog GUIDELINE HOURLY RATES.

      You say that hourly rates are a matter for detailed assessment, but clearly other courts have taken a different view as set out in paragraph 21 of the judgment.

      It would make far more sense if the issue of hourly rates was addressed at the CMC as having a budget with hourly rates is like having Hamlet without the Prince.

      For the court to set out the amount of work to be done, but not the price, is ludicrous. It is the equivalent of buying 10 tickets to a show without knowing the price of the ticket, or 10 books without knowing the price of each book etc.

      I remain of the view that this is a flawed and illogical decision, whereby the Master relied on his own cut to the incurred costs as the “good reason” to cut the budgeted costs.

      Happily, with the spread of fixed recoverable costs, these matters will be soon be a thing of the past.

      Thank you again for commenting.

      Kerry

      kerryunderwood

      August 11, 2017 at 10:13 am

  2. Hi Kerry,

    The problem I feel lies with the fact that the flaw arises in the CCMC/Cost Budget hearings. Merrix & Harrison leaves everyone in a position of potentially having half the budget ‘assessed’ at the CCMC which clearly is a fudge that was never intended.

    Even as a Claimant lawyer I can’t see the point in putting hourly rates into a budget if they cannot be challenged. The problem therefore is that the Master’s are not factoring this into their decisions on proportionality at the CCMC stage (often not giving any clear direction to the parties) because in reality it should be left to the cost judge.

    The court then has to apply proportionality which remains undefined at budgeting and assessment where there are views that are not continuous in their thinking.

    I still remain of the view that as soon as ‘good reason’ is found, the budget should just be disregarded anyway.

    Alex Brown

    August 9, 2017 at 9:58 am

    • Alex

      I agree that the situation of having half the budget dealt with at the CCMC is a fudge that was never intended.

      Maybe I am being naïve, but I do not understand why the judge conducting the CCMC cannot simply say:

      “I regard the appropriate hourly rates for this work as” ………….. and then set them all out.

      To have a hearing to deal with budgets, but where the price of the work per hour is not determined is Hamlet without the Prince.

      Why cannot the Merrix/Harrison principles apply generally to hourly rates, that is that they will be fixed at the CCMC hearing and then only departed from for good reasons.

      After all the hourly rates are more capable of fixing at a CCMC than the likely amount of work that will be needed in each phase.

      In my view, the whole idea of the CCMC dealing with costs going forward, but not looking at already incurred costs, is farcical.

      As far as I am concerned the sooner and faster Fixed Recoverable Costs spread to everything, the better.

      Kerry

      kerryunderwood

      August 9, 2017 at 4:55 pm

      • I suppose the additional question is whether it works both ways, if hourly rates can go down, can the proportionate amount of hours to be spent on a phase go up. For as long as we have dated guideline hourly rates and no clarity on an appropriate CFA it will make like hard. I can see why FRC look appealing in these situations.

        Alex Brown

        August 11, 2017 at 12:06 pm

      • Interesting point Alex – especially if inflation picks up and there is a long period between the budget and the assessment, or, as is increasingly the case now, an age between the trial and assessment.

        Kerry

        kerryunderwood

        August 11, 2017 at 12:13 pm

  3. Just ask the parties to agree rates or the ccmc to do it. Only one extra phase in effect. Not sure why you say the court shouldn’t use the guideline rates just because they haven’t increased. Welcome to the world of defendants

    David

    August 9, 2017 at 2:48 pm

    • David

      Thank you for commenting.

      Because the courts have stated that guideline hourly rates have no place on detailed assessment and are suitable for summary assessment only. Don’t understand the “welcome to the world of defendants” comment – my firm does plenty of defendant work.

      I suspect that you only do personal injury work, whereas my comments, and my practice, are civil litigation based generally.

      I agree with you that hourly rates should be agreed or dealt with at CCMC. Not dealing with them is Hamlet without the Prince – they, and the related issue of the appropriate level of fee-earner, are the most argued about points on assessment.

      Happily these issues disappear in most cases with the spread of fixed fees.

      Kerry

      kerryunderwood

      August 9, 2017 at 3:18 pm

  4. I agree entirely with the points you make about the costs budgeting process Kerry.However it still leaves the absurd situation that even if the matter proceeds to trial and the claimant wins the defendant can still argue proportionality so that the the district Judge can say he agrees all the phases of the budget which are entirely reasonable but I will slash the bill by 50% because it is disproportionate.Surely it would be better to have proportionality finally disposed of at the budget stage.

    John

    August 10, 2017 at 3:52 pm

    • John

      The problem with dealing with proportionality at the budget stage is that it is not known what the final settlement/award will be, and that is in practice, if not in law, the overwhelming factor in any proportionality decision.

      Fixed costs for everything, related to the stage reached and the final settlement/award is the answer in my view.

      Kerry

      kerryunderwood

      August 10, 2017 at 4:01 pm


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