Hourly rates and costs budgeting.

It is well known, as PD 3E.7.10 tells us: “It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.”

But what happens if rates are reduced when considered judicially at detailed assessment; does this serve as a good reason to depart from the budget?

This question was recently considered by Master Rowley in Jallow v Ministry of Defence when he rejected the defendant’s argument that the reduction in hourly rates (on the incurred parts) of the bill was a good reason to depart from the Budget.

Master Rowley confirmed that “once the phase total has been approved the underlying figures are no longer relevant”.

Some relevant paragraphs of the judgment include:

20. The budgeting judge will not fix or approve the hourly rates claimed and the details set out in the pages behind the front page of the budget (which are used by the party to calculate the totals claimed) are provided for reference purposes.
21. The defendant’s argument in relation to hourly rates starts from a quotation in the White Book in the notes to CPR 3.18 which also found favour with in the case of Merrix (paragraph 73) Merrix v Heart of England NHS Foundation Trust:

“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 used for the budget may be a good reason for allowing less, or more, than some of the phase totals in the budget.”

31. In my view, the notes to the White Book do not take the defendant very far. The fact that the hourly rates allowed at the detailed assessment are different from those originally used in the budget does not, in my view, found a good reason. This case is a good example of why the make-up of the estimate on which the budgeted costs are subsequently agreed or approved is not relevant to the subsequent detailed assessment. In this case the solicitor who had conduct for the first two years (which was, more or less, up to the CMO) left the firm and the case had to be reallocated. The claimant and his solicitors took the view that a more experienced solicitor was required to deal with the difficulties in the quantum claim. Consequently, the work was done at a higher hourly rate than had been envisaged in the budget. It has always been my understanding that the approved phased total can be used by senior or junior fee earners at differing hourly rates as the party considers to be appropriate. If it were otherwise and, as in this case, the fee earner who had originally been acting was no longer able to do so, a slavish adherence to the rates set out in the calculations for the original budget would mean that an application to amend the underlying details to the budget would be required even though there may be no wish to amend the budget totals themselves. That seems to me to be an unlikely proposition and this illustration explains why I have said above that once the phase total has been approved the underlying figures are no longer relevant.
32. As I have set out above, it is for the party and his or her solicitor to determine who exactly does the work that needs to be done. Where the costs overall are within the budget that has been set, there can be no legitimate criticism in using a senior or a junior solicitor, leading or junior counsel to carry out the work. This is true, even if the work is all carried out at ostensibly unreasonable hourly rates. If it comes within the budget that has been set, it will turn individually “unreasonable” items into a reasonable and proportionate sum overall. As I put it colloquially at the hearing, two odd numbers added together will still make an even number.
33. My concern, and I suspect Master Campbell’s [was in RNB v London Borough of Newham], is that the lack of scrutiny at a detailed assessment of the hourly rates claimed will encourage parties to incur costs up to the budget set for each phase on the basis that they are unlikely to have to withstand scrutiny at a detailed assessment. As such there will be an inflationary element which is only kept in check by conventional detailed assessments. But this concern is something which has to yield to the aims of costs management in making detailed assessments shorter. For a long time, the work of the costs judge has been described as the compounding of “much sensible approximation” to achieve justice. Ultimately the use of CMOs is simply a further example of that pragmatism.
34. Accordingly, I find for the claimant that there is no good reason to depart from the budget by virtue of the reduction to the hourly rates in this case.

This is the second case (the first being Nash v Ministry of Defence on such issue and will perhaps prove to be a useful tool for the claimant.

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