How binding is a budget?

Last week’s High Court ruling in Merrix addressed a very fundamental question that goes to the absolute core of budgeting – and affects every budgeted case that ends up at detailed assessment (DA).

The question is, is a costs judge at DA obliged to stick to the figures that were agreed or approved in the budget – or can they use the budget simply as a ‘guide’ and look at everything afresh?

In Merrix, Mrs Justice Carr considered that the rules were perfectly straightforward: the costs judge must stick to the budget, unless they have ‘good reason’ not to.

But the judge acknowledged that her ruling is unlikely to be the end of the matter, and indeed she urged the Court of Appeal to take the opportunity to tackle the issue as soon as it can – with many cases currently stayed, awaiting certainty on this crucial question.

So did Mrs Justice Carr get it right? Personally, I think she did.

The rules are unambiguous, and if the budget figures have no binding power at detailed assessment, then what is the point of the budgeting exercise? It would give parties no certainty at all over costs, and the entire exercise would be an expensive farce.

Once the budget is agreed or approved, those figures have to mean something – with the sensible get-out clause that a costs judge can still crack open the budget if there is ‘good reason’ to do so.

But this ruling – if it stands – will certainly have a knock-on effect.

Now that the status of the budget has been spelled out, it will be all the more important to get those figures right – there will be no second chances.

That is likely to mean more time spent preparing the budget, more contingencies factored in, more arguments between parties, and more use of costs counsel at costs and case management conferences (CCMCs).

And this will happen in most multi-track cases below £10m – unlike detailed assessment, which occurs in a far smaller percentage of cases.

Mrs Justice Carr did recognise this danger, but she suggested that it could be avoided ‘with proper and realistic co-operation and engagement between the parties’.

That seems rather optimistic.

What approach the Court of Appeal will take on this remains to be seen. But it is worth noting developments in relation to another important budgeting case, Sarpd Oil.

In Sarpd, Lord Justice Sales said that if parties have a problem with their opponents’ incurred costs (ie. costs that have already been incurred before the budget was drawn up), then the time to raise that is the first CCMC.

This was widely taken as Court of Appeal authority that incurred costs can be argued over at CCMCs – with concerns that it would add to the length and complexity of these hearings.

But it seems that the senior judiciary was not too pleased about this, and the Civil Procedure Rule Committee has stepped in. A rule change will come into force this April to clarify that incurred costs can be examined by the judge at detailed assessment.

What approach the Court of Appeal will take in relation to the status of the budget - whether through an appeal in Merrix, or a similar case - may depend on which judges are listed.

But I think the appeal court will be quite reticent to do anything that might increase the time spent on those blasted CCMCs; even if that ultimately weakens the force of budgeting.

Looming over the whole debate, of course, is the shadow of fixed costs. But even if these were introduced for all cases up to £250,000 as Lord Justice Jackson is currently pondering – and I do not believe the threshold will start off anywhere near that high – then budgeting will still apply in a huge number of cases.

So the sooner we receive a definitive answer on the status of the budget, the better.

Rachel Rothwell is editor of Litigation Funding

Follow Rachel on Twitter: @LawJourno