Ask any litigator what is their least favourite aspect of the Jackson reforms and the chances are they will say budgeting.
Five years on from its chaotic beginnings in April 2013, the process is certainly running more smoothly. County court judges may not have developed any more enthusiasm for the task than they had at the outset, but at least they do have a better understanding of it.
Few would argue with the notion that clients need a clear idea of what litigation is going to cost them at the outset of the claim. From the client perspective, that is surely better than leaving costs in a sorry mess to be sorted out right at the end at detailed assessment. But the concern of litigators is that this certainty comes at a price, because budgeting itself is ramping up the costs of litigation considerably.
Unlike detailed assessment, which takes place in a relatively small percentage of cases, costs budgeting is now a feature of nearly every multi-track claim. This means that for budgeting to produce any overall costs saving, it needs significantly to slash the time and resources spent on detailed assessment hearings by costs judges. But there is a threat to this: budgeting will only produce these savings if costs judges at detailed assessment are prevented from meddling with the budget figures and conducting their own fresh analysis.
For the first four years of budgeting, confusion seemed to reign over the status of budgets and the extent to which a costs judge could interfere with them. But last year in Merrix v Heart of England Foundation NHS Trust  1 Costs LR 91, Mrs Justice Carr (pictured) spelled out that a budget is binding on costs judges unless there is ‘good reason’ to depart from it. Her judgment was backed by the Court of Appeal in Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017) EWCA Civ 792.
Unfortunately, however, although the senior judiciary clarified the high status of a budget, they declined to define what a ‘good reason’ to interfere with a budget might actually be; preferring instead to give discretion to the costs judges. Last month, in the Senior Courts Costs Office, Master Rowley was presented with an opportunity to tackle the issue.
Jallow v MoD
In Jallow v Ministry of Defence  EWHC B7 (Costs), the defendants had two lines of attack in their attempt to crack open the costs budget.
The case had involved a claim brought by a soldier of Gambian nationality who sustained non-freezing cold injuries during a tactical exercise. The claimant’s budget was based on an original claim valuation of £130,000, but the claim ultimately settled for £90,000. The defendants said the original over-valuation had thrown proportionality out of kilter, and the budgeted costs permitted for a claim of £90,000 would have been much lower. This is a common argument made by defendants when seeking to challenge budgets at the end of a case.
Master Rowley rejected this stance and said that unless the claimant had exaggerated their claim – which in this case he had not – then the budget could not be departed from just because the settlement figure differed from the original claim. Rowley noted that both sides had called employment expert witness evidence precisely because this was the type of claim in which the level of damages would be based on a certain amount of conjecture.
The second wave of attack from the defendants was based on hourly rates. At an earlier hearing, Master Rowley had reduced some of the hourly rates claimed in the claimant’s incurred costs, which fell outside the budget period and so were open to assessment. But he refused to touch the hourly rates contained within the budget. He said the fact that the hourly rates for the incurred costs were lower than those in the budget was not a ‘good reason’ to depart from the budget. The attack therefore failed and the budget remained intact.
Master Rowley’s ruling in Jallow adds a further layer of protection to costs budgets. This is ultimately needed if they are to serve their purpose of making detailed assessments quicker and simpler – or even unnecessary in some cases.
But the judge admitted to concerns that his ruling would lead to a ‘lack of scrutiny’ of hourly rates at detailed assessment, encouraging parties to make sure they incur costs right up to the set levels for each budget phase, in the knowledge that the rate is unlikely to be examined by a judge.
What this means for lawyers in practice is that it could make the process of agreeing a budget even more difficult, or make costs and case management hearings to seek judicial approval of a budget even longer. Scuffles over hourly rates can no longer be left until the end of a case. The arguments will not go away, they will simply be had earlier.
Rachel Rothwell is editor of Gazette sister magazine Litigation Funding