Why hourly rates should not be reduced for budgeted costs where rates reduced for incurred costs on assessment

In the recent case of RNB v London Borough of Newham, Deputy Master Campbell found that reducing the hourly rates for the incurred costs was a “good reason” for reductions to be made to the budgeted costs. Deputy Master Campbell stated that “to do otherwise would mean that the Claimant would recover an hourly rate at a level that significantly exceeds the figure I consider to be reasonable and proportionate for the pre-budget stage”.

That decision is now being appealed and I would be surprised if the Court of Appeal supported the Deputy Master in his decision.

To an extent, I can understand the Deputy Master’s reasoning but the decision to my mind misses the point of the costs budgeting process.

The CPR was changed in recent time to cover the reference to hourly rates in costs management and the CPR now states:

“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 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”

The Court therefore approves a budgeted figure for each phase, with the parties then at liberty to use that allowance however they see fit (ie a small amount of partner time with a lot of lower grade fee earner assistance may be the approach taken or a larger amount of partner time with a smaller amount of lower grade fee earner assistance may be preferred). Ultimately, it is for the parties to manage the costs they are incurring and attempt to ensure that they fall within the budgeted figure.

In Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792, it was confirmed that there must be “good reason” for costs to be reduced below the level of the budget as well as increased above it. I don’t consider that this represents a “good reason”.

For costs management to be successful, the outcome must be that it reduces the volume, the complexity and the time spent on detailed assessment. If a judge has set a budget at the costs management stage, there will have been some consideration of the underlying detail of each phase and this would include the hourly rates.

To revisit the rates on detailed assessment for budgeted costs would lead to more detailed assessments and increased costs being incurred.
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If the budgeted hourly rates are left untouched, it may well result in a less than ideal outcome on the odd occasion, but a fair and reasonable outcome will be achieved in most cases and the costs management process will be stronger for it.