Costs News

03 July 2019
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Budget that included overstated hourly rate was “improper”

A costs budget submitted by Irwin Mitchell in a medical negligence case was “improper” because it included an hourly rate of £465 for a grade A fee-earner instead of the correct figure of £350, the High Court has ruled.

Mrs Justice Slade said the costs judge conducting the detailed assessment would now have to decide whether this “substantial overstatement” was a good reason to depart from the budget.

Delivering judgment in MXX v United Lincolnshire NHS Trust [2019] EWHC 1624 (QB), Slade J – sitting with Master James as assessor – said the trust applied under CPR 44.11 for an order following “what they described as a mis-certification” of the claimant’s costs budget.

The claimant started proceedings in October 2014, claiming damages arising from treatment she received when giving birth to her second child. Judgment was entered for the claimant by consent the following month, after which the court ordered the parties to file and exchange costs budgets.

The claimant’s budget included incurred time costs of over £339,000 and estimated time costs of almost £230,000.

The hourly rate for a grade A fee-earner when the conditional fee agreement was signed in 2012 was £335. This was increased to £460 in August 2013. In January 2015, two weeks after the certification of Precedent H, the claimant was notified that the hourly rate was reduced to £350 with effect from 1 May 2014.

In his witness statement, Costs Lawyer Steven Green, head of costs and a partner at Irwin Mitchell, told the court that, in preparing the budget, both the incurred and estimated time costs were calculated using a set of composite or 'blended' hourly rates. The composite rates which were used for the respective grades of fee-earners were grade A at £465, grade B at £290, grade C at £230 and grade D at £140.

Since the costs budget was not agreed, District Judge Thomson held a case and costs management conference (CCMC) in February 2015.

“Although the solicitor who had written the letter of 20 January 2015 reducing hourly grade A rates from £460 to £350 attended the hearing, the court was not informed that the figure for time costs should be reduced. Nor was that figure in the budget corrected in the year since its preparation,” Slade J observed.

The district judge indicated that, for budget purposes, only £280 per hour would be used as a composite rate to calculate future time costs but that he was not making any decisions as to which grade did what work.

Slade J said Mr Green had not explained “how and when it was realised” that too high an hourly rate for a grade A fee-earner had been used for the budget.

Master Rowley in the Senior Courts Costs Office held that to set out in Precedent H in respect of incurred costs anything other than sums calculated by the time spent to date multiplied by the rates agreed with the client and claiming more than the client was obliged to pay was improper.

Irwin Mitchell did not agree that it had acted deliberately, but did not appeal the finding. However, Master Rowley did not accept that failure to revise the Precedent H before the CCMC or at the hearing itself were further acts of improper conduct.

He said that, as the district judge clearly had no intention of approving a budget based on the sort of rates set out in the budget – “and would not have done so even if the grade A rate had been reduced to £350 per hour” – the failure to correct the budget actually had no effect.

Similarly, including more hours in the budget than were claimed in the bill of costs also did not cause any prejudice.

He said the sanction was to disallow the costs of preparing the budget – some £23,400.

On appeal, Slade J said there was “no basis for regarding 'improper or unreasonable conduct' in the preparation of budget lightly”.

But she said the evidence before Master Rowley did not support findings of improper conduct by Irwin Mitchell in failing to correct the hourly rates before or at the CCMC.

“At the time the budget was attested, 6 January 2015, the rate was £460. Mr Green wrote that he did not know why the rate for a grade A fee-earner was reduced. This had not been anticipated by those who drew up the budget. Mr Green acknowledged that it was regrettable that the budget had not been revised when the reduced rate was notified to the claimant.” He speculated that it was “simply overlooked”.

However, Slade J said Master Rowley erred in “engaging in speculation as to what was in District Judge Thomson's mind when he reached his decision on the budget”.

“Since Master Rowley reached his decision on whether the misstatement of grade A rates in the budget affected Deputy Judge Thomson's decision based on speculation rather than evidence, it cannot stand.”

As a result, Slade J said the master carrying out the detailed assessment would have to decide whether the substantial overstatement of the hourly rate was a good reason to depart from the budget: “Accordingly, there will be an opportunity to correct any injustice caused by that improper conduct.”

She found that Master Rowley also erred in his approach to the penalty for improper conduct, which Slade J said must be judged on its own facts – the costs judge had based it on a case he dealt with in 2017 called Tucker.

However, she said the sanction could only be overturned if it was made “in error of law or was one which no master properly directing themselves on the evidence could have reached”. That “could not be said” in this case.

She added that the detailed assessment would be referred back to Master Rowley “to be considered in accordance with this judgment”.

Roger Mallalieu (instructed by Irwin Mitchell) for the respondent/claimant and Nicholas Bacon QC (instructed by Keoghs) for the appellant/defendant.



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