Claimant's Cost Budget successfully challenged on the use of blended rates

Published 26 abril 2018

This case involved the successful challenge of a Claimant's Costs Budget due to improper use of blended rates for incurred costs. This highlights an approach which has no doubt been adopted by many throughout costs management. 

During the settlement of costs in the case of Tucker v Hampshire Hospitals NHS Foundation Trust an issue arose which proceeded all the way to a hearing before Master Rowley. Judgment was handed down on 19 May 2017.

The issue which arose lay within the Claimant's Costs Budget or, better stated, Costs Budgets, as two were served on behalf of the Claimant during the course of the proceedings. A key part of a Costs Budget is the fact that the legal representatives who prepare the budget are required to sign a statement of truth certifying that the amount of incurred costs stated are accurate. The Court has a power under CPR 44.11 to disallow all or part of the costs being assessed should this verification be shown to be untrue.

Keoghs, representing the Defendant Trust in respect of costs, identified that the Pre-Action incurred costs claimed within the Claimant's Bill of Costs were lower than those claimed within the Claimant's Costs Budgets. The reason for the difference between the figures was the application of composite hourly rates within the budgets, as opposed to actual hourly rates within the Bill. This resulted in the incurred time in the Bill amounting to £38,871.50 less than that stated in the updated Costs Budget.

It was argued by Keoghs that misleading information had been provided to the Court during the costs management stages of the claim and, consequently, the Court had approved the Claimant's Costs Budget at a higher sum than it would have done had it been provided with accurate information. The statement of truth was consequently inaccurate and misleading. The Defendant made an Application for costs to be disallowed or reduced on the grounds of improper conduct (under CPR 44.11).

Irwin Mitchell (for the Claimant) argued that the application of a composite rate was used to reflect a fee-earner's original, current and future hourly rates. They explained they had applied this to budgets since the costs management regime began. Further, they argued that the costs budget template did not allow different hourly rates to be used (i.e. in circumstances when a fee-earner's hourly rate increases during the course of a claim). They also suggested that a budget was not intended to be accurate to the last penny and that the Defendant had not been prejudiced by their approach.

Master Rowley disagreed. He could not understand why sums had been recalculated by reference to a blended hourly rate given the correct figures most likely appeared on their ledger. He was clear that a solicitor should not overstate a party's liability to his solicitor for costs already incurred. "It is to all intents and purposes a breach of the indemnity principle".

He also made the point that the whole purpose of costs management is to try to limit the need for detailed assessments and part of that process "must involve the parties and the court being able to rely upon the information provided by the other party."

Master Rowley was satisfied that Irwin Mitchell's approach to costs budgeting amounted to improper
conduct and concluded that the costs claimed in the costs management activities should be penalised. This resulted in a total of £24,379.78 of the costs claimed by the Claimant being disallowed.