Yirenki-v-Ministry of Defence - approach to costs management orders
Yirenki v Ministry of Defence  EWHC 3102 (QB)
What are the practical implications of this case?
This case underlines that notwithstanding costs budgeting having been well established now since its mainstream introduction in April 2013, instances still occur where there is misunderstanding on the correct application of the budgeting process. The court should merely take an overview of all the factors which feed into what is a range of reasonable and proportionate costs for each phase. While this exercise will no doubt involve some evaluation of hours to be spent and hourly rates, these should merely be reflected in the overall budgeted figures and not specifically referred to. In particular, budgeted costs cannot be ‘up for grabs’ at detailed assessment, without establishing good reason.
The extent of the deviation from the clear provisions in the CPR PD 3E resulted in the Ministry of Defence not opposing this appeal. Jacobs J states early in his judgment ‘it was agreed by the respondent that the appeal should be allowed. Indeed, Mr Wheeler, when he addressed me briefly in helpful submissions, said that he had no reasonable argument to advance to support the approach taken by the Master.’
What was the background?
The fact this was a personal injury action was noted by Jacobs J as having no bearing on the issues in this appeal. At the costs and case management hearing, Master Davison adopted what he readily described as his ‘usual practice’ in identifying the number of hours he considered appropriate for each fee earner within each phase and further, specifically approved the budgets subject to the proviso that it remained open to the parties to dispute those matters (and to that extent the figure for each phase) at a detailed assessment.
With no opposition to this appeal, it fell to Jacobs J to set out for future benefit of others and those who may appear before Master Davison, why the decision under appeal was wrong.
At the costs management hearing and despite Mr Jenkinson (who appeared for the claimant on that occasion) submitting that the Master was wrong in his approach, Master Davison stated:
‘I don't agree there will be no certainty because the claimant will know how many hours he can expend, he simply won't know the rate. I agree with you that it would be desirable to specify a rate but the trouble is that the Practice Direction says this is the very thing we're not allowed to do and furthermore, I don't think this budgeting exercise or in the general run of them have any information about hourly rates. So if I were to budget in a more conventional way which I acknowledge would involve setting a figure rather than hours then I would simply be taking a bit of a leap in the dark about rates and I would also be having in the back of my mind somewhere an expressed figure for an hourly rate which I would have had to have derived simply from experience and guesswork.’
What did the court decide?
Jacobs J identified that Master Davison had failed, on two fronts. Firstly, in relation to his approach to the costs budgeting exercise and secondly in leaving open to be argued later the budgeted costs and especially hourly rates.
Jacobs J firstly cited the wording at CPR 3.15(2)(b), which provides that:
‘By a costs management order the court will … (b) in respect of the budgeted costs which are not agreed, record the court’s approval after making appropriate revisions.’
Jacobs J stated that this indicates that the figure that is going to be approved, after the discussion as to what figures were appropriate, ‘would be a final figure, rather than a provisional figure that, to put it colloquially was up for grabs later.’ This view was made clear with reference to CPR PD 3E and paras 7.3 and 7.10. Notably para 7.3 provides:
‘If the budgeted costs or incurred costs are agreed between all parties, the court will record the extent of such agreement. In so far as the budgeted costs are not agreed, the court will review them and, after making any appropriate revisions, record its approval of those budgeted costs. The court’s approval will relate only to the total figures for budgeted costs of each phase of the proceedings, although in the course of its review the court may have regard to the constituent elements of each total figure. When reviewing budgeted costs, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.’
Jacobs J identified the correct approach when making a costs and case management order, when he stated:
‘The constituent elements are part of the road to reaching that goal, but they are not an end in themselves, and those constituent elements are not the subject of approval. That that is the correct approach is put beyond doubt by para 7.10 of the Practice Direction which reads as follows: “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”.’
Jacobs J concluded that ‘Again, those words are quite clear and show that the approach of the Master in this case cannot be supported.’
Jacobs J identified several ‘vices’ to Master Davison’s approach. Firstly, that the Master’s decision left matters to be argued ‘at a later stage on hourly rates. It means that there is no certainty as to what the approved budget is.’ The Court of Appeal decision in Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792 was cited, where it states that that both the receiving and the paying party ‘need at an early stage in the litigation to know, as best they can, where they stand’. Importantly, Jacobs J recognised that the rules do provide for the possibility of a departure from the agreed budget under CPR 3.18(b), ‘however, that departure can only occur if there is good reason.’
Jacobs J further referred to Harrison and summarised the guidance of Davis LJ, who advocated that ‘masters are not lax or overindulgent in permitting any departure’ from budgeted costs and that parties ‘know the figure is fixed and cannot be changed absent good reason. That also has a knock-on advantage in that since the parties know where they stand at the start, it increases the probability that a detailed assessment with all its complexity and possible cost is avoided.’
Focusing on Master Davison’s second failure, namely the approval of hours and to some extent disbursements on a detailed basis, Jacobs J agreed the submissions made on behalf of Yirenki, that ‘it is wrong to approve the budget by reference to constituent parts. The idea of the budget, as is made clear by para 7.3 of Practice Direction 3E, is that figures should be given, for each phase of the proceedings, which fall within the range of reasonable and proportionate costs. That is the aim of the exercise. A party then has the advantage of knowing what his budgeted figure is although it is, as I have said, subject to the possibility of review in due course but only if there is good reason for a departure…
Anyone involved in litigation knows that it is difficult to work out and predict in advance exactly who is going to be doing what and for how long…The Master's approach of approving hours in advance seems to have the effect of removing the flexibility of the party in deciding how to spend the budget in the light of the way the case develops. The reason it removes this flexibility is that once the party departs from a particular approved pattern—for example the grade A fee spends 25 hours rather than 20 hours—then that party runs the risk that it will be said that he is outside the budget, subject only to the question of good reason for departure. Those problems are avoided if, as the Practice Direction requires, an overall figure is set for the phase rather than a budget being set for constituent parts.’
The final vice referred to by Jacobs J was ‘that the process of setting the budget, and then the question at a detailed assessment of comparing how the budget was spent, becomes something which is being micromanaged by the court. That is something to be avoided.’ Again referring to para 7.3 of the CPR PD 3E, Jacobs J makes clear that the ultimate aim is to arrive at budgeted costs which fall within the range of reasonable and proportionate costs and that ‘None of that means, of course, that it is not appropriate for the Master, when setting the budget and approving the figures, to look at the constituent parts…However…They do not feed in to a finding as to the specific number of hours which are to be spent in the future, or a finding as to specific figure for disbursements to be incurred in the future.’
• Court: Queen's Bench Division
• Judge: Jacobs J
• Date of judgment: 02 November 2018
This article was first published by Lexis®PSL on 21 November 2018
Written by Richard Allen, Senior Consultant at Burcher Jennings, and a member of LexisPSL’s Case Analysis Expert Panel.