Budget that included overstated hourly rate was “improper”

Application under CPR 44.11 for an order following a “mis-certification” of Claimant’s budget. The sanction for improper or unreasonable conduct is:
a) to disallow all or part of the costs; or
b) to order the party at fault pay costs which that party has caused any other party to incur  

In MXX v United Lincolnshire NHS Trust [2019] a costs budget was “improper” because it included an hourly rate of £465 instead of £350.

The background was that a CFA was signed in 2012 containing a grade A rate of £335. This was increased to £460 in August 2013. On 20 January 2015, by letter to the Claimant, the rate was reduced to £350 with effect from 1 May 2014.

The Claimant filed and exchanged a costs budget on 6 January 2015 citing the grade A hourly rate at £465.

A CCMC was held on 20 February 2015. The Court was not informed that grade A rates had been reduced, nor that the figure for time costs should be reduced. Nor was the Budget corrected in the year since its preparation. At the CCMC the District Judge indicated that, for budget purposes, only £280 per hour would be used.

SCCO

This matter came before the SCCO. The Costs Judge said that it was improper both (a) to include incurred costs comprising anything other than time multiplied by agreed rates and (b) to claim more than a client was obliged to pay.

However, the Costs Judge did not accept that failures to revise the budget before or at the CCMC were further acts of improper conduct. The Costs Judge accepted that the District Judge had no intention of approving a budget based on the rates set out in the budget, such that the failure to correct the budget actually had no effect.

Applying a sanction under CPR Part 44.11(2), the Judge disallowed the costs of preparing the budget – some £23,400 plus VAT and travel expense to the CCMC.

Appeal

The SCCO’s decision was appealed on three grounds: (1) that the Judge erred in not finding that it was unreasonable and improper not to correct the Budget; (2) to challenge the findings as to the effect of the conduct, averring that the Judge erred in the sanction he imposed and (3) the Judge erred by failing to address whether there was ‘good reason’ to depart from the Budget.

As to Ground 1 the Court found that the evidence before the SCCO did not support findings of improper conduct by the solicitors in failing to correct the hourly rates before or at the CCMC. At the time the budget was attested, on 6 January 2015, the rate was £460. The solicitors speculated that they “simply overlooked” the need to update the budget.

As to Ground 2 the appellate Court found that the Costs Judge was wrong to judge that the failure to correct the hourly rate in the Budget gave rise to no prejudice, as this was based on speculation as to what was in the District Judge’s mind at the CCMC: “Since [the Costs Judge] reached his decision on whether the misstatement of grade A rates in the budget affected [the Deputy Judge’s] decision based on speculation rather than evidence, it cannot stand”. However, 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.

As to Ground 3, the Court 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.”

The detailed assessment has been referred back to the SCCO to be considered in light of the Judgment.