Detailed assessment of legal costs is required by the courts, even when these are within the overall budget following a recent ruling.

The decision will help to keep the cost of litigation under control and will benefit insurers which usually cover the bill in a professional indemnity insurance claim as part of an insurance settlement.

The case was the first to test the relative importance of costs budgeting and costs assessment since the Jackson reforms, which set out new rules intended to ensure that litigation is managed efficiently and at proportionate cost.

The ruling came in a clinical negligence case, Merrix v Heart of England NHS Foundation Trust.  Solicitors for the successful claimant submitted a bill for costs.  They argued that this should be paid in full as it was within the overall costs budget.  However the defendant’s legal team argued that budgeting process was not intended to replace detailed assessment.

District Judge Lumb ruled in favour of the defendant.  He said that the budget should be viewed as an available fund rather than a cap or a fixed amount.  He added, however, that the parties had a duty to negotiate a proportionate costs budget, so that the difference between them “should be so negligible that it would not be worth the time, trouble or risk to pursue a detailed assessment“.

James Burgoyne, Director – Claims & Technical, Brunel Professional Risks, said: “The cost of litigation is high and can add significantly to the amount paid out by insurers when settling claimsThis decision means that costs have to justified, even when a budget has been agreed.  It is good news for insurers who may incur lower costs as a results – which in turn could benefit professional firms by helping to manage the cost of their professional indemnity insurance premiums.”

Reports on the case have been published by law firms DAC Beachcroft, Clyde & Co, Keoghs and the Association of Costs Lawyers.