Costs Budgeting


Model Forms:

Notable cases:

CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd (Costs NO. 2) [2015] EWHC 481 (TCC) (05 March 2015)

Costs Budgeting in high value claims.

Caliendo & Anor -v- Mishcon De Reya & Anor [2015]

Cost management order – A consent order which adjourned a costs and case management hearing, but did not include a costs management order, was varied to include such an order where the parties had indicated to the court a clear agreement to the costs budgets. The claimant had opportunistically relied on the erroneous omission of a costs management order to proceed on the basis that the budgets had not been approved.

Purser -v- Hibbs & Another [2015] EWHC 1792 (QB) (19 May 2015)

The issue concerned was whether or not surveillance evidence should be included within a cost budget. The Claimant was awarded costs up until the date of the Part 36 offer and the Defendants was awarded costs on the indemnity basis from the expiry of the offer. The Defendants had not included the costs of the surveillance evidence in their Precedent H costs budget for strategic reasons. On considering the appropriate costs order, HHJ Moloney QC sympathised with the Defendants’ dilemma and agreed that the Court had the power under CPR 44.2 to award the Defendants their costs of the surveillance evidence. The unique status of surveillance evidence, and the strategic impetus not to put the opponent on notice of an intention to obtain such evidence, properly justified the Defendants’ decision to omit these costs from their costs budget.

Group Seven Ltd and Another v Nasir and Others; Equity Trading Systems Ltd v Notable Services LLP and Others [2016] 2 Costs LO 303:

Costs management order under CPR 3.15: costs budgeting, hourly rates, determination of local solicitor point, counsels’ fees and approach to costs incurred pre-budget.

Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB) (24 February 2017)

Although it was accepted that costs budgeting did not “replace” detailed assessment, the Judge concluded that when assessing costs on the standard basis, in circumstances where a costs management order had been made, the costs judge should not depart from the receiving party’s last approved or agreed budget unless satisfied that there is good reason to do so. “This applies as much where the receiving party claims a sum equal to or less than the sums budgeted as where the receiving party seeks to recover more than the sums budgeted”

Sir Cliff Richard OBE -v- The BBC & Chief Constable of South Yorkshire Police [2017] EWHC 1666(Ch) (13 June 2017)

The Chief Master felt that a degree of caution was appropriate before the Court made any comment about incurred costs, particularly given the limited information available during the course of the budgeting exercise.

Noting that the incurred costs were in excess of £1.1 million, the Chief Master nevertheless felt that it was not possible for the Court to form any meaningful view at that time as to whether the costs were unreasonable and disproportionate.

If the court wishes to record a comment that the incurred costs are “excessive” or they are “unreasonable and disproportionate” it will wish to be sure that the comment is made on a sound footing, rather than impression, because commenting is quite unlike the exercise of approving a figure per phase for future costs.

He felt that there was no significant benefit from making such an “anodyne” comment, but there was, on the other hand, a significant risk in making any such comment that it may be given disproportionate weight upon assessment even though it was based upon limited information. In those circumstances, it was far better to leave the issue to detailed assessment.

The Judgment also dealt with the question of what is ‘exceptional’ in the context of departing from prescribed fee for budget preparation.

RNB v London Borough of Newham [2017] EWHC B15 (Costs)

Hourly Rates – Good reason to depart from approved budget

Permission to appeal the judgment of Master Campbell, which confirmed that the reduction in hourly rates was enough of a ‘good reason’ to depart from an approved budget, had been granted but the matter then settled. Master Campbell originally outlined that it was unsatisfactory to allow a higher hourly rate on estimated future costs than that allowed on incurred costs, purely on the basis that the estimated costs had been approved by the costs managing Judge. As such, the hourly rates were deemed a ‘good reason’ to depart, allowing Master Campbell to reduce the budgeted costs, even if they did not exceed the allowances made within the Costs Management Order. Master Campbell supported his decision by outlining that the budgeted costs were disproportionate in any event, and that he had the power to reduce those costs to a proportionate figure, even if the hourly rates were not a good reason to depart from the costs budget.

Harrison v University Hospitals Coventry and Warwickshire [2017] EWCA Civ 792 (21 June 2017)

Application of proportionality in costs budgeted cases
This concerned an issue that had been considered by Mrs Justice Carr in Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB). Carr J concluded that where the costs claimed on assessment are, on a phase by phase basis, within the budgeted figure for the same phase as approved or agreed in a costs budget, then the court, in applying CPR 3.18 cannot depart from that agreed figure either upwards or downwards without good reason. In other words, absent good reason, the approved or agreed figure for estimated costs is to be allowed. The Court of Appeal agreed. Incurred costs are subject to assessment without any fetter under CPR 3.18, though any comments made by the budgeting judge will be taken into account. The Court expressly held that even where the estimated (budgeted) costs remained within budget (and therefore the budget was not to be departed from without good reason), the court must still look at the totality of the allowed estimated costs and assessed incurred costs in order to consider proportionality, potentially to decide whether, and to what extent, any further reduction should be made on a global basis.

Nash v Ministry of Defence [2018] EWHC B4 (Costs) (22 February 2018)

Hourly Rates – Not good reason to depart

Master Nagalingam held that an adjustment to the non-budgeted hourly rates was not a good reason to depart from the approved or agreed costs budget. Master Nagalingam earlier in the detailed assessment had reduced the hourly rates in respect of incurred costs. But asked by the defendant to do so in relation to the budgeting costs, he said: “Hourly rates hold no special status and are not to be given any elevated status on an assessment of costs with regards to estimated costs subject to a costs management order.” The master referred to the proportionate total allowed at a case management conference being based upon “a variety of factors, including the incurred costs. A party therefore proceeds with certainty as to what is a proportionate future sum to spend per phase. “That certainty is entirely eroded if hourly rates are then given a form of special status which requires rates to be assessed in the estimated phases of a bill of costs.

The Capital Markets Company (UK) Ltd and Another v Tarver and Others [2018] 1 Costs LO 65 – Michael Furness QC, sitting as a Deputy Judge of the High Court

The High Court reduced the Claimant’s budget significantly and provided guidance on the principles to apply in high value litigation on an application for approval of a costs budget under CPR3.15, including as to the application of a percentage reduction to address what was considered to be an overall level of excess charging. The claimant’s budget indicated incurred costs of approximately £6.3m and that budgeted costs were a further £8.9m. By comparison, Mr Tarver had incurred costs of £890,000 and budgeted costs of a further £2.5m. The other represented defendants’ incurred costs were approximately £650,000 with budgeted costs of a further £4.5m.

In finding that the claimants’ incurred and budgeted costs, although very large, were not necessarily unreasonable having regard to the amount of the claim (£245m), the comments of Leggat J in Kazakhstan Kagazy plz v Zhunus [2015] EWHC 404 (Comm) that ‘the touchstone of proportionality was the amount which a party could reasonably be expected to spend, having regard to all the relevant circumstances’ remained relevant at the costs management stage in high value disputes.

The court decided that parties whose solicitors are charged rates significantly above the SCCO Guideline Hourly Rates and who had already incurred very substantial costs are likely to see their costs budget significantly reduced. Although it is not the court’s role to set hourly rates when approving a costs budget, the court can take into account the rates claimed when deciding whether to approve the budget and this can result in lower budgeted costs to reflect the fact a significant amount of the work covered by a particular phase had already been done.

The Court also concluded that meaningful comparisons can be made between the costs of the parties in certain phases and gave guidance as to the circumstances in which it would be appropriate to compare the costs budgeted for each phase by each party.