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WHAT IS THE POINT OF COSTS BUDGETING? Merrix v Heart of England NHS Foundation Trust Claim No: A90BM


This is a question often asked rhetorically by practitioners frustrated by the seemingly ever more expensive and unwieldy process of costs budgeting. However, in a recent case, the Court has explored the relationship between budgeting and detailed assessment. In a decision of 13 October 2016 in the matter of Merrix v Heart of England NHS Foundation Trust Claim No: A90BM096, District Judge Lumb, sitting as a Regional Costs Judge in the Birmingham District Registry was asked to determine the following question:

“To what extent, if at all, does the costs budgeting regime under CPR Part 3 fetter the powers and discretion of the costs judge at a detailed assessment of costs under CPR part 47”.

He found that the discretion was not fettered and that only if the bill exceeded the budgeted amount in any phase was that to be treated as a “departure” for the purposes of the rules.

Perhaps the most pertinent provisions on the question are:

CPR 3 PD 3E 7.3

“…. When reviewing budgets, 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” and

CPR 3.18

“ In any case where a costs management order has been made, when assessing costs on the standard basis, the Court will – (a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and (b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so”

The rules therefore fully accept that budgeting does not displace assessment, but that there is anticipation that the budgeted figures will be directly relevant, leaving room for arguments as to “good reason” for departing from the budget.

In this case, the Claimant argued that if the costs in the bill were at or less than the budgeted costs then they should be assessed as claimed unless good reason was established. On the other hand, the Defendant argued that the budget was but one factor to be taken into account in assessing the reasonable and proportionate costs.


The Defendant argued that regardless of the budget, the Court was required under the mandatory terms of CPR 47 to undertake a detailed assessment in accordance with the rules of both the incurred and estimated costs. This involved a line by line assessment to establish reasonableness and then a consideration of proportionality. On the standard basis, any doubt would be exercised in favour of the paying party. It was argued that there were no provisions in CPR 44 or 47 to the effect that the paying party must show good reason why a lower figure than that in the agreed or approved budget should be allowed. To regard budgeting as overriding the assessment procedure was converse to the standard and burden of proof expressly stated by the rules. As was clear from CPR 44.4 (3) (h), the last approved or agreed budget was just one factor to be taken into account. The provisions of Practice Direction 3 E made it clear that budgeting was not a detailed assessment in advance and the Court was expressly dissuaded from fixing hourly rates. The underlying detail in the budget was for guidance only and the purpose of the budget was to set a limit on the recoverable costs. It did not give rise to a presumption as to reasonableness or proportionality only rebuttable by establishing “good reason”. In support of this approach, the Defendant referred to judgments of Moore-Bick LJ:

Henry v News Group Newspapers Ltd [2013] EWCA Civ 19:

“…cost budgeting is not intended to derogate from the principle that the Court will allow only such costs as have been reasonably incurred and are proportionate to what is at stake; it is intended to identify the amount within which the proceedings should be capable of being conducted and within which the parties must strive to remain” and went on

“Budgets are intended to provide a form of control rather than a licence to conduct litigation in an unnecessarily expensive way”

And in Troy Foods V Manton [2013] EWCA Civ 615 the same Lord Justice said:

“It follows that I do not accept that cost judges should or will treat the Court’s approval of the budget as demonstrating, without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply because they fall within the scope of the approved budget.”

The Defendant contended it would be absurd if CPR 3.18 could be construed that the paying party would have to show good reason why the receiving party should not recover the absolute maximum amount of a significantly less detailed cost budget which is agreed or approved very early in the proceedings, without any detailed assessment and in circumstances where the actual test under CPR 44.3 concludes by stating that any doubt as to whether costs were reasonable or proportionate will be resolved in favour of the paying party.

The Defendant argued that the comments of the Court of Appeal in Sarpd Oil International Ltd v Addax [2016] EWCA Civ 120 should not be taken as anything more than confirmation of CPR 3.17 in which budgets are to be taken into account when effecting case management decisions:

“If the Court does record comments about the incurred costs, they will carry significant weight when the Court comes to exercise its general discretion as to costs under CPR part 44 at the end of trial. For example, if a Court has commented that incurred costs in a costs budget appeared to be reasonable and proportionate, it would usually require good reason to be shown why such costs should not be included in an award of costs on the standard basis at the end of the trial…. Therefore, depending on what is said by the Court by way of comment, the practical effect of a comment on already incurred costs made by a Court pursuant to paragraph 7.4 of PD3E may be similar to the effect under part 3.18 (B) of formal approval of the estimated costs element in a costs budget.”

It must be said that many observers have considered that Sarpd did go further than the Defendant suggests here.


The Claimant argued that budgeting was not just about case management decisions but was part and parcel of an overall attempt to deal with costs in a reasonable and proportionate way. The purpose of a budget at a CCMC was to limit the matters needed to be considered upon detailed assessment, for example matters which did not fall within the budget like insurance premiums and success fees and incurred costs if the Judge had made a comment that they appear disproportionate.

The Claimant maintained that the wording of CPR 3.18 was entirely clear that there should be a departure only if there is “good reason” and that the term “budget” did not mean “limit” and a departure did not purely mean one way, i.e. upwards. The purpose of Precedent Q was to demonstrate a comparison between the bill and the budget and if the actual work was below the budget figure then it should be allowed without further ado.

The Claimant argued that the comments of Moore-Bick LJ had been overtaken by events (a brave submission in the words of the Judge here) and that the more appropriate position was that of Warby J in Simpson v MGN Ltd [2015] EWHC 126:

“It is clear that if costs management is to work, conclusions reached upon reviewing costs budgets must be adhered to, and not second-guessed at a later stage. The wording of CPR 3.18 (b) that if a figure has been agreed or approved for a particular phase of proceedings the amount recoverable by the receiving party in respect of that phase will be capped at that figure, unless there is good reason to depart upwards. (If the receiving party has incurred costs less than budgeted there will be good reason to depart downwards.)”

Finally, it was argued that Sarpd was authority for the proposition that markers should be set down at the CCMC for any challenges later to be taken upon assessment and that if everything was to be left open for assessment then the time and expense of the budgeting process was wasted. It was not a costs capping order (for which provisions are set out separately in the rules) but an attempt to limit the use of the Court’s resources and avoid lengthy detailed assessments.


The Judge found that budgeting did not replace detailed assessment. At the time of introduction of the regime, there were no wholesale changes to Parts 44 to 47. There was just one added factor to the pillars of wisdom in CPR 44.3, namely that regard must be had to the last agreed or approved budget. No special weight was given to that factor and for example it was not said to be of paramount importance. In Sarpd the very fact that the Court said that the budget would be a “strong guide” on the “likely costs” showed that a detailed assessment would still be required and that the costs would not be fixed by the budget. The wording of Practice Direction 3 E was clear that budgeting was not a detailed assessment in advance and that the rates and time provided in the breakdown were for guidance only. It was clear therefore that the time to consider those aspects was upon assessment. His determination as to what budgeting was all about was:

“What undoubtedly was intended was that effective costs and case management would greatly reduce the need for detailed assessment of some or all of the parties’ costs by ensuring that the costs budgets were within the range of reasonable and proportionate costs for each phase. In so doing the scope for disagreement should be reduced to a level where a paying party would be unwise to risk incurring the significant costs of the detailed assessment process for what would only be limited potential gains.”

He found that the relevant CPR 44 tests were to be applied at different times on different documents and it must be right that the Court retained the right to consider proportionality at the conclusion of the case.

As to the meaning of “budget” he said:

“I do not agree with either party’s definition of “budget”. It does not mean either a cap or a fixed amount. The ordinary meaning is more of an available fund. A costs budget for CPR purposes comprises the available fund reflected in the form precedent H, the assumptions accompanying that form, any budget discussion report and any recorded comments by the case managing judge. The available fund is considered to be within the reasonable range of proportionate costs but nowhere is it stated to be a fixed assessed amount. If that had been the intention then the rules would surely state as much.”

It followed that:

“Departure” in CPR 3.18 refers to a departure from the budget as defined above as an available fund – the landscape – not a departure from a fixed sum or a sum claimed in a bill that happens to be within the budget…. It also follows that the arguments raised by the Claimant that CPR 3.18 raises an evidential burden on the paying party to show a “good reason” to contend for a lower figure on assessment are misconceived”

The Budget is a living document which can be changed in the light of developments, it could not be said therefore that the amount set at the 1st CCMC was in any way a fixed sum payable. In relation to whether departure could mean up or down he said:

“In the context of CPR 3.18 where the budget has not been revised by the Court before assessment, a departure in practical terms has to be to something outside the original budget which can only be to a sum in excess of the amount allowed for a phase and therefore must be upwards only”

His conclusion on the question before him was:

“The strict answer to the question of the preliminary issue in the present case is that the powers and discretion of a costs judge on detailed assessment are not fettered by the costs budgeting regime save that the budgeted figures should not be exceeded unless good reason can be shown.”

The decision, closely argued as it is, will produce a heart sinking feeling in receiving parties. The prospect of agreement at budgeting stage will inevitably recede. The “costs of the costs” will increase and more Court time will be taken. We anticipate that we have not heard the end of this tale.

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