Agreed budgets are not immune from the Court’s comments in respect of reasonableness and proportionality

The matter of Lemos & Ors v Church Bay Trust Company Ltd & Ors [2023] EWHC 157 (Ch) concerned an Insolvency Act claim which came before the Court for a costs management hearing in October 2022. The Claimants had budgeted £1.927million and the Defendants £1.2million. I.C.C. Judge Jones had been anticipating budgets in the region of £350,000-£600,000 and therefore required explanation and justification for the purpose of costs management. As the budgets were agreed in part, the parties had only come prepared to address the issues in dispute and, as such, the judge remained concerned that both budgets were unreasonable and disproportionate despite the Defendants’ being agreed.  The issues in respect of the Claimants’ budget were therefore decided on a provisional basis and the Claimant’s’ agreement to the Defendants’ budget was noted, subject to both parties providing brief written justifications for their budgets in respect of reasonableness and proportionality.

The written submissions were duly provided and judgment was handed down remotely in January 2023. The judgment sets out the background of the claim which led the judge to the initial anticipated range of costs. Whilst it was not a straight-forward case, the judge did not consider that it would require high volumes of disclosure and the issues were relatively narrow. Nothing provided at the October hearing had taken the anticipated range higher. Having considered the written submissions, it was accepted that the sum in dispute (£8 million) was not insubstantial and the budgets could be said to be proportionate in that respect and in terms of importance to the parties. However, the costs were disproportionate when considering the nature of the case and what was required to bring it to trial, both in terms of the factors in CPR 44.4(3) and the ordinary meaning of the word proportionate.

Having found that the costs remained unjustified in terms of both reasonableness and proportionality, the judge considered the appropriate course of action was not to cause delay or further increase costs by listing a further oral hearing. Instead, a new order was made recording the decision that, whilst the Defendants’ estimated costs were agreed at £850,355 and the Claimants’ estimated costs were provisionally reduced to £893,455, the Court did not consider on the information available that the budgets were reasonable and proportionate and that reference to the judgment could be made in any subsequent assessment proceedings.

The rules (CPR3.18) provide that the Court at assessment will not depart from the approved or agreed budgeted costs unless there is good reason to do so, and may take into account any comments made pursuant to CPR3.17(3). CPR3.17(3) however, refers specifically to incurred costs rather than the budgeted costs in issue here. Presumably the paying party in this matter will argue that the comments constitute good reason to depart downwards from the budgeted sums.

If you have any questions regarding this summary, or budgeting in general, please contact Helen Spalding here.


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