Costs budgets: what CPR 3.18 actually protects

Half your costs were never in the budget

A costs management order approves budgeted costs. Incurred costs are not budgeted costs, and the distinction does the heavy lifting at assessment. Everything spent before the budget was approved sits outside CPR 3.18 altogether, and is assessed in the ordinary way on the standard basis, with proportionality applied to it in full.

The practical consequence lands hardest in cases that were heavily worked before the first costs and case management conference. A party can leave the CCMC with an approved budget it regards as a good outcome, having placed the majority of its actual exposure in the incurred column, where the approval means nothing beyond whatever comments the court chose to record. Those recorded comments are then taken seriously on assessment, which is a second surprise for parties who treated the incurred figures as a formality to be got past rather than a set of numbers being looked at.

Good reason cuts downwards

CPR 3.18(b) prevents departure from the approved or agreed budgeted costs for each phase of the proceedings without good reason. It is symmetrical. Good reason is required to go above the budgeted figure, and it is equally required to go below it, which is where receiving parties tend to read the rule as a guarantee that it is not.

The clearest example is a phase where the assumed work was never substantially completed but the costs claimed have crept up towards the approved figure anyway. The budget was set against a set of assumptions about what that phase involved. Where the assumptions did not happen, the figure attached to them is not a sum the receiving party is entitled to simply because it was once approved. Phase by phase is also the unit of analysis, so underspending one phase does not buy headroom in another.

The corollary matters for paying parties, who frequently under-argue this. An approved budget is often treated on assessment as settling the question for every phase it covers. It settles the question only where the work actually done matches the work the phase was approved for.

Revise before you need to, or not at all

CPR 3.15A allows revision upwards or downwards where there has been a significant development in the litigation, and it requires the revision to be sought promptly. The rule is not difficult to satisfy on its face. It is difficult to satisfy in practice because significant developments announce themselves gradually, and by the time a party is confident enough that the case has changed to spend money on an application, the promptness requirement has quietly become the problem.

Two things follow. The first is that promptness is measured from the development, not from the point at which its costs consequences became uncomfortable, and a party that waited to see how much the development would cost before deciding whether to apply has usually waited too long. The second is that a revision refused as late is worse than no revision at all, because the party is left arguing good reason at assessment while holding a court order recording that it should have dealt with this earlier.

The alternative route, going straight to assessment and arguing good reason under CPR 3.18, is a materially weaker position. Good reason is a threshold applied by a costs judge with the benefit of hindsight, against a budget the applicant agreed to and then exceeded. A prospective application under CPR 3.15A is heard by a court looking forwards at a case it is managing. The same facts are worth more in the second forum than the first.

Where a Part 36 offer is in play, the interaction is worth thinking through separately, because an unaccepted offer is not itself a significant development but what it does to the remaining scope of the case can be. That is covered in the guide to what still catches people out about Part 36 offers.