The High Court has recently considered an important point regarding the interplay between the costs budgeting regime and the court's approach to assessing the costs a successful party can recover at the end of a case: Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB).

CPR 3.18 provides that where the court is assessing costs on the standard basis in a case where a costs management order has been made, it will have regard to the receiving party's last approved or agreed budget for each phase of the proceedings and will not depart from that budget unless satisfied that there is good reason to do so.

The question under consideration, which has been a matter of some debate, was whether this applies where a party's costs are less than the amount budgeted, as well as more. The High Court in this case found that it does.

The practical impact of the court's approach is that, where a successful party's costs are within an approved or agreed budget for each phase of the litigation, it should be easier to recover the costs in full than it would otherwise have been. As noted in the judgment, however, this decision is unlikely to end the debate. Whether or not there is an appeal against the present decision (for which the judge has given permission), the Court of Appeal is due to hear another appeal on the issue in May this year.


The claimant in a clinical negligence case accepted a Part 36 offer to settle her claim, and so was entitled to her costs assessed on the standard basis. By the time of settlement, evidence had been exchanged but the case had not been prepared for trial. The claimant's costs were less than her court-approved budget – unsurprisingly, as the judge said, since the matter had not gone to trial.

The claimant contended that, since her costs were within budget, they should be assessed as claimed unless the defendant showed good reason to depart from the budgeted figure. The defendant contended that the costs judge should not be fettered by the budget on a detailed assessment; it was just one a factor in determining reasonable and proportionate costs.

In essence, the defendant interpreted CPR 3.18 to mean that a budget should act as a "cap" where it was exceeded, unless the receiving party could show good reason to depart from the budget upward, but where costs were less than budgeted, the paying party did not need to show good reason to depart from the budget downward.

The costs judge considered the point as a preliminary issue. He concluded that, on detailed assessment, the costs judge's discretion is not fettered by the costs budgeting regime, unless the budget has been exceeded. However, the budget will be a strong guide to what will be allowed on a detailed assessment.


The High Court (Mrs Justice Carr) disagreed, allowing an appeal against the costs judge's decision.

The starting point for the analysis, she said, must be CPR 3.18 which stated, in mandatory terms, that the court would not depart from the budget absent good reason. No distinction was made between the situation where budgeted figures were or were not exceeded. In her view, it was not possible to square these words with the suggestion that the costs judge may nevertheless depart from the budget and conduct a line-by-line assessment, merely using the budget as a guide or factor to be taken into account.

In Carr J's judgment, this conclusion reflected the clear intention of the costs budgeting regime, namely to reduce the cost of the detailed assessment process by treating the agreed or approved budget as binding, unless there was good reason to depart from it. It also achieved the purpose of securing greater predictability on costs exposure/recovery for the benefit of both parties, which the judge described as a "central pillar of access to justice in a world where costs will always be a primary consideration for those contemplating or participating in litigation".

The judge said there was no need for present purposes to examine in any detail what might and might not be a "good reason" to depart from a budget, but clearly if the receiving party had spent less than the budget, a departure would be required due to the need to comply with the indemnity principle (ie that a party cannot recover in costs more than it is liable to pay its own lawyers). In other words, there would be no question of a party recovering more by way of costs than was actually spent.

Carr J recognised that costs budgeting does not "replace" detailed assessment. However, there was no suggestion that there should be no detailed assessment; the question was how that assessment should be conducted. On any analysis, she said:

"…there remains room for detailed assessment outside the budget – for example in relation to pre-incurred costs not the subject of the costs budget; costs of interim applications which were reasonably not included in a budget; where costs are being assessed on an indemnity basis; where the costs judge finds there to be a good reason for departing from the costs budget."

Finally, and as noted above, Carr J recognised that her decision would not be the end of the debate, commenting that the issue was ripe for early consideration by the Court of Appeal, as it raised an important point of principle or practice. She noted that there is an appeal listed to be heard in the Court of Appeal this May, on a "leapfrog" basis, against an unreported decision of Master Whalan from August 2016 in Harrison v Coventry NHS Trust. She commented that any appeal from the present decision might be listed alongside that matter, if that were thought appropriate.

She also noted that many detailed assessments had been stayed pending her decision in this case. She added that while parties might accept her judgment as binding for their purposes, further stays might need to be imposed to prevent unnecessary court time and expense being devoted to a debate which the Court of Appeal would consider very shortly.