COST BITES 225: A PEEK INSIDE THE BUDGETING PROCESS: “PROPORTIONALITY TRUMPS REASONABLENESS”

We get a rare chance to look inside the costs budgeting process in the judgment of Master Brightwell in  Atlantic Ways Holding SA v Freetown Terminal Holding Ltd [2025] EWHC 674 (Ch). The rationale behind each budgeting decision is set out in detail.

“rule 44.3(2) makes clear that proportionality trumps reasonableness. If costs are reasonable but disproportionate they will need to be reduced.”

THE CASE

The Master was budgeting the defendant’s budget.  The claimant’s budget had been agreed at £449,000, the defendant’s budget sought £808,000.

THE JUDGMENT ON THE BUDGET

1. It falls to me now to fix the defendant’s budget for these proceedings. This is a case where, as Mr Matthewson was at pains to point out, there is quite a disparity between the (agreed) budget for the claimant (£449,000) and the budget for the defendant (£808,000). In light of that, there has been something of a root and branch opposition by the claimant to the defendant’s budget. It may be appropriate therefore for me to set out some of the general principles which the parties’ submissions were based upon, even though they quite appropriately did not trawl through the authorities and the principles relevant to costs management.

2. First of all, I am required to set a budget, not to undertake a detailed assessment in advance, although I take account of the fact that once a budget is set the court will not later depart from it without good reason. It is not appropriate for the court to set or approve charging rates or approve the methodology which lies behind them or the figures. That is, it is not for the court to approve the number of hours spent by each level of fee-earner and/or counsel. If, however, charging rates are outside a reasonable range themselves, that will have an effect on the assessment on the reasonableness and proportionality of the budget and of each phase within it.

3. Secondly, as counsel reiterated, the court is required to consider whether the budgeted costs fall within a range of reasonable and proportionate costs. I take into account the fact that costs may be at the outer end of a range but still be reasonable and proportionate.

4. Thirdly, the court’s assessment of proportionality is made by reference to CPR rule 44.3(5) where, generally, value and complexity of the claim will be the most important factors.

5. Fourthly, the court is looking at the budget with an eye to what would be permitted on a detailed assessment on the standard basis. Costs budgets will often be prepared so as to include the entire costs to be incurred and for this reason the budget may exceed what is reasonable taking account of the fact that on a standard basis detailed assessment any doubts would be resolved in favour of the paying party.

6. Fifthly, rule 44.3(2) makes clear that proportionality trumps reasonableness. If costs are reasonable but disproportionate they will need to be reduced.

7. Sixthly, and of particular relevance to the submissions I have heard today, the court should avoid merely comparing one budget with another, although, as this case shows, it is impossible when fixing one budget to ignore the other. The other budget may have been prepared on a different basis, or on the basis of a wholly different approach to the management of the claim. On that note, I would make the point that Mr Matthewson comments, particularly with reference to the disclosure phase, that the claimant’s budget must significantly underestimate the future costs to be incurred. The fact that a budget underestimates costs does not itself mean that the budget is inappropriate. For the reasons I have already explained, a budget should not necessarily include every penny that is intended to be incurred under the claim. Such costs would not generally be permitted on detailed assessment on the standard basis.

8. Furthermore, and on that point, I note that the claimant’s hourly rates for their solicitors exceed the guideline rates just as the defendant’s do. If I had been called upon to fix the budget for the claimants, I would have to have taken that into account as well. This is a point which tends against my viewing the claimant’s costs budget as a whole with the scepticism with which the defendant invites me to regard it.

9. The two overriding points which both counsel addressed me on concerned the value and complexity of the case and hourly rates. I will deal with hourly rates first. I have already commented on them to some extent. The hourly rates in the defendant’s costs budget do significantly exceed the guideline rates and there is a table in Mr King’s skeleton argument comparing London 1 rates with the rates put forward by Jones Day showing that these are roughly 20% to 30% higher than the London 1 rates. I also agree with Mr King that this is not obviously squarely within the London 1 category, which is for the heaviest corporate and commercial work in these courts. The claim is a claim for business consultancy services allegedly provide pursuant to an agreement made in 2013, valued with the proposed amendments at around US$2.5 million plus interest, plus I take account of the fact that there is a claim for a declaration that the contract remains in existence. The claim is not an insignificant one but it is not of the heaviest kind with which this court deals.

10. I consider that the London 1 guideline rate would be the high point of the sort of sums that might be permitted and I take account of the comments of Constable J in GS Woodland Court GP 1 Ltd v RGCM Ltd [2025] EWHC 285 (TCC) to which Mr King referred me, in particular at [12]:

“… when it has been determined that Band 1 is appropriate, that in itself recognises that the litigation is substantial and complex, and it qualifies as very heavy commercial work.”

11. As I have indicated, I do not consider that this claim quite falls within that categorisation and, as I have also said, that is a point which would apply also to the claimant’s costs.

12. I consider that addresses the general points on the nature of the claim. Mr Matthewson raised a number of other preliminary points. I make it clear that I am determining the budget first. I am not determining the security for costs application in advance. Mr Matthewson also made the point that the claimant’s budget underestimates the future work. I consider that I have already dealt with that. There may well be something in it but set against that are the facts that the claimant’s hourly rates are also higher and that it is not necessarily the role of the budget to include all of the costs which are to be incurred.

13. Turning now to the individual phases, my decision on each phase will take account of the points which I have already made which I do not intend to repeat. On disclosure, I am dealing with costs which are yet to be incurred. A budget for future costs of £78,350 is sought by the defendant. Mr King submitted that the approach of the defendant to this phase sheds particular light on the defendant’s approach. I consider there is something in that submission. Mr Matthewson was not able to explain to me by reference to numbers of documents and by reference to the assessment which those instructing him had made of the task which has to be completed what the burden of the work on disclosure was. His submissions were very much at the level of generality.

14. It is relevant that the defendant’s case is that no services were provided after 2016 and, it seems to me on that basis, improbable that there will be a heavy burden of carrying out disclosure for the defendant itself. There will, of course, be the burden of reviewing the claimant’s disclosure which I take into account. I also do not consider I can go behind the suggestion that £15,000 is an appropriate cost for a disclosure platform but even taking that into account, it seems to me that to bring these costs within a reasonable and proportionate range a significant reduction must be made. For future costs I set the budget at £42,000.

15. On witness statements a total of £133,000 is sought which would be a total of 220 hours over four different fee-earners. The point I would make here which could also be made generally is that I can see a significant risk of there being duplication between fee-earners with all of them being so heavily involved with all of the relevant tasks. Again, I consider the submissions that were made were made with a level of generality and that, particularly in light of Practice Direction 57AC where the role of the proofing exercise is to take the witness’ own evidence, not to conduct with the witness detailed investigations of documents or to recite what is said in documents, it seems to me that the amount of time claimed is quite clearly disproportionate to what is required in this case. On the other hand, in favour of the defendant, the defendant does not yet know the full extent of the case it has to meet factually, which I do have to take into account.

16. With those points in mind, with reference to both the hourly rates and the amount of time claimed, the amount sought is, I consider, more than twice what should be permitted. I am going to set the budget at £65,000 but I am going to make it clear and the order should record that that is on the assumption that there will be no responsive witness statements. If responsive witness statements prove to be required, I will indicate now I consider that they would be a substantial development which would justify a revision to the budget which would obviously require consideration of what sums had been spent already.

17. On expert reports, the issue for the Swiss law experts is the effect of what I will neutrally call (because the effect is not agreed) the liquidation of the claimant in 2016. I can see that it may not be a straightforward question but there are a number of binary questions which fall to be addressed as part of it. The claimant’s own budget on this at more than £40,000 seems to me to be significant given the scope of the issue. I am not persuaded that significantly more than that is required for the defendant but allowing some margin for error, I am going to set the budget there at £55,000.

18. On the PTR, a half-day PTR has been provided for. I take account of the submission made by reference to the costs schedule for today for the security for costs application that if there are any issues requiring determination following the dispute on submissions, then the costs incurred are likely to be more than the figure put forward by the claimant. I still consider for a half day hearing £35,000 to be disproportionate. I am going to set the budget for this phase at £26,000 taking account also of the fact that whilst it is by no means the only thing that has to be done, the bulk of the preparation of the documentation as with trial itself is for the claimant’s solicitors to undertake.

20. On trial preparation, which includes counsel’s brief fee and solicitors’ time in preparing for trial a total of £189,000-odd is sought, including £64,000 for counsel’s brief fee. The assumptions state that counsel’s daily refresher is to be £4,000. That suggests around 12 or 13 days of preparation which seems to me on the issues as I currently see them to be on the generous side, although I have to take account of the fact that the issues are not yet fully crystallised. The particular point taken by the claimant is again there are some 220 hours of solicitor time provided for, including 80 hours, essentially two weeks’ full-time work for each of the grade C fee-earners, plus £12,000 as the cost of a meeting with the expert. I accept some meeting with the expert or some communication with the expert is likely to be proportionate but this seems to me to be probably unreasonable and certainly disproportionate, likewise the amount of time for fee-earners. Again, I would consider that as with the witness statements the amount of time put down is likely given the generality of the points that were made in submissions to be around double what is required from solicitors but I should make some allowance for doubt in that regard. I consider that it is appropriate with all of those factors in mind to set a budget for this phase of £125,000.

1. 1. On trial itself the complaint was really one about solicitors’ time. I agree with Mr King that to have all four fee-earners in court throughout is disproportionate. I consider it proportionate to have two solicitors present and another assisting ad hoc which would be far more conventional for a trial of this length. Taking account of that and the hourly rate point, I consider that an appropriate budget for trial is £88,000.

1. On ADR, the claimant has an assumption of mediation. The defendant has an assumption that there will be mediation. It seems to me the budget should be prepared on the same assumption. I am going to deal with ADR this way. I am going to set the budget at the much lower £22,000, rather than the £47,000 sought, which expressly will not include the assumption of the mediation. Of course, the court would encourage the parties to consider mediation and, again, if mediation takes place the parties can revise their budgets on the basis of a substantial development