Departure from Approved Costs Budget CPR 3.18 & Good Reason Explained

Understanding Costs Management Orders and CPR 3.18

If all has gone to plan and you have a costs management order for a workable sum, this is excellent news for the receiving party.
For the paying party, it provides clarity on costs liabilities.

Under CPR 3.18, at a detailed assessment on the standard basis, the Court will:

• Have regard to the receiving party’s last approved or agreed budget for each phase.
• Not depart from such approved or agreed budgeted costs unless satisfied there is good reason to do so.

In practice, if there is no good reason to depart from the agreed or approved budget, the receiving party will recover their costs in full as claimed.
Often, only pre-budget costs remain open for assessment.

Good Reason vs Significant Development

It is important to distinguish between:

• Good reason to depart from a budget (CPR 3.18)
• Significant development requiring a budget variation

While some parties view these tests as equivalent, the rules use different terminology — suggesting a deliberate drafting choice.
The logical conclusion is that one test is higher than the other.
We believe good reason to depart is the lower threshold, as circumstances can arise where departure is justified without a significant development in the litigation.

However, parties should not ignore opportunities to amend their budget in reliance on the good reason test.
The CPR is clear: budget variation is mandatory when there is a significant development.

Judicial Discretion and Case Law

What constitutes a good reason to depart is left to judicial discretion.

• Harrison v University Hospitals Coventry & Warwickshire NHS Trust
  Lord Justice Davis stated that it is better not to offer generalised guidance or examples, leaving the matter to the individual appraisal of costs judges.
• Nash v MOD
  The Court held that a change to hourly rates at assessment was not a good reason to depart from the budget.
  The reasoning: the Court sets a figure it considers reasonable and proportionate for the work, not a specific hourly rate.
  If the work is done within budget, those costs should be allowed regardless of rate changes.

Examples of Good Reason to Depart

From practical experience, good reasons can vary case by case. Examples include:

• Variations to witness evidence
• Conduct of a party
• Extra work required of an expert
• Additional disclosure requirements
• A second Joint Settlement Meeting (JSM)

Ultimately, each scenario depends on the individual circumstances of the case.

For more information or questions, contact Tom Brocklebank here.

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