Costs Budgeting where Hourly Rates are not agreed - A High Court decision
One of the common disputes pertaining to Costs Budgeting and Costs Management relates to hourly rates. There is a clear tension, CPR 3.15(8) makes clear that “it is not the role of the court in the costs management hearing to fix or approve the hourly rates claimed in the budget” but hourly rates clearly have an impact on the level of the costs budget sought which in turn impacts proportionality. Put simply, how do you reach a proportionate and reasonable sum for each phase without some consideration of hourly rates, even if indirectly? Here the Defendant had frequently agreed the time claimed but disputed the hourly rates.
In Pontis Finance LLP v Karam, Missick & Traube LLP [2025] EWHC 2298 (Ch) (09 September 2025), Deputy Master Henderson had to consider this exact issue with the Defendant taking issue with the hourly rates claimed by the Claimant in their budget. Here for a myriad of reasons the High Court was left to only address the Trial Preparation and Trial phases.
Speed Read
The key issues from the case can be summarised as follows:
1. CPR 3.15(8) is clear that it is not the role of the court in the costs management hearing to fix or approve hourly rates, however, the underlying detail in the budget for each phase will assist the court in fixing a budget.
2. For many cases the use of a high hourly rate will indicate disproportionality or unreasonableness but crucially it will not always do so. It will come down to both rates and time claimed. Here the High Court made clear that the overall reasonable and proportionate figure could be a small amount at a higher rate or more time with a lower rate.
3. It is for the parties to decide how they wish to spend their budget. The court should be careful not to get into micromanaging costs (as per Yirenki). Once the budget sum is set the division of the same is up to the party itself.
4. The court can make downward adjustments to phases where there are heavy time costs arising from excessive rates. Here the solicitor rates were found to be excessive for the specific case and as a consequence reductions were made to the budget phase figure to reflect that.
5. Prior to looking at the individual phases, the court will assess whether the overall figure for incurred and budgeted costs is proportionate and reasonable. If that figure is considered to be outside the range of reasonable and proportionate costs for the specific case then the court should approach the budgeted costs for each phase, on the footing that some of the budgeted costs may not be reasonable and proportionate. This does not, however, mean all budgeted costs should be automatically reduced.
6. Guideline hourly rates are broad approximations only. The Bands and work relating to them are only guidelines. This means they will not always be appropriate.
7. For commercial work it could be that some aspects of a claim are suitable for London 1 (very heavy commercial and corporate work by centrally based London firms) even if other elements are a suitable for a lower Band. This will form part of the consideration of the reasonable and proportionate range.
8. Where a phase total covers not just solicitor costs then the court needs to be aware of this before applying reductions. Where it is just solicitor costs in dispute then where disproportionate rates are found to have been claimed it might be reasonable to “apply a substantial discount”. This is because a 'shortfall' in another element, such as low Counsel fees, may mean the overall phase sum is within a reasonable and proportionate range.
9. The primary issue for the court is whether the overall figure for each phase is reasonable and proportionate having regard to the proportionality factors under CPR 44.3(5) (and it is all of these factors not just monetary value). As above, the fact that an element of the overall phase is disproportionate does not mean the overall phase itself is not proportionate.
10. Comparisons to another party’s budget is “generally not very helpful, even less so where the court has not fixed the other party’s budget but, as here, has recorded an agreed figure”.
11. The Claimant had budgeted for the Grade A, Grade D, Leading Counsel and Junior Counsel to attend Trial. The High Court found it was reasonable for the KC and Junior Counsel to attend alongside the Grade A fee earner attending throughout. It was also reasonable for the most senior Grade A to be available to consider the progress of trial, address any questions that arose and maintain a feel for the trial, however, the sum claimed for this was disproportionate. It was also reasonable and proportionate to have a trainee present throughout the trial but only because of the nature of thw claim "so that urgent matters which have to be dealt with while the court is sitting and which cannot be dealt with in court can be dealt with by one or other of the solicitor and trainee without leaving counsel with no solicitor sitting behind them". It was also accepted that there would be some Grade D work outside court hours such as finding, copying and sending additional documents as required.
11. The High Court found that 10 hour working days for each day of Trial was reasonable. This conflicts with King's Bench Division guidance which suggests 7/8 hours as appropriate.
12. Here the Trial Preparation phase claimed at £88,700 was approved at £50,000 (an over 40% reduction) whilst the Trial phase claimed at £136,550 was approved at £115,000 (just over 15% reduction).
The decision is a useful exploratory of how the court should address the question of what is a reasonable and proportionate sum for each phase. It also sets out the approach to hourly rates (given the court cannot fix or approve the same) and makes clear that where excessive hourly rates are claimed this can impact what is fixed or approved by the court. At the same time a disproportionate aspect of a phase does not necessarily mean the phase overall is disproportionate.
What is also clear is that the court should avoid micromanagement of costs and that once a phase total is set it is for the party whose budget it is to determine how best it wishes to spend to the same.
Parties need to consider when drawing their Costs Budget whether it sits within a reasonable and proportionate range with reference to the specific facts of the claim. Advocates need to be prepared to address this issue head-on if there is not an agreement.
Your costs specialist should discuss these issues with you at the point the Costs Budget is prepared to ensure the same is robust.
The Dispute
Deputy Master Henderson summarised the dispute as between the parties:
"12. The broad issues are whether the costs for which I am setting a budget per phase fall within the range of reasonable and proportionate costs and, if not, what would be reasonable and proper costs for the relevant phase. There is the possibility of requiring the submission of revised budgets for some or all of the outstanding phases, but, as will become apparent, insofar as the Claimant's budgeted costs for a phase exceed what is reasonable and proportionate, they do not do so by such large amounts or fractions as to make such a course appropriate, having regard to the overriding objective.
13. The big issues between the parties on the Claimant's challenged budgets are whether the case is sufficiently valuable and complex to justify the use of the high hourly rates charged by the Claimant's solicitors and the related question of whether it is proportionate and reasonable to engage both a KC and a junior barrister.
14. CPR 44.3(5) provides that costs incurred are proportionate if they bear a reasonable relationship to-
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party.
(e) any wider factors involved in the proceedings, such as reputation or public importance; and
(f) any additional work undertaken or expense incurred due to the vulnerability of a party or any witness.
15. Thus, it is not just the monitory value of the claim which affects proportionality, but also the other factors listed in CPR 44.3(5). In the present case factors (b), (d), (e) and (f) do not appear to be of any relevance and were not relied upon by the parties in their submissions. The main factor in issue is complexity. There is a dispute about the sums in issue or rather as to what as matters of fact or analysis the Claimant might recover if successful. I do not attempt to resolve this dispute. I consider it is sufficient for the purpose of costs budgeting to assess the sums in issue as being in the range £800,000 to approximately £1.2 million.”
The High Court gave consideration to the parties’ respective arguments:
"19. The Claimant submitted that although the case may not be particularly document heavy, the legal issues and their application to the facts of the case are complex. It was submitted that the most complex issue was whether KMT assumed a duty of care to Pontis. In the Claimant's written submissions dated 5th March 2025 it was submitted that this was a point on which the law was frequently developing and that the answer might turn on complex factual questions as to whether KMT's actions meant it assumed a duty where one might not otherwise exist.
20. In the Claimant's skeleton argument for the CCMC it was submitted that the legal issues and their application to the facts were complex. It was submitted that these included whether KMT assumed a duty of care to Pontis (who was not its client); whether KMT gave undertakings or warranties and if so what their precise terms were; whether KMT was in breach of trust in releasing the loan moneys to their apparent client; and whether KMT should be excused if it was found to be in breach of trust. It would also require the court to examine the relevant counterfactual when deciding whether Pontis was entitled to the loss it claims. Pontis submitted that for these reasons, the majority of the budgeted for work appropriately focussed on the trial preparation and trial phases.
21. The Defendant submitted that this was a relatively low value professional claim by a lender against a firm of solicitors; that it had some interesting legal and factual quirks, but was neither a complex case, nor a case which could be sensibly categorised as heavy commercial litigation.
22. I agree with the Defendant's last-mentioned submissions for the following reasons:
22.1. In the overall scale of litigation in the Chancery Division a claim for £1.2 million odd is towards the lower end of the scale.
22.2. At the CCMC on 21st February 2025 I directed that the claim should be entered in the Trial List, with a listing category of B, with a time estimate of 5 days, to include 1 day of Judge's pre-reading time. It has been listed on that basis.
22.3. I consider that this case will substantially turn on the facts. Whether there will be subtleties of how the law applies to those facts and what those subtleties will be, will depend mainly on what facts are found. For that reason I think that the Claimant is right to have focussed on trial preparation and trial phases.
22.4. This is not a case of a complicated commercial transaction or one where complicated asset or money tracing evidence or analysis is required."
The Law and Authorities
The High Court considered the rules and the relevant case law as to the appropriate approach.
"23. CPR 3.15(8) provides that a costs management order concerns the totals allowed for each phase of the budget, and while the underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes to assist the court in fixing a budget, it is not the role of the court in the costs management hearing to fix or approve the hourly rates claimed in the budget.
24. In its submissions, the Defendant recognised that by reason of CPR 3.15(8) the budgeting court could not fix or approve hourly rates, but submitted, as just mentioned, that this was not a case which could be sensibly categorised as heavy commercial litigation and that it was not a case which justified the hourly rates charged by the Claimant's solicitors. I have already said why I agree with the first part of this submission, but the second part of the submission potentially only deals with part of the budgeting issues. That is because although in many cases the use of a high hourly rate will itself indicate disproportionality or unreasonableness, it will not always do so. Whether it does may often depend on the number of hours of the high rate individual which are budgeted for. What I am aiming to ascertain is whether the budgeted phase costs are reasonable and proportionate as overall figures for the phase. Thus, it is the overall figure for a phase which I should be looking at. It is possible that the same figure could be reached with a few hours at a high hourly rate, or with more hours at a lower hourly rate. In both alternatives the end figure might be reasonable and proportionate.
25. My approach outlined in the immediately foregoing paragraph is that required by the CPR. As explained in note 3.15.2 of the White Book:
"In Yirenkyi [Yirenkyi v Ministry of Defence [2018] EWHC 3102 (QB); [2018] 5 Costs L.R.1177], Jacobs J held that a Master conducting a cost budgeting exercise had erred in principle in approving specific hours and disbursements rather than total figures for each phase of the proceedings and had erred also in expressly reserving matters, such as hourly rates, to be disputed at a detailed assessment. Approving the number of hours which different levels of fee earner may spend had the effect of removing the flexibility each party would later have when deciding how to spend the budget in the light of the way the case develops and would involve the court in micromanaging costs to a disproportionate extent."
26. I consider that my approach outlined above is consistent with the decision of Constable J in GS Woodland Court GP1 Ltd v GRCM Ltd [2025] EWHC 285 (TCC) which both parties referred me to. In particular para.14 of Constable J's judgment where he said:
"The rates are excessive and, in due course, whilst of course I am not going to say anything specific in terms of what the rates should be or the precise calculation, I will take account of a relatively sizeable downward adjustment in each of the phases where there heavy time costs to reflect the excessive rates."
27. It is the combination of the rates and the times which potentially led to a disproportionate figure. That conclusion also means that both (i) Constable J's reference in para.12 of his judgment to Males LJ's words in Samsung Electronics Co Ltd & Ors v LG Display Co Ltd & Anor (Costs) [2022] EWCA Civ 466 where Males LJ recognised that, 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, and (ii) Males LJ's words themselves, must be read in context.
28. The Samsung case was a summary assessment case. At para.4 of his judgment Males LJ said that it was important to have in mind that the guideline rates for London 1 already assumed that the litigation in question qualified as "very heavy commercial work".
29. At para.6 of his judgment in Samsung Males LJ said, as part of his reasoning for the Court of Appeal's decision:
"If a rate in excess of the guideline rate is to be charged to the paying party, a clear and compelling justification must be provided. It is not enough to say that the case is a commercial case, or a competition case, or that it has an international element, unless there is something about these factors in the case in question which justifies exceeding the guideline rate."
30. As will be seen when I turn to the individual phases, the Defendant has mainly criticised the hourly rates, while frequently accepting the number of hours budgeted by the Claimant. I consider that such criticism has to be looked at in the context of the number of hours budgeted for.
31. Before looking at the individual phases, I assess whether the overall figure for incurred and budgeted costs is proportionate and reasonable. The overall figure for the Claimant is £489,891.31. I consider that that figure is outside the range of what is reasonable and proportionate for the present case which, as I already explained, is a claim for approximately £1.2 million at most and is not especially complex either as to the facts or as to matters of law, albeit that once the facts are found it may well be that there will be scope for some more or less subtle arguments as to how the law should apply to them.
32. That conclusion does not mean that I should automatically reduce all the budgeted costs. What it means is that I approach the budgeted costs for each phase on the footing that, having regard to that conclusion, some of budgeted phase costs may well be outside the range of what is reasonable and proportionate for that phase. I do not put it higher than that because when looking at the overall figure I have included incurred costs, and some of the excessive costs may already have been incurred. I also bear in mind the Claimant's submission that the majority of the budgeted for work appropriately focussed on the trial preparation and trial phases."
What rates should be applied and what is a reasonable & proportionate sum?
The High Court considered the Guideline Hourly Rates noting them to be “broad approximation only”. It was further noted that the Claimant’s solicitors were London Band 2 “however, the Bands and work related to them are only guidelines. In particular some aspects of the work may be closer to Band 1 than others”.
The Claimant had claimed Grade A rates of £550 and £870 and Grade D rates of £250 and £400. Comparatively London 1 rates were £566 for A and £205 for D whilst London 2 rates were £413 for A and £153 for D.
Deputy Master Henderson made clear that “a purely rates based approach may be inappropriate”. However, reflected that:
"40. […] the great disparity between the rates claimed and the London 2 Guidelines, which I consider to be the applicable rates, I would, if I was only budgeting the Claimant's solicitors fees for this phase apply a substantial discount to the Claimant's budgeted solicitors' costs for this phases to take account of this disparity.
41. On the broad brush approach appropriate to costs budgeting, I consider that, if looked at separately from Counsel's brief fees, the approximate overall discount on the solicitors' costs appropriate to make those costs reasonable and proportionate would be 35%. This takes into account, on an approximate basis, that it is RWJ's relatively few hours which are charged at a very much greater rate than the London 2 rate, while the rates charged for the greater number of hours charged for RS and CS although still substantially in excess of the London 2 rates for their grades, are not as greatly in excess as RWJ's. Thus, looking at the Claimant's solicitors' fees for this phase of £30,135 in isolation, a reduction of 35% would be very close to £10,550.
42. However, I am not budgeting only the solicitors' fees and it does not follow that I should reduce the overall figure for this phase by £10,550 or at all. The issue for me is whether the overall figure for this phase is reasonable and proportionate – see CPR 3.15(8) referred to above. The fact that one element of the phase may be outside the range of what is reasonable and proportionate for that element to the extent of £10,550 does not mean that the overall figure for the phase is necessarily outside the range of what is reasonable and proportionate. For example, if, in this phase, counsel's fees were within the upper limit of the reasonable and proportionate range by £10,550 or more, then on an arithmetical basis the overall figure for the phase would be reasonable and proportionate.
43. The Claimant seeks budgets for leading and junior counsel for the trial with brief fees of £65,000 and £25,000 respectively. The Defendant submits that to the extent that the legal and factual eccentricities of the case justify the instruction of leading counsel for trial, leading counsel should be able to conduct the trial alone. The Defendant also submits that it is unnecessary to have both leading and junior counsel at trial because the Claimant intends to have a managing associate present for the duration of the trial. The assumption made in Claimant's Precedent H in respect of the Trial phase is that the trial will be attended by a Grade A solicitor and Grade D trainee throughout. In its written submissions the Claimant says that it has budgeted for the fee earner with principal conduct of the matter and a trainee to attend throughout the trial. This last is a point which goes to both the Trial Preparation and the Trial phases because it goes to the question of whether an allowance should be made for junior counsel. The Claimant points out that its intended junior counsel is of 3 years call and that the aggregate of the brief fees for its leading and junior counsel (£90,000) is comparable to the Defendant's leading counsel's proposed brief fee of £85,000. That is of some but not very great relevance in showing what fee a hypothetical counsel, capable of conducting the case effectively, but unable or unwilling to insist on the higher fees sometimes demanded by counsel of pre-eminent reputation, would be content to take on the brief. There is no precise standard of measurement and the judge must, using his or her knowledge and experience, determine whether such a figure is reasonable and proportionate.
44. I consider that the nature and value of the case as explained above makes it reasonable to brief both leading and junior counsel for the trial. However, I consider that it is disproportionate to spend £90,000 on brief fees for counsel. How the budgeted amount is split between leading and junior counsel is a matter for the Claimant and, indeed, whether and how it might otherwise be applied in the phase is a matter for the Claimant.
45. I consider that the nature and value of the case makes it reasonable to have the Grade A solicitor with principal conduct of the matter present throughout the trial in addition to leading and junior counsel.
46. In the same way that I am not budgeting just for the solicitors' fees in isolation, I am not budgeting just for counsels' fees in isolation. I am budgeting for the phase as a whole. In line with Jacobs J's decision in Yirenkyi I need to look at the matter on a broad basis.
47. The overall figure for the Claimant's costs in its Precedent H, including incurred costs is £489,891.31. I have already concluded that that figure is outside the range of what is reasonable and proportionate and that for that reason I should approach the budgeted costs for each phase on the footing that some of budgeted phase costs may well be outside the range of what is reasonable and proportionate for that phase. Having regard to the Claimant's submissions that the majority of the budgeted for work was focussed on the trial preparation and trial phases, I would expect to find the bulk of the costs which take the overall figure outside the range of what is reasonable and proportionate in those two phases of the Claimant's budget.
48. The overall figure sought by the Claimant for the Trial Preparation phase is £136,550.00. I have concluded that part of that figure consists of excessive solicitors' fees. In line with the approach of Constable J in the GS Woodland case I consider that I should make a downward adjustment to the Claimant's phase figure to reflect the excessive rates unless I consider that the excess is counterbalanced by a shortfall as between the Counsel's fees claimed and the maximum that is reasonable and proportionate. I do not. I consider that a further downward adjustment is appropriate because of my conclusion as to Counsel's brief fees. In the light of those conclusions and the above reasoning, I consider that the overall figure which is reasonable and proportionate for the Claimant's costs for the phase is £115,000. I fix the budget in respect of the Claimant's Trial Preparation phase at £115,000 accordingly.
49. Comparisons with the other party's figures for a phase are generally not very helpful, even less so where the court has not fixed the other party's budget but, as here, has recorded an agreed figure. That said, for what it is worth, £115,000 is reasonably close to the Defendant's agreed figure for that phase of £109,720.”
The court next turned its attention to the Trial phase:
"51. There is a point about the number of counsels' refreshers. The Claimant has allowed for 4; the Defendant has proposed 3. I think the Defendant is correct. The relevant assumption in the Claimant's Precedent H assumes "4 x refresher fee for Senior and Junior Counsel (assuming a 4 day trial)...". That assumption is internally inconsistent. For a 4 day trial the brief fee covers all the work done by way of preparation for representation at the trial and attendance on the first day of the trial; refreshers cover the subsequent days (see for example note 47.14.11 in the White Book). The trial is listed for 5 days to include 1 day for judicial pre-reading. The first day in court is the day after the Judge's pre-reading day. I consider that counsels' brief fees are in respect of that first day for them in court, not the pre-reading day. There then will follow 3 more days of the trial. It is for each of those 3 days that a refresher is appropriate. That approach is also consistent with the Claimant's approach to solicitors' fees for the trial where they seek to charge by reference to attendance for 4 days.
52. Accordingly, by reference to the Claimant's calculations in their Precedent H, there should be a reduction of £10,250 representing one refresher of £7,500 for leading counsel and one refresher of £2,750 for junior counsel.
53. I consider that an estimate of 10 hour working days for a solicitor during trial is reasonable.
54. For the reasons given above in relation to the Trial Preparation phase, I consider that the solicitors rates charged are excessive in the context of a case of the present case's nature and value and that a reduction should be made to the budget figure to reflect that.
55. I have already stated that I consider that having the grade A fee earner RS present throughout the trial is reasonable. Subject to a substantial discount in respect of the rate charged that is also proportionate. The rate claimed for RS is £550. If the London Band 2 Guideline rate for RS of £413 was applied, that would make for approximately a 25% discount.
56. Having the more senior solicitor, RWJ attend and consider the progress of the trial from time to time over the 4 day period appears to me to be reasonable so that he can field any major questions that may arise and maintain a feel for how the trial is progressing. However, given the 10 hours a day for RS, the solicitor with principal conduct of the case, I consider that 10 hours at a rate of £870 is disproportionate. Fewer hours at a lower rate would be reasonable and proportionate. The rate claimed for RWJ is £870. If the London Band 2 Guideline rate for RS of £413 was applied, that would make for approximately a 50% discount in respect of rate.
57. Whether it is reasonable and proportionate additionally to have a trainee present throughout the trial at a cost of £2,500 per day is more doubtful. On balance I consider that subject to a substantial discount in respect of the rate charged that would be reasonable and proportionate. In a case of the nature and value of the present it is reasonable and, subject to questions of quantum, proportionate to have a trainee and a solicitor sitting behind counsel so that urgent matters which have to be dealt with while the court is sitting and which cannot be dealt with in court can be dealt with by one or other of the solicitor and trainee without leaving counsel with no solicitor sitting behind them. Outside court hours there are likely to be things such as finding, copying and sending additional documents which are appropriate to be dealt with a by a very junior person. The rate claimed for the trainee, CS, is £250. If the London Band 2 Guideline rate for CS of £153 was applied, that would make for very approximately a 40% discount in respect of rate.
58. The Claimant also claims for 5 hours for this phase for KE, described in the Claimant's written submissions as "a Grade D fee earner" at £400 per hour. KE's role is not explained. Looking back at the earlier phases in the Precedent H it is apparent that KE has had a relatively small involvement with the Pre-Action; Issue / Statements of Case; CMC and Disclosure phases. Whatever KE's role, the rate sought for him of £400 per hour is way greater than the £153 per hour under the London Band 2 Guideline Rates. In my broad approach which follows I discount all or virtually all of the claim in respect of KE for this phase.
59. The refreshers claimed for leading and junior counsel together amount to £10,250 per day. I consider that that aggregate substantially exceeds what is reasonable and proportionate for a case of this nature and value.
60. Drawing the above threads together and looking at the Claimant's claimed costs for the phase as a whole, I consider that the appropriate figure for the Claimant for this phase is £50,000."
