Defendant bound by agreed budget and Court bound to take into account comments made on the Costs Management Order
By Sean Linley
In the matter of Lemos & Ors v Church Bay Trust Company & Ors [2025] EWHC 3061 (SCCO) (18 November 2025) the SCCO was asked to consider the effect of two orders made following costs management upon the assessment of the Defendants’ costs.
The key practice points are that:
1. Costs Management Orders are discretionary and there is no prescribed point as to when they ought to be made.
2. Where a Costs Budget is agreed, the court has no discretion save to record the agreement and make comment as to the incurred costs and upon the reasonableness and proportionality of budgeted costs.
3. The court is bound to take into account any comments made. This may correlate to arguments around good reasons to depart from a costs budget (downwards or upwards).
The decision reinforces the need for practitioners to understand the implications of agreeing a budget or phases and that agreement does not automatically mean the court will accept the same as reasonable or proportionate.
Background
Here the court made a Provisional Costs Management Order (CMO) which recorded that the Claimant’s costs had been ‘provisionally approved’ subject to further consideration of whether the budgets of the Claimant and the Defendant were unreasonable and disproportionate and not in accordance with the Overriding Objective. The Defendant’s budgeted costs were recorded as agreed, subject to the determination of the ‘further issue’.
The order specifically provided that:
"Upon the determination of the Further Issue the Claimants' budgeted costs in the amounts provisionally approved and the Defendants' budgeted costs as agreed by the Claimants may be disapproved or revised downwards but not upwards if the Court considers it appropriate to so in the light of its consideration of the written reports to be filed pursuant to paragraph 3 below."
Costs Judge Nagalingam noted that:
“Whilst the notion of a provisionally approved/agreed costs budget may be unusual, ICC Jones made a case management direction. A casual observer might view that direction as akin to adjourning the CMC part heard pending the sight of further "Reports". In reality, it was an invitation for both sides to review their respective Precedent R budget discussion reports as necessary, whilst also seeking to justify their own budgets, and as ICC Jones would later clarify this was not an adjournment.”
Following the hearing both parties prepared detailed reports seeking to justify their own costs. A further hearing took place in January 2023. Here ICC Jones’ concluded that:
“the court does not consider on the information currently available that the budgets are reasonable and proportionate.”
The order made recorded that:
“1. The Court does not consider on the information currently available that either the Claimants' or the Defendants' costs (including incurred costs) are reasonable and proportionate, for the reasons set out in the Judgment.
2. Subject to paragraph 1 above and as explained in the Judgment, the Court made a provisional assessment of the Claimants' estimated costs in the total figure of £893,455.00, as more particularly set out in the Schedule to the First Costs Management Order, a copy of which is appended to this order;
3. The Defendants' budgeted costs in respect of estimated costs is agreed by the Claimants in the total sum of £860,355.00, as more particularly set out in the Schedule to the First Costs Management Order."
What were the effect of the two orders?
The question for the SCCO was what were the consequences of the two court orders considered.
The following key observations were made:
1. The making of a CMO is discretionary.
2. The making of a CMO is not confined to any particular stage in the proceedings.
3. Where Costs Budget are agreed the court has no discretion. The court can only record the extent to which they are agreed. Discretion is limited to budgeted costs which are not agreed. It was noted that “That approach is affirmed by the decision in The Pan NOx Emissions Litigation [2024] EWHC 1728 (KB) at paragraph 21, where Constable J observed that "… The Court cannot approve or disapprove phase totals for budgeted costs which have been agreed; and nor can it substitute a different approved figure for an agreed phase total for budgeted costs. The limit of the Court's facility, in the event that it disapproves of agreed phase totals, is to decline to make a costs management order."
4. As the Defendant’s Costs Budget had been agreed then the court could only record comments on it and nothing more.
5. Here there was no explicit or inferred dispensation of costs budgeting.
The SCCO concluded that:
1. The first order met the criteria of a Costs Management Order as it recorded the extent to which budgeted costs were agreed between the parties (the Defendant’s budget having been agreed).
2. The court was entitled in the second order to make comment on both incurred costs and the reasonableness and proportionality of all budgeted costs.
Consequently, the Defendant was bound by the budgeted amounts agreed for each phase.
The SCCO were clear that this did not give carte blanche to simply recover the costs as budgeted:
“This does not automatically mean that the Defendants will recover the full amount of every budgeted phase in which the costs are under budget. Good reason arguments for downward departures from a budget may still be argued on assessment, provided they were raised in the points of dispute. Upward departures will not be permitted without good reason.
As to the Defendants' incurred costs, they are to be assessed in the usual way. However, where "Assessing costs on the standard basis where a costs management order has been made", CPR 3.18(3) requires the assessing court to "take into account any comments made pursuant to rule 3.17(3) and recorded on the face of the order."
Accordingly, I am bound to take into account any comments recorded on the face of the order dated 30 January 2023 when assessing the Defendants' costs in this matter.”
Costs Judge Nagalingam disregarded arguments made by the Claimants as to tactical agreements to Defendants’ budgets where it aids arguments as to comparisons against a Claimant’s budget.
He further considered that:
“Two costs management orders were made. Both recorded the Claimants' agreement to the Defendants' budget. The second costs management order simply added comments that are relevant to the assessment of costs, but have no bearing on how the bill should be drawn in terms of the cut-off date for incurred and budgeted costs. The second CMO is consistent with the first in terms of recording that the Defendants' budgeted costs were agreed.
In terms of the Defendants' costs, the costs management order dated 11 October 2022 binds this assessment and dictates how the bill of costs should be drawn. Points of dispute and points of reply are a consequence of a correctly drawn bill.
The costs management order dated 30 January 2023 binds this assessment in so far as I am required to take into account the comments of the case managing judge, whilst also reaffirming the recording of the fact that the Defendants' budgeted costs had been agreed.
For the avoidance of any doubt, the case managing judge's comments shall not be disregarded, nor are they binding. They shall be taken into account when assessing costs. Where reasonableness and proportionality are raised as issues in the detailed assessment, they will be determined in the assessment and taking into account comments recorded on the costs management orders.
In so far as the January 2023 judgment is concerned, I do not consider I am precluded from noting the content of the same when conducting a detailed assessment. CPR 3.18 sets out the comments I am to take into account. It does not limit me from considering judgments made during the life of the litigation.”
The matter will now resume by way of Detailed Assessment on 25 February 2026 absent agreement between the parties.
We are always happy to talk any aspect of costs. Should you have any queries arising from this blog (or in general), please get in touch for a chat - call 01482 534567 or email info@carterburnett.co.uk
