Departing from an Approved Costs Budget - A Warning
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The case of O'Sullivan v Trading 212 UK Ltd [2026] EWCC 32 (03 June 2026) addresses some important points around when the Court will depart from an approved Costs Budget. It is a case where the parties spent nearly £750,000 arguing over £5,000, and it appeared neither party had given consideration to, or made the suggestion of, any form of Alternative Dispute Resolution (ADR).
The warning here is that even where there is an approved or agreed Costs Budget, the court retains the power to depart from it if the total costs are ultimately disproportionate. Here, the court found that the hourly rates were excessive, that there were changes in circumstances from when the costs budgets had been agreed/approved, and had regard to the value of the claim, which had always been modest. Ultimately, the parties collectively spent nearly £750,000 on a dispute worth around £5,000.
Speed Read
For those wanting a speed read of the salient points:
a) Total costs of both parties were circa £750,000 in a dispute, in monetary terms, for around £5,000. The court noted that “the parties have spent around 100 times more on legal fees than the claim is actually worth”.
b) The general rule is that unsuccessful party will be ordered to pay the costs of the successful party as per CPR 44.2(2).
c) A failure to comply with procedural obligations can lead to adverse costs consequences. Although the Defendant was the successful party they were ordered to pay the Claimant’s costs of late disclosure.
d) The Claimant was ordered to pay the costs of the Defendant’s Application to Strike-out, even though it was unsuccessful, on the basis it was reasonable to seek the Court’s intervention where special measures had to be put in place for the Trial in relation to the Claimant’s attendance at Trial and the Defendant’s witness’ attendance at Trial which principally arisen owing to the Claimant’s conduct.
e) The court has the power to depart from an approved or agreed Costs Budget where there is ‘good reason’ as per CPR 3.18. Whilst Costs Budget served an important function in giving certainty to all parties, the court could find a good reason to depart where the judge is “satisfied that the total costs incurred are disproportionate”.
The court considered two main principles:
Hourly Rates - As per RNB v LB Newham, the court here held that if a court on assessment reduces the hourly rates for incurred costs then this could be a good reason to depart from the approved budget.
Change in Circumstances - As per Nash v Ministry of Defence, the court considered that a ‘change in circumstances’ without budgets having been revised to reflect it would present good reason to depart where the total of incurred and budgeted costs led to a disproportionately high total.
f) On hourly rates the court could see no justification for the Defendant having utilised a London firm for a claim which was initially dealt with in Hull, particularly where the Defendant’s hourly rates exceeded even the Guideline Hourly Rates for London 1. A firm outside of London could well have been engaged by the Defendant. The court determined it would reduce rates up to a half for senior fee earners and up to a third for the more junior fee earners.
g) On ‘Change in Circumstances’ the court considered that the litigation had become disproportionate and more specifically that:
There had been a simplification of issues.
The case turned on a relatively small number of documents.
The claim was worth less than had been pleaded, it was always of modest value.
The issues in the case were not complex.
There were conduct issues from both sides which did give rise to further costs.
There were no wider factors of reputation or public importance.
The vulnerability of the Defendant’s witnesses did not come to light until after the CMO was made.
In short, the Costs Management Order had been set on a basis which turned out to be incorrect. It was, in fact, unlikely the claim would have been allocated to the Multi-Track, and the Trial length would not have been allowed at 3.5 days. Moreover, even if the claim had been treated as Multi-Track, the reduced time estimate for trial should have led the court to approach the costs budgeting exercise in a different way: “The parties would have been expected to cut their cloth much better to reflect the pleaded value of the claim.”
h) The three main reasons for departing from the Defendant’s Costs Budget were:
It was the duty of all parties to assist the court to manage a claim proportionately. The Defendant shared responsibility for “over-egging [the] claim at the case management stage”
The court in departing from the budget would not ignore it altogether, the Claimant here was well aware of the potential scale of his liability.
It was appropriate to evaluate the paying party’s conduct at the end of the claim, rather than at the case management stage.
i) The reductions to the Defendant’s costs from the approved budget were around 38%. Ultimately the Defendant recovered circa 28% of the costs against what it had incurred and the Claimant recovered circa 13% against what it had incurred.
j) The court was not impressed by the failure of both the Claimant and Defendant to propose or consider any form of ADR.
Background
By way of background the claim had been issued on the claim form at a value of up to £30,000, however, Recorder Benjamin Wood noted that the “claim only ever appears to have been word a few thousand pounds, when properly analysed”.
The claim commenced in the County Court at Hull and was allocated to the Multi-Track by the District Judge with a Costs Management Order made. The Claimant’s Costs Budget was agreed at £59,575 (including incurred costs of £8,625) whilst the Defendant’s Costs Budget was approved at £188,558.98 (£88,000 of which was incurred). The figures excluded VAT.
At the PTR, the parties’ Costs Budgets were revised and increases of £18,243.50 were applied to each party’s budget. There were also additional costs arising from interlocutory applications which fell outside the scope of the Costs Budget. Recorder Wood put it another way “the Claimant was at risk of paying up to £266,316.15 in respect of the Defendant's costs and the potential liability in the other direction was £98,618.50. Between them, the parties had just under £365,000 in costs on the table.”
Late disclosure from the Defendant led to further work after this juncture with Precedent Ts filed and served. The net result was that “by the time that judgment was handed down, the parties had a little over £482,000 in costs on the table, between them.”
Recorder Wood made extremely forthright observations:
“With an exhortation from me about proportionality and what I had intended to be a very clear message about the overall level of costs, the parties have not stopped spending since then. Each side submitted a further schedule of costs for the hearing on 21 May. The Claimant submitted a schedule in the amount of £1,925 (although this does not appear to include any of his lawyers' costs, in spite of the fact that there had been some earlier involvement from his lawyers) and the Defendant submitted a schedule totalling £29,981.76.”
Continuing Wood noted that:
“Adding (just) those figures, the overall costs on the table now stand at over £500,000. Saying it in different words, the parties have spent over half a million pounds between them trying to get the court to decide whether the Defendant owes the Claimant in the region of £5,000. Or, for those who prefer multiples, the parties have spent around 100 times more on legal fees than the claim is actually worth.”
And it got worse, once the final calculations for costs were provided it equated to circa quarter of a million pounds for the Claimant and almost half a million pounds for the Defendant. So nearly £750,000 spent in a dispute over £5,000. Wood was also critical of the parties’ apparent failures to consider any form of ADR with neither party having proposed such an approach.
What Costs Order should be made?
There was a dispute over who should be entitled to what. Indeed Recorder Wood did state that his “ first instinct was "A plague o' both your houses!" and that no order as to costs might be appropriate disposal” but ultimately determined this would be unfair where the Claimant had already lost his dispute with the Financial Dispute and again before the court. The Defendant as the successful party would be entitled to its costs of the claim and of an application to strike out.
The court ordered the Defendant meanwhile to pay the Claimant’s costs arising from their late disclosure. Wood was critical of the Defendant’s failure to comply with procedural obligations.
Should there be a departure from the Costs Budget?
It was noted that some of the costs ordered to be paid would form part of the parties’ budgeted costs.
CPR 3.18 stipulates that on a standard basis assessment the court will “not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so”.
Wood accepted that “Costs budgets serve the important function of giving certainty to clients, in the form of knowing what costs they are likely to face, in terms of payment or recovery”.
The court then proceeded to consider what “good reason” might be to depart from an approved or agreed costs budget.
The court considered as follows:
“78. The editors of the White Book (at 3.18.3) invite judges to have in mind the Denton test. They go on to identify two decisions which are said to "support the view that a costs judge may depart from the last approved or agreed budget if satisfied that the total costs incurred are disproportionate".
79. Although the question of whether to depart from the budgets loomed large, neither party referred to me to these decisions and so I have not heard argument about them. I have considered whether to invite submissions on their effect but I have decided that to do so would be disproportionate, adding yet further cost and delay to an already protracted and overly expensive dispute.
80 In RNB v. LB Newham [2017] EWHC B15 (Costs), the Deputy Costs Judge concluded that, if a court on assessment reduces the hourly rates for incurred costs, then this is a good reason to depart from the approved budget (to reflect the hourly rate reduction within the budgeted costs). At [24] of the judgment, the Deputy Costs Judge drew support for that conclusion from paragraph [73] of Merrix, noting that the rates allowed for incurred costs would need to be applied to the budgeted costs.
81 In Nash v. Ministry of Defence [2018] EWHC B4 (Costs), the Costs Judge took a different view, concluding that hourly rates should not be treated as holding a special status. However, at [88], he drew attention to the wording at the end of CPR 3.18 as "in recognition that the facts and circumstances in which a costs management order was made may have subsequently changed without revisions being made to the budget". He went on to give an example where "a change in facts and circumstances led to simplification of matters" without budgets being revised to reflect this such that the addition of the assessed incurred costs to the budgeted costs led to a disproportionately high total. At [90], he described CPR 44.3(2)(a) as "an effective safety valve for paying parties to seek a further reduction" and concluded at [91] that "a paying party… retains the ability to argue that the overall sum of assessed incurred costs plus budgeted costs is disproportionate such that the overall sum should be reduced".
82 It is right at this point to identify the hourly rates of the Defendant's solicitors. Prior to 1 May 2025, the Grade A rate was £605 (rising since then to £650). The Grade B rate was formerly £460 (rising to £495). Grade C actually decreased, from £345 to £340, and Grade D went up from £175 to £205.
83 The 2025 Guideline Hourly Rates for London 1 for grades A to D were £566, £385, £299 and £205, respectively. "London 1" is defined as "very heavy commercial and corporate work by centrally based London firms". The rates for London 2 (City and Central London – other work) were £413 (A), £319 (B), £269 (C) and £153 (D). The National 2 rates (which would apply to work carried out in Hull, where this claim began life) were £282 (A), £242 (B), £196 (C) and £139 (D).
84 The hourly rates of the Defendant's more senior solicitors are significantly higher than any of the guideline rates, and higher even than the guideline rates for very heavy commercial work conducted by centrally based London firms. The Claimant has drawn attention in his submissions to the fact that his solicitor was a grade B, working for £300 per hour, but I do not find this comparison to be of any assistance.
85 I have spent some time reflecting upon whether there is a "good reason" to depart from the approved budgets and I have come to the conclusion that there is, both working from first principles and by parity of reasoning with each of the costs judges' decisions (hard to reconcile though they might be).
86 Starting from the position of hourly rates (and so following the reasoning in RNB), I cannot see any justification for the Defendant being entitled to recover its solicitors' time at the hourly rates claimed. This was a claim that started in Hull (and was case managed there) and was always of modest value. Even though the Defendant is based in the City of London, and is a financial organisation, this case did not justify the involvement of "London 1" solicitors. I am far from convinced that it required London-based solicitors at all, given how many firms operate outside London, including those with financial services specialisms (if that was required).
87 In my view, when it comes to an assessment of costs, it will be necessary to reduce the solicitors' rates by something between around a third and a half, in the case of the more senior solicitors, and by something between around a quarter and a third, in the case of the more junior solicitors. If that is required for the incurred (and not budgeted) costs, then it would, applying RNB, be a good reason to depart from the approved budgets in order to apply the same reductions.
88 If, on the other hand, I adopt the reasoning in Nash, then I would need to ask myself whether there has been a change in facts and circumstances so as to justify the use of the "safety valve" of seeking a further reduction. As I understand the reasoning in Nash, a change of circumstances would need to be required if the Court were considering reducing the overall level of costs below the total of the approved costs. I take the view that, in spite of the parties' best efforts, there was a simplification of the issues, such that the total level of expenditure was disproportionately high.
89 Finally, I reach the same outcome from first principles. As the trial judge, I had the opportunity to review the material and form conclusions about the issues to a far greater degree than the costs managing judge.
90 I have been able to form views about the factors set out in CPR 44.3(5). I have formed a view about how much this case was really worth. I know that this is and was only a money claim. I know that this case turns on a relatively small number of documents, the application of the anti-money laundering regulations and the interpretation of the written contract between the parties. I also know the ways in which each side has generated additional work (which cannot have been envisaged when the costs management order was made). There are no wider factors of reputation or public importance. The vulnerability of the Defendant's witnesses came to light (and became an issue) only after the costs management order was made.
91 Put shortly, I take the view that the judge who made the costs management order did so on a basis that has turned out to be completely wrong. Had the judge known what I know now, it is vanishingly unlikely that this case would have been allocated to the multi-track and it is all but inconceivable that the parties would have been allotted 3.5 days of court time for the trial. Even if it had been treated as a multi-track trial, the shorter time estimate ought to have led the court to approach the cost budgeting exercise in a very different way. The parties would have been expected to cut their cloth much better to reflect the pleaded value of the claim.
92 I wish to emphasise that nothing in the previous paragraph is intended as any criticism whatsoever of the case managing judge (who will no doubt have dealt with this case as part of a busy list and on the basis of the limited information provided by the parties) nor to suggest that there was any impropriety on the part of any of the lawyers.
93 I recognise that this was the Claimant's claim and that it might be thought unfair to visit his misjudgement upon the Defendant as the receiving party.
94 However, there are three main reasons why this does not prevent me from concluding that I ought to depart from the approved budgets.
95 First, it is the duty of all parties (and not just a claimant) to assist the court to manage a case proportionately. If a defendant falls into the same errors as a claimant (or different errors with the same consequences) in over-egging a claim at the case management stage, then that defendant shares responsibility for the consequences.
96 Second, the effect of this decision is not to ignore the approved budget altogether, but to permit departure from it. In that regard, the Defendant is right to draw attention to the fact that the Claimant has been well aware of the potential scale of his liability for a long time. And a receiving party's last approved or agreed budget is one of the factors that the court will have regard to, applying CPR 44.4(3)(h).
97 Third, and in the particular circumstances of this case, it seems rather more appropriate to evaluate the ways in which the paying party has generated additional work at the end of the claim, rather than at the case management stage.
98 I have therefore concluded that there is a good reason to depart from the Defendant's approved (and revised) cost budget.”
The Assessment of Costs
The court in this case proceeded to assess both the Claimant’s and the Defendant’s costs entitlements on a summary assessment basis. The court elected it would not undertake a detailed, item by item analysis but instead adopt a broad figure taking into account what was reasonable, proportionate and in keeping with the overriding objective.
The Claimant’s costs caused by the Defendants late disclosure were £54,115, these sums had not been costs managed though Precedent Ts had been prepared for the same with the Defendant offering £18,000. The court assessed these costs at £27,000 plus VAT.
The Defendant’s costs of the strike out application had to be considered as two parts which were the costs which were not costs managed and the costs which were.
The costs of the application which were not subject to costs management were claimed at £59,513.67. Recorder Wood held that the “application could and should have been conducted much more modestly” and that “it was grossly disproportionate to spend more than twice the amount stated on the Claim From”. The costs were allowed at £15,000, almost a 75% reduction.
The court next considered the Defendant’s costs of the claim as a whole. The Defendant’s total costs were around £225,000. Recorder Wood undertook analysis of the Defendant’s costs and alongside reducing the hourly rates made significant reductions to the approved phases, to include reducing disclosure to £0 on the basis that “the Defendant should not receive its costs of the disclosure phases and that it should pay all of the Claimant’s costs consequent upon the late disclosure”.
The upshot was that costs were reduced from £225,000 to £113,750.
In the round therefore the Claimant having spent a total of £246,426.54 recovered £32,400 (13.1% recovery) whilst the Defendant having spent £452,456.26 recovered £128,750 (circa 28.5% recovery) whilst the overall reductions to the Defendant’s budgeted costs saw a downwards departure of around 38%.
The court ordered the Claimant’s costs to be off-set against the Defendant with the Claimant having to pay the balance of £96,350 within 5 weeks of the judgment having been handed down.
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