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Is an approved budget the starting point for a payment on account of costs?


Mr Justice Coulson found so in Bank of Ireland (Governors and Company of) & Anor v Watts Group Plc [2017] EWHC 2472 (TCC) (6 October 2017).

Paying parties need to be ready to rebut such requests and indeed the flurry of interim payment applications that this may generate.

Thankfully, there are good reasons to rebut payments on account at the level of the approved budget.

The judgment is limited to those cases where the costs incurred exceed the amount of the approved budget.

In Merrix v Heart of England NHST Foundation Trust, Carr J confirmed that where the amount of the costs of the action are lower than the amount of the approved budget then the receiving party cannot recover more than that amount upon assessment.

The indemnity principle lowers the starting point from the amount of the approved budget to that actual amount incurred.

This is again lowered if the receiving party exceeds the budgeted amount by phase – they  then should not be entitled to a payment on account that includes that excess amount, as that would be to pre determine whether there was a “good reason” to exceed the approved phase total.

On higher value complex cases there is usually an argument over hourly rates which are often reduced by more than 30%.  Deputy Master Campbell has already found that a reduction in hourly rates for incurred costs amounts to a “good reason” to depart from the budgeted costs in RNB v London Borough of Newham [2017] EWHC B15 (Costs).

Those who are getting excited about wider implications of this case need to calm down and see it for the storm in a teacup that it really is. The case merely points to a starting point in circumstances where the costs incurred exceed the amount of the approved budget.

The usual factors that are taken into account in assessing a reasonable amount for the payment on account still apply and the approach in Mars UK Limited v Teknowledge Limited [1999] 2 Costs LR remains good law!

Link to case: