Costs judges should not treat costs as reasonable or proportionate simply because they fall within the scope of the court-approved budget, the Court of Appeal has warned.
Giving permission to appeal in Troy Foods v Manton  EWCA Civ 615, Lord Justice Moore-Bick also suggested that it was wrong for judges to approve elements of budgets simply because they do not seem “grossly disproportionate”.
The case concerned a breach of contract claim that fell under the Mercantile Court costs management pilot last year and the budget approved by HHJ Kaye QC in Leeds.
Moore-Bick LJ said: “The defendant's concern is that, on a detailed assessment, costs judges are likely to treat the approval of a budget, or any relevant part of it, as ipso facto establishing that the costs incurred in respect of the matter generally, or that particular element of it, are reasonable if they fall within the approved budget.
“In Henry v News Group Newspapers  EWCA Civ 19 at paragraph 16, I expressed the view that an approved budget was not to be taken as a licence to conduct litigation in an unnecessarily expensive way.
“It follows that I do not accept that costs judges should or will treat the court's approval of a budget as demonstrating, without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply because they fall within the scope of the approved budget.”
Nonetheless, he continued that one of the principal aims of costs budgeting is to control the parties’ expenditure, and “that will not be effective if judges do not apply the correct principles”.
Judge Kay had said that, looking at the matter in the round, the costs were not so grossly disproportionate or so out of line with the overriding principle as to cause him to put any greater cap on them or to express any greater concern than he had already voiced in relation to certain elements.
Moore-Bick LJ said: “It seems therefore that the judge proceeded on the basis that he would approve any figure for a particular element of the claim, provided it was not so unreasonable as to render it obviously excessive or, as he put it, ‘grossly disproportionate’.
“Although the court will not readily interfere with the judge's decision in a matter of this kind, which essentially involves an exercise of judgment, I think it is arguable that in this case the judge did not apply the correct principles and, as a result, approved an over-generous budget in respect of some elements of costs.”
The judge said he gave permission so that the Court of Appeal could establish the correct principles upon which costs budgeting is to be carried out and also possibly the proper approach to be taken by costs judges on detailed assessment where there is a budget.
However, it is understood that the case has now settled, but the comments indicate that the court recognises the early need for guidance.