The Starting Point Under CPR 3.18

Where a costs management order has been made, CPR 3.18 sets out the position at detailed assessment clearly: the court will not depart from the approved or agreed budget costs unless it is satisfied that there is a good reason to do so.

This rule exists to give certainty. A costs budget, once approved, is intended to provide both parties with a reliable picture of their likely costs exposure. The paying party knows what they may face; the receiving party knows what they can expect to recover. Departing from that figure – whether upward or downwards – requires the court to identify a genuine justification for doing so.

But as recent case law has demonstrated, “good reason” is not as difficult a threshold to meet as some practitioners assume.

The Established Authority: Harrison and Chapman

The leading Court of Appeal authority on CPR 3.18 remains Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792 – also referred to in conjunction with Chapman v Norfolk and Norwich University Hospitals NHS Foundation Trust and related decisions involving Barts Health NHS Trust and other NHS foundation trust defendants.

In Harrison, the Court of Appeal confirmed the “good reason” test requires something more than a general dissatisfaction with the budgeted figure. The costs judge conducting detailed assessment is not conducting a re-run of the costs management hearing. The approved budget should be the starting point, and departure from it requires a specific, identifiable reason – not simply a view that the budgeted costs are too high or too low.

The Harrison line of authority established that changes in the incurred costs – particularly where hourly rates are reduced on assessment – can, in certain circumstances, provide good reason to depart from the budgeted figure for future phases. This principle has been applied and debated in subsequent decisions, with courts reaching different conclusions depending on the facts.

O’Sullivan v Trading 212 UK Ltd [2026] EWCC 32 – A Stark Warning

The recent decision in O’Sullivan v Trading 212 UK Ltd [20206] EWCC 32 has brought the CPR 3.18 question back into sharp focus – and in circumstances that serve as a striking cautionary tale for all civil litigators.

The claim was issued at a value of up to £30,000 but was, on proper analysis, worth only a few thousand pounds. Despite this, the parties between them spent nearly £750,000 in legal costs – approximately 100 times the value of the dispute. Neither party has proposed or considered any form of alternative dispute resolution at any stage.

Recorder Wood found good reason to depart from the Defendant’s approved costs budget on two grounds. First, following the reasoning in RNB v LB Newham, the hourly rates claimed by the Defendant’s solicitors – a London firm instructed on a claim that originated in Hull and was always of modest value – were excessive and would require significant reduction on assessment. That reduction in the incurred costs provided good reason to apply equivalent reductions to the budgeted costs.

Second, applying the approach in Nash v Ministry of Defence, there had been a material change in circumstances since the costs management order was made. The issues had simplified, the claim has always been of modest value, and the costs management order had been made on a basis that turned out to be wrong. The total of incurred and budgeted costs was disproportionate, engaging the safety valve recognised in CPR 44.3.

The result was a downward departure from the Defendant’s approved budget of around 38%. The Defendant, as the successful party, recovered only approximately 28% of the costs it had actually incurred.

What This Means for Solicitors in Practice

The O’Sullivan decision carries several important practical lessons for solicitors managing costs-budgeted litigation.

Proportionality does not stop at the costs management hearing.

The court retains the power to depart from an approved budget where the overall costs – incurred and budgeted combined – are disproportionate to the value and complexity of the claim. An approved budget is not a guarantee of recovery.

Hourly rates matter throughout the litigation. Where a firm’s rates exceed the guideline hourly rates – particularly where a London firm has been instructed on a modest regional claim – the paying party has a strong basis to argue for departure from the approved budget on assessment.

Changes in circumstances must be reflected in revised budgets. Where the litigation simplifies, issues fall away, or the true value of the claim becomes clearer, parties should consider whether a budget variation under CPR 3.15A is appropriate. Failing to revise the budget when circumstances change is a risk factor that the court will take into account.

ADR cannot be ignored. The court was critical of both parties’ failure to consider alternative dispute resolution. In a claim of this value, ADR at an early stage could have avoided the entire costs catastrophe that followed.

Key Takeaways

• CPR 3.18 provides that the court will not depart from an approved costs budget without good reason
• The Harrison line of authority confirms that good reason requires a specific, identifiable justification – not a general view that the budget was wrong
• Reduction of hourly rates on assessment and material changes in circumstances are both capable of providing good reason to depart from the budgeted figure
• O’Sullivan v Trading 212 [2026] is a stark illustration of the consequences of disproportionate litigation costs – and of the court’s willingness to depart significantly from an approved budget where those costs are excessive
• Solicitors should keep costs proportionate throughout, consider ADR early, and revise costs budgets promptly where circumstances change

Frequently Asked Questions

What does CPR 3.18 say about departing from a costs budget?

CPR 3.18 provides that on a standard basis assessment, the court will not depart from the last approved or agreed budgeted costs unless satisfied that there is a good reason to do so. The approved budget is the starting point, and the costs judge is not re-conducting the costs management exercise.

What counts as good reason to depart from a costs budget?

Good reason has been held to include a reduction in hourly rates on assessment of incurred costs, and a material change in circumstances since the costs management order was made – particularly where the overall total of incurred and budgeted costs is disproportionate to the value and complexity of the claim.

Can a court depart from a costs budget downwards?

Yes. As O’Sullivan v Trading 212 demonstrates, the court can depart from an approved budget downwards where the total costs are disproportionate – even where the budget was formally approved at the costs management stage. An approved budget is not a guarantee of full recovery at assessment.

What is the significance of Harrison v University Hospitals Coventry & Warwickshire NHS Trust?

Harrison [2017] EWCA Civ 792 is the leading Court of Appeal authority on CPR 3.18. It confirmed that departure from an approved budget requires good reason and that the costs judge should not conduct a re-run of the costs management hearing. It also addressed the relationship between incurred costs. Hourly rates and the budgeted figure.

Speak to Greener Costs Today

The interaction between costs budgets, CPR 3.18, and the proportionality test is one of the most technically demanding areas of costs law – and as O’Sullivan v Trading 212 demonstrates, the consequences of getting it wrong can be severe.

At Greener Costs, our specialist costs lawyers advise solicitors on costs budget strategy, CPR 3.18 arguments at detailed assessment, and the preparation of Precedent T variation applications where circumstances have changed. Whether you are the receiving or paying party, we can help you navigate the costs budget regime with confidence.

Call us today on 01204 263047 or email info@greenercosts.co.uk to speak with our team.