Case No: 2014-1019
Neutral Citation Number: [2015] EWHC 2426 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 14/08/2015

Before:

MR JUSTICE ANDREW SMITH
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Between:

	SARPD OIL INTERNATIONAL LIMITED	Claimant	
	- and -		
	ADDAX ENERGY S.A. 

-and-
GLENCORE ENERGY UK LIMITED
	Defendant/Part 20 Claimant

Part 20 Defendant  	
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Michael Nolan QC 
(instructed by Holman Fenwick Willan Switzerland LLP) for the Claimant
David Lewis QC and Oliver Caplin 
(instructed by Hill Dickinson LLP) for the Defendant/Part 20 Claimant

Hearing date: 31 July 2015

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Judgment
Mr Justice Andrew Smith: 
1.	This application for security for costs raises four main questions:
i)	Whether on the evidence of this case (which I describe below and is broadly typical of many applications of this kind) the condition in CPR25.13(2)(c) is satisfied.
ii)	Whether the court can and should order security for defendant’s costs in pursuing a CPR part 20 claim against the third party.
iii)	Whether the court can and should order security for the liability that the defendant might incur if ordered to pay the costs of the third party.
iv)	Whether, and if so how, approved or agreed costs budgets are relevant to the quantum of security for costs ordered.
2.	The litigation concerns a contract whereby in December 2011 the claimant, Sarpd Oil International Limited (“Sarpd”), agreed to buy gas oil from the defendant, Addax Energy SA (“Addax”).   Sarpd alleges that the delivery did not meet the contractual specification, and it claims either (i) damages or (ii) an indemnity under a term that a party in breach of a contractual obligation should indemnify and hold the other harmless from all losses, damages, costs and expenses.    In total the claims are for some $1.46 million, some €63,000 and an unspecified sum for inspection costs: roughly the equivalent of £1 million.
3.	Addax defends the claim and brings proceedings under CPR part 20 against Glencore Energy UK Ltd (“Glencore”) from whom, apparently, it bought the gas oil.     Its case is that, if it was in breach of its contract with Sarpd, that is because Glencore supplied it with gasoil that did not comply with the contract between them.     There is an issue between Addax and Sarpd about the terms of their contract, and whether Sarpd is estopped from contending the standing of a moth vessel certificate of quality.     The relief claimed by Addax in the part 20 proceedings matches that claimed by Sarpd against it.
4.	By an application dated 21 May 2015 Addax sought an order that Sarpd give security for its costs of the proceedings by paying into court £896,161.27 because Sarpd is a company and “there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so”: see CPR25.13(2)(c).    The application was supported by a witness statement of Mr Ralph Hicks of Hill Dickinson LLP, Addax’s solicitors, who explains the basis on which security of £896,161.27 is sought.  The sum should, he says, cover:
i)	Costs incurred by Addax in defending the claim.
ii)	Costs incurred by Addax in “passing the claim on to [Glencore], which are a natural and inevitable result of [Sarpd] bringing the claim”.
iii)	Costs incurred by Glencore in defending the part 20 claim.    It is said that, insofar as Glencore obtains an order that its costs be paid by Addax, Addax should “be entitled to add the liability for [Glencore’s] costs to its costs which are recoverable from [Sarpd]”, and that the order for security should cover them.
5.	CPR25.12(1) provides that “A defendant to any claim may apply under this section of this part for security for his costs of the proceedings”.      Mr Michael Nolan QC, who represented Sarpd, pointed out that the expression “defendant” does not refer only to a party labelled “defendant” in the proceedings, but includes any “person against whom a claim is made”: CPR2.3(1).    CPR25.13(1) provides that “The court may make an order for security for costs under rule 25.12 if (a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and (b) … one or more of the conditions in paragraph (2) applies”.    The conditions in paragraph (2) include these: 
i)	At sub-paragraph (a), “the claimant is (i) resident out of the jurisdiction, but (ii) not resident in a Brussels Contracting State, a State bound by the Lugano Convention or a Regulation State”.     
ii)	At sub-paragraph (c), “the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so”.
6.	 Sarpd is incorporated in the British Virgin Islands (“BVI”), but Addax’s application is not brought under sub-paragraph (a).    I infer that (as Mr Nolan submitted and Mr David Lewis QC, who represented Addax, did not dispute) this is because in Nasser v United Bank of Kuwait, [2001] EWCA Civ 556 the Court of Appeal considered the application of the European Convention on Human Rights, including article 14 concerning the prohibition of discrimination, to orders for security for costs, and held that, where subparagraph (a) is the only ground relied on, the court should not exercise its discretion to order security other than for any additional costs attributable to the burden of enforcement associated with the claimant’s residence.    Mance LJ said this (at para 62):
“The justification for the discretion under Part 25.13(2)(a) … in relation to individuals and companies ordinarily resident abroad is that in some, it may well be many, cases there are likely to be substantial obstacles to or a substantial extra burden (e.g. of costs or delay) in enforcing an English judgment, significantly greater than there would be as regards a party resident in England or in a Brussels or Lugano state. In so far as impecuniosity may have a continuing relevance, it is not on the ground that the claimant lacks apparent means to satisfy any judgment, but on the ground (where this applies) that the effect of the impecuniosity would be either (i) to preclude or hinder or add to the burden of enforcement abroad against such assets as do exist abroad, or (ii) as a practical matter, to make it more likely that the claimant would take advantage of any available opportunity to avoid or hinder such enforcement abroad.”
In this case the undisputed evidence of Ms Kathryn Martin, a solicitor with Holman Fenwick Willan Switzerland LLP, who act for Sarpd, is that “any High Court money judgment” can be enforced in the BVI under the Reciprocal Enforcement of Judgments Act, 1922.   
7.	Addax therefore relies only on CPR25.13(2)(c) (“condition c”).    The evidence about whether it is satisfied is limited, because Sarpd has said nothing about its financial position and Addax has access to little information: it does not know whether and if so where Sarpd has any assets against which Addax could enforce an order, and no information about its finances is publically available.   Addax’s only information is in a letter of 15 May 2015 from its BVI solicitors, Walkers Global, who said that under the applicable BVI legislation Sarpd would be obliged to keep financial records sufficient to show and explain its transactions and for its financial position at any time to be determined with reasonable accuracy.    But the records do not have to be kept in the BVI or made publicly available.    The publicly available records at the BVI companies register do not include any accounts or other financial records for Sarpd, and they only show that it was incorporated and registered in 2008, that its “status description” is “active” (a status that is not explained in the evidence) and that from time to time it has had a “certificate of good standing” (the significance of which is not explained either).    
8.	Mr Lewis submitted that despite a number of requests from Hill Dickinson  Sarpd has failed to provide evidence of good financial standing or to put up security.  Mr Nolan pointed out that, when requesting security, Hill Dickinson did not exactly ask for information about Sarpd’s financial standing, but the fact remains that Sarpd has been reticent about it, and this is clearly its deliberate decision.
9.	That is all the evidence about whether condition c is met.       Mr Nolan suggested in his oral submissions that in December 2011 Addax must have considered that Sarpd had the standing to have dealings with it, but I see nothing in that point: under the contract, Sarpd was to pay by letter of credit.
10.	In Jirehouse Capital v Beller, [2008] EWCA Civ 908, the Court of Appeal considered the test that is to be applied when deciding whether condition c is satisfied.    Arden LJ, with whom Mummery and Moore-Bick LJJ agreed, said that (i) the court considers whether condition c is satisfied by reference to the totality of the evidence, (ii) the expression “the company will be unable to pay” required “more than simply that there is doubt whether the company will pay”, and (iii) the test is not whether on the balance of probabilities the company will be unable to pay: that would elevate too high the test of whether there is reason to believe that it will be unable to do so.   I add only that condition c is about the company’s ability to pay: it would not be relevant that there is reason to think that the company will or might obstruct enforcement of a costs order against it.  
11.	In my judgment the evidence does not show that condition c is met.    Mr Lewis described Sarpd as a “secretive” BVI company, but there is nothing inherently “secretive” about incorporation in the BVI, and Sarpd has filed such returns with the BVI companies’ register as are required.      Nor am I persuaded that condition c is met because Sarpd has declined to demonstrate that it would have means to pay a costs order.    It might be tempting to ask why, if it has means, should Sarpd not avoid the expense of an application for security by demonstrating them, and therefore to suppose that its refusal itself provides reason to believe that it will not be able to pay an order for costs, but that ignores the adversarial realities of commercial litigation.    The amount in issue in these proceedings is some $1.5 million, and the costs budgets of the three parties were in total some £1.5 million.    As far as I can see, the litigation involves no issue of collateral commercial importance for any of the parties and no question of law that any of the parties has an interest in having resolved.   The commercial sense of settlement is obvious, and must be obvious to all the parties.   It can only strengthen Sarpd’s hand in any negotiations if it leaves Addax in doubt about whether it will recover its costs even if it defeats the claim and with concerns that even then it might end up bearing its own and Glencore’s costs.    The uncertainty may be awkward for Addax, but there is no reason that Sarpd should volunteer information to alleviate its difficulty.    More importantly, this obvious explanation for Sarpd’s reticence about its financial position means, in my judgment, that on the evidence it is no reason to believe that it will be unable to pay an order for costs.
12.	Mr Lewis submitted that it has become the practice in the Commercial Court to order security for costs (and not only for aggravated costs of enforcement under CPR25.13(2)(a)) in circumstances such as these: that is to say, where a claim is brought by a company that has not filed accounts that are publicly available, which has no discernible assets and which declines to reveal its financial position.   I suspect that Mr Lewis might be right about that, but if such a practice has developed, I cannot think it justified and I decline to follow it.  I conclude that condition c is not satisfied, and that therefore the application should be refused.
13.	This means that the other issues argued before me cannot affect my decision, but out of respect for the submissions of Mr Lewis and Mr Nolan, to which I pay tribute, I shall deal with them.
14.	First, Mr Nolan submitted that, even if condition c were met, it would not be just to order security.   I reject that submission.   Sarpd did not present any evidence and Mr Nolan did not submit that it would or might suffer any prejudice if it had to provide security either by way of difficulties in pursuing its claim or of any other kind.    There is therefore nothing to balance against a risk that a court order for costs in Addax’s favour will not be satisfied, and there is no reason that it should face that risk.     If Addax had established condition c, I would have considered it just to order security and would have ordered it in an appropriate amount.
15.	If security were ordered, should it be in respect not only of Addax’s costs of defending the claim but also its costs in bringing and pursuing the part 20 proceedings against Glencore (its “Glencore costs”)?   Mr Nolan submitted that it should not because its Glencore costs are not Addax’s costs “of the proceedings” within the meaning of CPR25.12, or if they are, established practice and justice require that security ordered by the court should be only for costs incurred by a defendant in defending the claim(s) brought against it by the claimant, and not costs incurred vis a vis a third party against whom the defendant has chosen to bring a claim.     He sought an analogy with the position when a defendant brings a counterclaim against a claimant.
16.	The law about this was explained by Miss Sonia Proudman QC in Thistle Hotels Ltd v Gamma Four Ltd, [2004]EWHC 322 (Ch) as follows: 
“The policy behind the jurisdiction to order security for costs is to counter the prejudice suffered by a defendant who is unsuccessfully pursued by a claimant unable to meet an order for costs. It is not intended to counter prejudice to a claimant in meeting a defence that proves unsuccessful. It is the claimant's business if he chooses to sue a defendant who is not good for costs. An impecunious defendant is not to be prejudiced in defending the main claim by an order for security on the counterclaim. In CT Bowring v. Corsi, [1995] 1BCLC 148 at 153 Dillon LJ said that there was: ‘…a strongly established rule of practice that a person who is in the position of a defendant is to be at liberty to defend himself and is not to be called upon to give security ... I regard this as a rule of practice, and not a mere matter of discretion to be determined on the facts of each individual case - although of course any decision even to order a plaintiff to give security is a matter for the court's discretion …  I regard this rule of practice as of the same class as the rule of practice under which any litigant other than the Crown or a public authority as law enforcer, who obtains an interlocutory injunction is required to give a cross-undertaking in damages. That is not a matter for discretion in the individual case.    ... it is clear that an impecunious company which makes a, counterclaim which is more than a mere formulation of its defence can be ordered to give security for the plaintiff's costs of the counterclaim’".
Mr Nolan argued that, similarly and consistently with that practice, the law will not allow a party who brings a claim under CPR part 20 to have security for it.       He also submitted that this is consistent with the policy of the law, established in Taly NDC International NV v Terra Nova Insurance Co Ltd and ors, [1985] 1 WLR 1359, when the rules about security for costs were in RSC Ord 23 r1, that a third party cannot have an order for security against a claimant.   As far as is material for present purposes, the position is the same under the CPR: Arkin v Borchard Lines Ltd, [2003] EWHC 3088 (Comm) at para 32: and see CPR25.12.3.
17.	Mr Nolan identified two possible routes to the conclusion that similarly a defendant cannot obtain from a claimant an order for security for costs relating to a claim against a third party.   First, he submitted that the court may only order that a defendant has “security for his costs of the proceedings”, and proceedings against a third party are separate from “the proceedings”, that is from those brought by the claimant against the defendant.    I accept that in the CPR the term “proceedings” sometimes means not the whole of an action but only the litigation between only some of the parties to an action: see Dar Al Arkan Estate Dev Co v Refai, [2014] EWCA Civ 715, paras 55ff, where a committal application was said to be different proceedings from the action in which it was made.    However, even if Mr Nolan is right in submitting that the “proceedings” to which Sarpd is party are only the claim that it has brought against Addax and the term does not cover the claim against Glencore under CPR part 20, it does not follow that Addax’s Glencore costs are not “costs of the proceedings” to which it is party.
18.	Section 51 of the Supreme Court Act, 1981 provides that "the costs of and incidental to" proceedings in the High Court are in the discretion of the Court and the Court has "full power" to determine by whom and to what extent costs are to be paid. There is no statutory definition of the word "costs" or the expression "costs of or incidental to". The rules about costs in the CPR part 43 et seq apply to all costs that the court has power under the statute to determine be paid, and do not materially define or indicate what expenses constitute "costs of or incidental to" proceedings.    Mr Nolan accepted, in my judgment rightly, that, although CPR25.12 refers only to “costs of the proceedings”, this should be understood to cover all costs of and incidental to the proceedings.       The question therefore is whether Addax’s costs of bringing and pursuing third party proceedings against Glencore are incidental to the proceedings brought against it by Sarpd.     In my judgment they are.   As I explained in ENE Kos v Petroleo Brasileiro SA (Petrobas) SA, [2009] EWHC 1843 (Civ) esp at para 88, costs “incidental to” one set of proceedings can include the costs of bringing others.     The Glencore costs are being incurred by Addax in order to protect itself from the consequences of the proceedings brought by Sarpd: if Sarpd’s claim constitutes separate “proceedings”, they are incidental to it.    
19.	Mr Nolan’s alternative argument was that, as was explained by Dillon LJ in CT Bowring v Corsi (loc cit) and Miss Sonia Proudman QC in the Thistle Hotels case (loc cit), the purpose of security is to counter the prejudice suffered by a defendant of having proceedings brought against him and not to protect a party against what he voluntarily brings upon himself: the practice is to confine the protection of an order for security to his costs of defending himself against proceedings.     I do not accept that the policy or practice is as narrow as Mr Nolan submitted.   I readily accept that, if in a part 20 claim against a third party a defendant goes beyond seeking to protect himself from the consequences of the claim against him succeeding, then he could not have security for the further costs of the wider part 20 claim, any more than he could have security for a counterclaim against the claimant in so far as it goes beyond a mere defence of the claim.     But to my mind, it is consistent with the practice described by Dillon LJ and the policy described by Miss Proudman to order security for costs incurred in bringing and pursuing part 20 proceedings which, as in this case, do no more than protect a defendant against the consequences if the claim against him succeeds.   
20.	Can the defendant obtain an order for security against having to pay the third party’s costs?    Mr Lewis submitted that, where a main claim and a third party claim are back-to-back, as they are here, the usual order for costs if both fail is for a “Bullock” order, whereby the defendant is ordered to pay the third party’s costs and the defendant is entitled to recover them, as well as his own costs, from the claimant: see L E Cattan Ltd v A Michaelides & Co, [1958] 1 WLR 717, 720.    I accept that submission, and I accept that therefore, if the main claim and the part 20 claim both fail in this case, Addax will probably be ordered to pay Glencore’s costs and Sarpd will probably be ordered to indemnify it against that liability     However, this does not mean that the costs incurred by Glencore in defending the third party proceedings are Addax’s costs, or that they are “his costs” (sc the defendant’s costs) within the scope of CPR25.12.   They are not.
21.	Mr Lewis cited Johnson v Ribbins, [1977] 1 WLR 1458 at p.1464B, in which, speaking of a Bullock order, Goff LJ said that the normal principle that costs follow the event means that the defendant, though successful in the action, is ordered to pay the third party’s costs, and “… if in the circumstances of the case these costs ought fairly to be borne by the plaintiff the court will further order that they be added to the defendant’s costs of the action against the plaintiff”.    Mr Lewis argued that therefore the mechanism by which the claimant comes to bear the third party’s costs is that they are “added” to and become part of the defendant’s costs that the claimant is ordered to pay.     In my judgment, this places a weight on Goff LJ’s terminology that it will not bear: he was concerned with the effect of a Bullock order, not with the “mechanics” whereby that effect is achieved.    
22.	Mr Lewis also invoked CPR1.2, which provides that the court must seek to give effect to the overriding objective when it interprets any relevant rule, but it does not seem to me that the overriding objective of enabling the court to deal with cases justly and at proportionate cost requires that a defendant should have security in respect of costs incurred by a third party.  They are not Addax’s costs, but a liability that the court might put upon Addax, and the law does not provide security for potential liabilities.       There is no reason to strain the wording of CPR25.12 to do so, as Mr Lewis urged.
23.	Mr Lewis had an alternative argument: that, even if security for Addax’s costs cannot cover all the costs which Glencore could recover from it under a Bullock order, some of them, specifically costs incurred by Glencore in respect of its statements of case, its disclosure, and its factual and expert witness evidence, are in substance Addax’s costs and so an order for security should cover them.   He contended that, because the main claim and the part 20 claim are practically back-to-back, Addax “is substantially deploying (for example) Glencore’s Part 20 defence as its own defence in the main claim in lieu of any independent drafting”, and “The same logic applies to the Defendant’s use against the Claimant of Glencore’s disclosure, witness statements and expert reports”.   Addax does not intend to call its own expert evidence.     I do not accept that, because Addax intends to draw on Glencore’s material, the costs relating to it are to be treated as Addax’s costs so as to be covered by CPR25.12.    
24.	If, therefore, I had been persuaded to make an order for security for Addax’s costs, I should have assessed its amount having regard to its costs of bringing and pursuing the part 20 proceedings against Glencore but disregarding its potential liability for Glencore’s costs if the claims fail.   Mr Hicks’s evidence is that the total amount of these costs is some £407,807. However, this included some £28,000 in respect of this application for security, which Mr Lewis rightly acknowledged should be disregarded for the purpose of assessing the level of security.    This would reduce the total to some £380,000.   
25.	The main issue between the parties about how the quantum of any security should be assessed concerns Addax’s costs budget and an order made about it by Blair J dated 22 May 2015.     The case management conference was listed for hearing before him, but I understand that the parties agreed case management directions and Blair J made his order without a hearing.   (In so dealing with costs management, he was following the course advocated in the Supplement to the White Book published as “Costs & Funding following the Civil Justice Reforms: Questions & Answers” at para 4-42, citing Jackson LJ’s Final Report.)   The parties had filed and exchanged costs budgets in the form of precedent H annexed to CPR Practice Direction 3E.    They were verified by the parties’ solicitors in the prescribed form: “This budget is a fair and accurate statement of incurred and estimated costs which it would be reasonable for my client to incur in this litigation”.   Blair J’s order included this: “The Defendant’s costs budget is approved in the sum of GBP 407,906.85 in the form attached to this order”.   He made similar orders in respect of the costs budgets of Sarpd, whose budgeted costs were £592,369.64 and Glencore, whose budgeted costs were £488,254.42.   
26.	CPR3.15 provides as follows: 
“The court may at any time make a ‘costs management order’. Where costs budgets have been filed and exchanged the court will make a costs management order unless it is satisfied that the litigation can be conducted justly and at proportionate cost in accordance with the overriding objective without such an order being made. By a costs management order the court will— 
(a) record the extent to which the budgets are agreed between the parties; 
(b) in respect of budgets or parts of budgets which are not agreed, record the court’s approval after making appropriate revisions”.     
27.	Despite Blair J’s costs management order, Mr Nolan submitted that the amount of security should not reflect Addax’s budget because it is excessive.    Rule 44.3(2)(a) provides that, where the amount of costs is to be assessed on the standard basis, the court will only allow costs which are proportionate to the matters in issue, and that costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; I am bound to say that, were this virgin territory, my impression would be that the amounts in the budgets of all the parties are higher than are proportionate.    CPR44.3.5 provides that:
“Costs incurred are proportionate if they bear a reasonable relationship to –
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance”.
Here only monetary relief is claimed, the litigation does not appear particularly complex for claims of this kind, there do not appear to be considerations of reputation for any party, the issues do not appear to raise any points of public importance and there has been no suggestion that Sarpd’s conduct has or is likely to generate additional work.     The trial is expected to last 7 days, and leading counsel have been instructed by all the parties.   The budgeted costs include provision for a procedure for alternative dispute resolution.  I express no concluded view: I did not hear any submissions of any detail about the amounts of the budgeted costs, and Glencore was not represented at the hearing before me.    Nevertheless, had the question been for me to determine and important to my decision on the application, I would have needed some persuasion that the budgeted costs are proportionate to the sums in issue and so proportionate for the purposes of assessing what costs assessed on a standard basis would be.   For example, I would need persuading that Addax’s budgeted costs of £64,443.50 for “Issue/Statements of Case” would, absent the costs management order, be recoverable upon an assessment on the standard basis given that, as Mr Lewis told me, it is largely deploying Glencore’s pleadings, and that £24,700 would be recoverable in respect of witness statements given Mr Lewis’ submission about them. 
28.	However, Mr Lewis answered this by reference to Blair J’s order.   CPR3.18 provides that: 
“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and
(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.
(Attention is drawn to rule 44.3(2)(a) and rule 44.3(5), which concern proportionality of costs.)”. 
29.	I was told that in fact the parties all agreed the budgets in their entirety, and the whole of Blair J’s case management order was made by consent.   Although the order does not record that it was made by consent, I think that this must be correct, because otherwise the case management order would not have been made without a hearing.   CPR3.15 contemplates that in these circumstances the court will not approve the budget(s), but will simply record the agreement.   Blair J, however, went further and expressed his approval of the budgets.    Thus, he did not make an entirely conventional costs management order, but it was, and was intended to be, a species of case management order and that CPR3.18 apply to it.   Accordingly, it is not to be departed from unless there is good reason to do so.    Any doubts that I have about whether the budgeted costs are reasonable or proportionate would not be a good reason to depart from what Blair J approved: that would destroy the scheme of the new costs regime.      Of course, it might turn out that the costs that the parties anticipated when they exchanged and agreed the costs budgets will turn out to be more than is reasonable and proportionate in light of unexpected developments, and if so this might result in a further costs management order in relation to an amended (increased or reduced) budget: CPR3.18 applies to the last approved or agreed budget.   But this is not relevant to my decision on this application.   There is no evidence that there has been any significant change since Blair J made his order, and “Once a costs management order has been made by the court, it may only be varied where there are significant developments”: see the “Costs & Funding” guidance (cit sup) at para 4-34.      I accept Mr Lewis’s argument that therefore the appropriate amount of security should be assessed on the basis that Addax’s budgeted costs are likely to be recoverable on a standard assessment.
30.	This conclusion, I think, applies to both costs that had already been incurred when the costs had been incurred and future costs that were estimated in the budget.         During the hearing I questioned this: the notes in the White Book at CPR3.18.1 state, “While those costs that were incurred cannot form part of the budget and so fall for assessment unfettered by the restraints of the budget, once assessed, on the basis that they were reasonably incurred and reasonable in amount, and added to the budgeted costs, the total figure is still subject to an overall assessment of proportionality”.    In the “Costs & Funding” guidance it is said at 3-13:
“At the costs management stage the rationale is that the past conduct of the parties … is not relevant.   This is because the court can only budget the costs ‘to be incurred’.  As such, the court can control conduct going forward by proportionate costs and case management.  …”.  
However, a costs budget in the form of precedent H includes both past and anticipated costs and the legal representatives who verifies it is required to certify that “This budget is a fair and accurate statement of incurred and estimated costs which it would be reasonable and proportionate for my client to incur in this litigation”.      When a costs management order is made, CPR3.15 contemplates that it will refer to the whole budget, and CPR3.18 does not distinguish between costs that were already incurred and those which were anticipated.     As I see it, this means that Mr Lewis’ argument applies with equal force to costs that had already been incurred by the time of Blair J’s order and the costs budget of Addax that he approved, and the costs that it anticipated.       
31.	I recognise that this understanding of the costs management regime might in some circumstances result in it inflating rather than reducing recoverable costs, but I cannot otherwise interpret it.
32.	If I were awarding security for Addax’s costs, therefore, I would assess the level of security by reference to the approved costs budget, and would assess them at £380,000.     Mr Nolan submitted that any order should provide for security to be provided in tranches, and I see force in that.    Had I ordered security, I would have invited counsel’s further submissions about that.  However, I have concluded that condition c is not met, and the application is refused.