What is Costs Budgeting?

Costs budgeting is a crucial aspect of case management in litigation, involves the Court approving the estimated legal costs that each party intends to incur in a case. It is governed by the Civil Procedure Rules (CPR), particularly CPR 3.12-3.18.

Costs budgeting mandates that parties in civil litigation prepare and exchange budgets outlining their anticipated legal costs. These budgets are then assessed by the court for proportionality, meaning the Court determines whether the budgeted costs are reasonable and proportionate to the complexity of the case and the amount in dispute.  If such costs are not deemed proportionate, then the Court is permitted to limit the future costs to incurred, so as to ensure parties do not overspend on litigation.

The aim is to ensure that litigation costs are proportionate to the value and complexity of the case, promoting fairness and access to justice.

When are Costs Budgets Filed?

Generally it is recommended that your Costs Budget is filed with your Directions Questionnaire if you anticipate the case to be allocated to the Multi Track (generally cases pleaded at in excess of £100,000 post 1 October 2023).  However, CPR 3.13 (at the time of writing) stipulates that if the matter is pleaded at in excess of £50,000, then Costs Budgets need not be filed until 21 days before the first listed CCMC.

It is likely that this guidance will be altered in years to come, given the intended introduction of “costs-budgeting light” pilots, and the phasing out of pre-October 2023 cases for which the previous Multi Track limit was £25,000.

What are the Consequences of an Approved Costs Budget?

Harrison –v– University Hospitals Coventry & Warwickshire Hospital NHS Trust [2017] EWCA Civ 792 determined that approved budgeted costs were essentially to be permitted as claimed in any subsequent Bill of Costs.

In summary, if a Receiving Party ended up incurring costs within the financial scope of each phase of the approved Budget, or came in under that limit, they would be allowed as claimed.  However, overspend would be disallowed absent any “good reason” to deviate from the approved Budget.

For the avoidance of doubt, any costs which pre-dated the Budget approval at any Costs and Case Management Conference (CCMC) could not be approved by the Court, and these remained to be scrutinised under the traditional detailed assessment process.

Woolley v Ministry of Justice [2024] EWHC 304 (KB)

A landmark case in early 2024, Daniel Woolley v Ministry of Justice, highlights the significance of proportionality in cost budgeting. The case centred on a prison-related personal injury claim against the Ministry of Justice.

The County Court, during the initial stages, authorised a considerably lower budget than what the Claimant had requested, deeming their proposed amount excessive. However, the Claimant’s legal team successfully appealed this decision in the High Court.

In the initial costs management hearing, the judge found the Claimant’s budget to be disproportionately high and limited it to £26,225 in respect of anticipated costs. Importantly, the judge did not allow the Claimant’s Counsel to highlight comparisons between the parties’ budgets, in particular that the Defendant’s Budget had already been agreed pre-hearing, and their own anticipated costs were £37,727. This decision was later criticised on appeal for disregarding relevant considerations.

It is however, with caution that comparison between Budgets should be undertaken, and it should not be the sole factor of consideration.  Litigation in respect of costs management has often been marred by gamesmanship, particularly when a defending party seeks to paint a litigating party’s costs as unreasonable and disproportionate, by purposefully putting in a low-value budget.  This was recently a criticism in the costs following the Wagatha Christie dispute in which Rooney’s Solicitors openly admitted to filing a Budget underplaying the actual costs incurred, on the technical basis that they submitted such costs were proportionate.  This decision had come back to haunt Coleen Rooney when it came to recovering her costs on conclusion of the case however, given an indemnity costs order had been made in her favour, the issue of proportionality did not apply.

The appeal Court in Woolley however, identified procedural failings, noting that the Claimant’s Counsel had been unjustly prevented from making submissions about the Defendant’s budget. This was deemed a significant irregularity under CPR 52.21(3), as comparing budgets can offer valuable insights into proportionality and reasonableness.

Additionally, the language used by the Judge towards Counsel was criticised for appearing to being dismissive, reflecting a closed-minded approach to legitimate arguments. 

Implications of the Ruling in the Case

This case serves as a reminder that though parties involved in civil litigation have the right to ensure costs that are proportionate to the complexity and value of the case, that proportionality is not just the lowest figure possible to conduct litigation, and this has more recently been commented upon in Ferko v Ealing Magistrates Court & Ors [2024] EWHC 3297 Admin.

The successful appeal underscores the importance of carefully considering all relevant factors during the cost budgeting process, and that a comparison between the parties’ Budgets should be taken into account as one of those factors.

What are the Benefits of Costs Budgeting?

Cost budgeting offers a multitude of advantages for both parties engaged in civil litigation. Some of the key benefits include:

• Enhanced Cost Predictability: Cost budgeting allows for greater predictability concerning legal expenses. By outlining anticipated costs, both parties gain a clearer understanding of the potential financial implications of litigation. This transparency empowers parties to make informed decisions about settlement strategies and litigation tactics.  It also narrows the issues in dispute on detailed assessment, and often budgeted cases are resolved quicker than non-budgeted cases, despite the larger amounts incurred in higher value litigation.
• Encourages Realistic Budgeting: The requirement to submit detailed cost budgets incentivises both parties to be realistic in their cost estimates. This discourages parties from inflating their budgets excessively, fostering a more balanced and streamlined litigation process.
• Promotes Settlement: By enhancing cost transparency, cost budgeting can pave the way for more productive settlement negotiations. When parties have a clearer understanding of the potential costs involved in lengthy litigation, they are often more inclined to explore settlement options that are mutually beneficial.

Factors Affecting Proportionality in Costs Budgeting

Proportionality in cost budgeting, as demonstrated in Woolley v Ministry of Justice, is not a one-size-fits-all approach. It depends on several factors, such as the complexity of the claim, the amount at stake, the time estimated for litigation, and the resources of the parties involved.  The issues considered on detailed assessment are set out in CPR 44.3(5).

In the Woolley case, the High Court emphasised that cost management decisions should be flexible, considering the unique circumstances of each case. This flexibility ensures that smaller claims are not subjected to disproportionate costs, while larger and more complex claims are not underfunded, hindering fair representation.

Detailed Assessment of Costs

One of the key components of the cost budgeting process is the detailed assessment, which is carried out if there is a dispute over the final amount of costs incurred. During the detailed assessment, the court reviews the actual costs incurred against the approved budget. If the actual costs exceed the approved budget, the party seeking to recover those costs must justify the overrun and will be limited to the approved Budget, absent a “good reason” pursuant to Harrison principles.  Incurred costs (i.e. those incurred pre-budget and not subject to a Costs Management Order) will be assessed in the normal fashion, but any reductions applied in hourly rates will not apply to budgeted costs, unless good reason is demonstrated to deviate from the approved Budget.

The importance of the decision in the appeal of Woolley v Ministry of Justice, is that their anticipated/budgeted costs will be reconsidered and likely revised upwards in view of the Defendant’s agreed Budget, which will permit the Receiving Party to a) prepare better for Trial due to a larger degree of financial resources being available, and b) be guaranteed to recover a higher proportion of their actual incurred costs post-CMC, without having to justify “good reason” to deviate from a low-value approved Budget.

How can ARC Costs Assist with Costs Budgets and Management?

At ARC Costs, our experienced Costs Draftsmen and Costs Lawyers regularly prepare, negotiate and advocate in respect of Costs Budgets.

Our team are highly adept in the costs budgeting process, and as independent experts we can represent Claimant or Defendant parties.

On conclusion of a set of proceedings subject to costs budgeting, we can also assist through the process of detailed assessment via the preparation of your Bill of Costs, Points of Dispute, (for a Paying Party) Replies, and our team of costs experts can provide negotiation services and representation at detailed assessment hearings, if required.

For further information or to discuss your query, call one of the team or 01204 397302, or email one of our experts at info@arccosts.co.uk. Alternatively, you can contact us via submission of our contact form, and one of the team will give you a call back to provide free initial advice.

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