Excessive Costs Budget of £343m reduced by Judge

 

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Costs Budgets

A costs budget is a detailed estimate of the legal costs that a party anticipates will be incurred during litigation. It is a vital case management tool used to control the expenses associated with legal proceedings. Costs budgets require approval from the court and parties must submit costs budgets to ensure transparency and prevent excessive legal spending.

Costs budgets must be prepared in detail, itemising the projected costs for each phase of the litigation. Costs that are likely to be included within a budget include anticipated costs for solicitors fees, witness statements, counsel fees and expert evidence fees.

The court reviews the submitted costs budgets to ensure they are reasonable and proportionate. During this review, the court may hold a costs management conference to discuss and, if necessary, adjust the budgets. Only reasonable and proportionate costs will be included within an approved budget. Judges have the authority to approve, modify, or disallow the proposed costs.

Costs are considered reasonable if they reflect what a prudent and competent lawyer would charge in similar circumstances. The court assesses whether the costs are necessary for conducting the litigation effectively.

Costs must be proportionate to the matters at issue. This includes considering the amount of money involved, the importance of the case, the complexity of the issues, and the financial position of the parties. Costs that are disproportionate to these factors may be reduced or disallowed.

 

Excessive costs budget slashed by Court

The High Court has significantly cut down an excessive costs budget of £343m for the initial phase of litigation in a diesel emissions case. The Court deemed the costs “absurd” and “staggering.”

In a joint ruling, Mr. Justice Constable and Senior Costs Judge Andrew Gordon-Saker reduced the £208m in future costs presented by the claimants by 75%. They further suggested that the rest of the incurred costs might also reflect excessive legal expenses.

The Judges stated the following:

“There appears to be little effort – nor, it seems, incentive – to run this litigation in a manner so as to minimise, as far as is reasonably possible, the number of lawyers and the hours they suggest they need to work in order sensibly to progress this litigation,

The judges also reduced the defendants’ proposed budgets by nearly half but provided fewer details on these reductions.

This case marks the largest-ever costs budgeting exercise in English courts, involving 13 group litigation orders (GLOs) against motor manufacturers and associated entities over the alleged use of defeat devices to manipulate emissions tests.

Claimants estimate the litigation’s worth at £6bn, based on £4,000 in damages per car—a figure the defendants dispute. The court highlighted that the Volkswagen claim settled in 2022 at slightly over £2,000 per claimant, though this would still represent an extremely large claim award.

The budgeting exercise covers two litigation phases: a preliminary hearing in October to address the status of decisions by German regulators and courts regarding the defeat devices, and the first main evidential phase concerning the defeat devices.

The court acknowledged the complexity of the technical and legal analysis required for the latter phase but noted that the claimants had “significantly” overstated this complexity.

Additionally, there were costs affecting all claims, necessitating coordination among the 20 claimant law firms.

Pogust Goodhead leads four GLOs, jointly leads eight with Leigh Day, and for one (Vauxhall), Milberg and KP Law are involved.

By the end of the second phase, the litigation is expected to be about one-third complete, suggesting that total common costs for the claimants could exceed £1bn overall

, potentially more due to increasing evidence and disclosure burdens.

The claimants initially sought £343m in total costs (£208m in future costs), while the defendants sought £307m (£212m in future costs).

The court stressed that the claimants’ budgets did not cover costs only recoverable by each claimant individually, such as initial instructions and distributing any award if successful.

“For every hour billed at the grade D guideline hourly rate for each claimant, the total would be about £300m,” the court noted.

While recognising the logistical and administrative burdens due to the large number of claimants, the court stated that this did not justify the substantial costs claimed in many phases.

The judges expressed “little faith” in the reliability of the claimants’ budgets, which cost an “extraordinary” £3.65m to draft. They criticised the lack of efficiency and cost-consciousness, suggesting that the GLO model, lacking traditional client-lawyer downward pressure, might be the cause.

“Whatever the reason, the staggering costs both incurred and estimated are absurd, and this court will not sanction this wholly unreasonable expenditure,” they stated.

The judges attributed the high estimated costs to inefficient resourcing and over-lawyering rather than high hourly rates. For example, claimants’ total solicitor time between last month’s hearing and spring 2026 amounted to over 263,600 hours, equating to 50 solicitors consistently working 250 billable hours per month, alongside significant counsel involvement.

“This is far in excess of what this litigation reasonably demands and indicates inefficiency and duplication within and between firms,” the court concluded.

The court reduced the claimants’ future costs to £52m and the defendants’ to £114m, a 46% reduction, but did not provide as detailed an explanation for the latter.

The defendants acknowledged paying higher rates than claimed, which the court accepted, provided there was transparency, as this could be considered when comparing budgets.

Though budgeting does not cover incurred costs, the court commented for future assessment, assuming that claimants likely approached incurred costs similarly to future costs, indicating unreasonableness.

How can ARC Costs Assist?

 

If you would like to find out more about best practice in preparing your Cost Budget, feel free to contact us today. You can call one of the team or 01204 397302, or email one 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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