What is a costs budget?

A costs budget, also known as a Precedent H, is a key legal document used to manage and control litigation costs. It sets out each party’s estimated costs for the different stages of the proceedings and plays an important role when the court comes to assess costs at the conclusion of a claim. At the outset of proceedings, the parties are required to prepare, exchange, and file their costs budgets with the court.

When is a costs budget required?

In Multi-Track cases, including personal injury claims, all parties (except litigants in person) are required to file a costs budget. Where the claim is valued at under £50,000, the agreed costs budget must be filed with the Directions Questionnaire. If the value pleaded on the claim form exceeds £50,000, the costs budget should instead be filed no later than 21 days before the first Case Management Conference (CCMC).

We often advise our clients to file a Precedent H with the Directions Questionnaire in all cases. This proactive approach helps to minimise the risk of being limited to recovery of court fees only, or needing to apply for relief from sanctions at a later stage.

Under Practice Direction 3D 4a of the Civil Procedure Rules:

“Unless the court orders otherwise, a budget must be in the form of Precedent H annexed to this Practice Direction. It must be in landscape format with an easily legible typeface.”

If a party fails to file a costs budget, they will not be entitled to recover any costs apart from the applicable court fees. 

What should be included within a costs budget?

A Cost Budget should detail your base costs incurred to date, as well as future costs to be incurred for the totality of the case up to and including Trial. These should include pre-action costs and costs incurred in relation to statements of case and the issuing of proceedings.

Each phase of a costs budget must set out the estimated time required for advising the client, taking instructions, and corresponding with the opposing parties and the court in relation to that phase.

Importantly, time spent preparing the budget itself, or any associated materials, must not be included within any phase of the draft budget. Once approved by the court, the maximum figures permitted under CPR 3.15(5) should be recorded.

The contingent costs section of the form should be used for anticipated expenses that do not fall within the standard categories. Typical examples include the trial of preliminary issues, applications to amend pleadings, requests for third-party disclosure, or (in defamation cases) applications regarding meaning.

If particular costs are disputed, such as the instruction of an expert, the relevant phase of the budget should note both the estimated costs and the fact they are contested. Only costs that are more likely than not to be incurred should be included.

Can a costs budget be amended?

Before any costs budget is approved, we strongly recommend ensuring that it is fully updated to reflect both incurred and anticipated costs.

When preparing a Bill of Costs, significant discrepancies can sometimes arise between the costs recorded in the Bill and those set out in the agreed budget. This often occurs because of the time that passes between preparing the budget and the Case Management Conference (CCMC). However, this issue can usually be avoided if an updated costs budget is filed and served in advance of the CCMC.

Once a budget has been approved, a party seeking to increase its budgeted costs must demonstrate a material change in circumstances that could not reasonably have been anticipated when the original budget was agreed.

For example, in a personal injury claim, if the defendant produces surveillance evidence, this may substantially affect the Disclosure and Expert Reports phases, requiring a revision of the budget.

To amend a costs budget, the revised version should first be served on the other side. If agreement cannot be reached, an application must then be made to the court for approval of the revised budget.

What happens after costs budgets (Precedent H) have been filed and exchanged?

Once Costs Budgets (Precedent H) have been filed and exchanged, the parties must also exchange Budget Discussion Reports (Precedent R). These reports highlight areas of agreement and dispute, with the aim of narrowing the issues before the first Case Management Conference (CCMC).

The court will then consider whether to make a Costs Management Order, unless it is satisfied that the litigation can be managed justly and proportionately without one. Where agreement is reached, the court will record the agreed figures.

If there are disputes, these will be determined at the CCMC (also known as the budget hearing). The court will approve, vary, or disallow the disputed costs, taking into account what is reasonable and proportionate for each phase of the proceedings. In doing so, the court will apply the factors set out in CPR 44.3(5).

It is therefore essential that Precedent H is accurate and realistic. Overstating or understating costs can have serious consequences, potentially leading to sanctions or a significant reduction in recoverable costs. A Statement of Truth must accompany every costs budget, confirming that its contents are true.

At this stage, the court will also form its initial view on proportionality, which can have a lasting impact on how any future Bill of Costs is assessed.

How can ARC Costs assist?

At ARC Costs, we have a team of experienced Costs Draftsman and Costs Lawyers to assist on any legal costs case. We act as independent experts for either paying or receiving parties in order to maximise/minimise the amount of legal costs payable.

As part of our service, we regularly provide and negotiate Costs Budgets, as well as preparing electronic Bills of Costs on conclusion of any successful case.

To speak with one of our costs experts, call us on 01204 397302, or email one of the team at info@arccosts.co.uk.

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