Costs budgeting plays a crucial role in multi-track litigation, but disputes often arise at trial about what is within the approved budget and what falls outside it. Failing to deal with these issues correctly can lead to significant reductions on assessment.

ARC Costs explains how to handle budgeted and non-budgeted issues at trial, how the courts approach them, and what practical steps parties should take to protect their position on costs.

What Is the Difference Between Budgeted and Non-Budgeted Costs?

Costs budgeting was introduced to manage litigation costs proactively.

• Budgeted costs are those falling within the phases of an approved costs budget (Precedent H). Once approved or agreed, they are binding unless varied by agreement or a successful application under CPR 3.15A.

• Non-budgeted costs are costs outside the budgeting regime, which are typically incurred in:

  • Pre-action work

  • Part 8 claims

  • Applications not reasonably anticipated when budgeting

  • The costs of budgeting itself

  • Fixed-costs claims

  • Detailed assessment proceedings

Understanding whether an issue at trial sits within an approved phase is key to determining how the court will deal with it on assessment.

How Does the Court Treat Budgeted vs Non-Budgeted Costs at Trial?

Under CPR 3.18, when assessing costs, the court will:

• Not depart from the budgeted phase totals unless there is a “good reason” to do so.

• Fully scrutinise non-budgeted costs, applying standard proportionality and reasonableness tests.

This two-track approach means budgeted items are more protected, whereas non-budgeted work remains open to challenge.

At trial, costs judges will ask:

Does this issue fall within a budgeted phase?

If so, are the costs claimed within the approved phase total?

If not, should any departure be made for a “good reason”?

If non-budgeted, are the costs reasonable and proportionate?

Clear categorisation is therefore essential.

What Issues Commonly Arise at Trial?

Typical disputes include:

1. Work falling into the wrong phase

If parties disagree about which phase a cost belongs in (e.g., witness statements vs trial preparation), the judge will look at the substance of the work, not the label placed on it.

2. Work unanticipated at the time of budgeting

For example:

• Additional experts

• New disclosure categories

• Applications triggered by a party’s conduct

If a party failed to seek a variation of a costs budget when they should have, they risk disallowance later.

3. Costs of interim applications close to trial

These may be budgeted (if reasonably foreseeable) or non-budgeted (if arising unexpectedly). The classification matters for recovery.

4. Trial length or complexity exceeding the budget assumptions

If trial overruns or becomes more complex, the receiving party may argue “good reason” to depart from the budget.

How to Deal With Budgeted vs Non-Budgeted Issues at Trial

1. Make sure the trial Judge is aware of any budgeting issues

Where issues arise during trial, such as unexpected developments, it is best practice to:

• Raise the cost consequences as early as possible

• Confirm the position in writing

• Seek directions on how costs should be treated

Judges are often willing to give guidance that later assists on assessment.

2. Consider whether an application to vary the budget is required

Under CPR 3.15A, a party must apply to vary its budget if:

• Significant developments arise; and

• The existing budget is no longer adequate.

Failure to vary early is a common reason for reductions on assessment. Even if late, the court may still entertain the application if it is just to do so.

3. Clearly identify which costs are non-budgeted

When approaching trial, parties should prepare a schedule or note distinguishing:

• Costs falling within the approved phases

• Costs outside budgeting

• Costs that may require a “good reason” argument

This clarity helps avoid confusion at the detailed assessment stage.

4. Preserve arguments for “good reason to depart”

Examples include:

• Opponent’s conduct causing unnecessary work

• Late disclosure or amendments

• Trial running longer than anticipated

• A phase budget that was based on materially different assumptions

Record these issues as they arise.

5. Use the trial costs submissions strategically

At the conclusion of trial, submissions on costs should:

• Flag any intended applications to vary

• Highlight non-budgeted work

• Indicate reliance on “good reason” to depart from the budget

This ensures the judge is prepared for later arguments.

FAQ: Common Questions on Budgeted vs Non-Budgeted Costs

Do I need to tell the Court about every costing issue at Trial?

Not necessarily, but significant budgeting issues should be raised to avoid arguments later that the point was waived.

Can a party recover more than the approved budget total?

Yes, but only if they demonstrate a “good reason” for upward departure.

What happens if a party exceeds a phase budget without varying it?

The excess is likely to be disallowed unless the court accepts a good reason for the departure.

Are trial advocacy fees budgeted?

Yes, advocacy fees are typically included within the Trial Phase of the budget.

Are the costs of budgeting itself included?

No. The costs of preparing and negotiating Precedent H are non-budgeted and assessed separately.

How ARC Costs Can Help

ARC Costs specialises in navigating complex budgeting and assessment issues.
Our team can:

• Advise on phase allocation and budget categorisation

• Prepare or oppose applications to vary budgets

• Handle detailed assessment proceedings

• Draft costs submissions at trial

• Maximise recovery or minimise exposure

Should you require any assistance or free initial advice, please call us on 01204 397302, or email one of our costs experts direct on info@arccosts.co.uk.

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