What is a Costs Budget (Precedent H) and When is it Required?

A costs budget, prepared using Precedent H, is a document setting out the legal costs a party has already incurred and the costs they expect to incur as litigation progresses.

Costs budgets help the court and the parties understand the likely expense of proceedings, manage future expenditure and assess whether anticipated costs are reasonable and proportionate.

Under the Civil Procedure Rules, costs budgeting applies to many multi track cases, subject to exclusions and exceptions. Where a costs budget is required, failing to comply with the relevant deadlines can have serious consequences.

In this guide, ARC Costs explains what Precedent H includes, when budgets must be filed, how they are considered by the court and what happens when a party fails to file a costs budget.

What is Precedent H?

Precedent H is the prescribed form used to prepare a costs budget in civil litigation in England and Wales. It divides legal costs into phases, allowing the court to examine how much has been spent and how much is expected to be spent on different stages of the case.

These phases generally include pre-action work, statements of case, disclosure, witness statements, expert reports, pre-trial review, trial preparation and trial.

The budget identifies the relevant costs incurred to date and estimated future expenditure, including solicitors’ fees, counsel’s fees and appropriate disbursements. The purpose is not simply to record costs. It is to provide a realistic estimate of the expenditure necessary to progress the case.

For law firms, accurate costs budgeting is important because an approved or agreed budget can have a significant influence on the amount ultimately recoverable.

When is a costs budget required?

Under CPR Part 3, costs management generally applies to Part 7 multi-track claims commenced on or after 1 April 2013, subject to the rules in force for the proceedings, applicable exclusions and any contrary court order. Costs budgeting does not automatically apply to every civil claim.

For example, certain high-value claims and cases involving litigants in person are excluded from automatic costs management. The court also has discretion to make costs management directions in appropriate circumstances.

Solicitors should therefore establish at an early stage whether their case is subject to costs budgeting and whether the court has made specific directions.

What information does a Precedent H costs budget contain?

A Precedent H budget sets out the estimated legal costs of progressing the litigation through to trial.

It generally includes the following information:

• Costs already incurred in each phase of proceedings.
• Estimated future solicitors’ fees, including hourly rates and anticipated time.
• Counsel’s fees and other disbursements.
• Expert witness costs.
• Assumptions explaining the work and expenditure included in the estimates.

The assumptions are particularly important in complex litigation. They explain what the budget covers, such as the expected number of witnesses, experts, hearings or days of trial.

If the litigation subsequently develops beyond those assumptions, it may be necessary to consider whether an application to vary the approved budget is appropriate.

When must costs budgets be filed?

The deadlines for filing and exchanging costs budgets are set out in CPR 3.13, subject to any different direction made by the court. In cases where the stated value on the claim form is less than £50,000, budgets must generally be filed and exchanged with the directions questionnaires.

In other cases, budgets must generally be filed and exchanged not later than 21 days before the first costs and case management conference. The court may order a different timetable.

Parties should check the applicable rules and court orders carefully rather than assuming that the same deadline applies in every case.

What happens at a costs and case management conference?

A costs and case management conference (CCMC) allows the court to consider how the case should progress and what expenditure is reasonable and proportionate. Before the hearing, the parties should attempt to agree their respective budgets.

They must also prepare a budget discussion report, usually using Precedent R, identifying the phases that are agreed and those that remain disputed. Unless the court orders otherwise, budget discussion reports must generally be filed and exchanged no later than seven days before the first CCMC.

The court can then consider the disputed estimates and make a costs management order.

The order records the approved or agreed budgeted costs for the relevant phases.

What happens if you fail to file a costs budget?

The consequences of failing to file a costs budget can be severe. Under CPR 3.14, where a party fails to file a budget when required, the party is treated as having filed a budget comprising court fees only, unless the court orders otherwise. This can substantially restrict the party’s ability to recover legal costs from its opponent.

A party affected by the sanction may need to make an application for relief from sanctions.

When considering relief from sanctions, the court applies CPR 3.9 and the principles established in Denton v TH White Ltd.

The court considers the seriousness and significance of the breach, why it occurred and all the circumstances of the case.

Relief from sanctions is not guaranteed. It is therefore essential to comply with the deadline or seek appropriate directions promptly where difficulties arise.

Can an approved costs budget be changed?

Yes, but an approved budget cannot simply be increased because a party has spent more than expected. Under CPR 3.15A, a party may seek to vary its budget where there has been a significant development in the litigation.

Examples might include substantial additional disclosure, an unexpected expert discipline or a material change in the trial arrangements.

The party should act promptly and use Precedent T to identify the proposed variation. The court will consider whether the development justifies changing the budget.

ARC Costs discusses the distinction between budget drafting and budget monitoring and the circumstances in which parties may depart from an approved Precedent H budget.

How does a costs budget affect detailed assessment?

At the conclusion of proceedings, the successful party may seek to recover its legal costs from the opponent. Where a costs management order has been made, the approved or agreed budget plays an important role during detailed assessment.

Under CPR 3.18, when assessing costs on the standard basis, the court must have regard to the receiving party’s last approved or agreed budgeted costs and must not depart from them without good reason.

However, the costs management order does not approve the costs incurred before budgeting or determine the hourly rates recoverable on assessment.

For more information, see our article on CPR 3.18 and assessing costs subject to a costs management order.

How ARC Costs can help with Precedent H costs budgets

ARC Costs provides specialist Precedent H costs budget preparation for solicitors across England and Wales. We assist with preparing realistic budgets, reviewing incurred costs, estimating future expenditure and drafting the assumptions needed to support the figures.

Our services also include budget discussion reports, negotiations, representation at costs and case management conferences, budget monitoring and applications to vary approved budgets.

Whether you need to file a costs budget for the first time or require assistance with an existing budget, early specialist input can help avoid procedural difficulties and preserve your position on future costs recovery.

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