What is Costs Budgeting and When is It Required?

Costs budgeting is a central feature of civil litigation in England and Wales. It plays a crucial role in controlling legal spend, promoting proportionality, and ensuring that cases are managed efficiently in accordance with the court’s expectations. For solicitors and litigants alike, understanding how costs budgeting works and when it applies is essential to managing costs risk effectively.

ARC Costs explains what costs budgeting is, when it is required, and how it operates in practice, from filing and exchange through to detailed assessment.

What is Costs Budgeting?

Costs budgeting is the process by which parties prepare a forward-looking estimate of their legal costs for each stage of the litigation. The budget is broken down by phase and is intended to reflect the work reasonably required to take the case to conclusion.

Once approved by the court, a costs budget becomes a key tool in cost management. It does not operate as a strict cap, but it does carry significant weight when costs are later assessed. Any departure from an approved budget must be justified by good reason.

At its core, costs budgeting supports the purposes of costs, including proportionality, transparency, and fairness between the parties.

The Rules Governing Costs Budgeting

The costs budgeting regime is governed primarily by CPR Part 3.

CPR 3.13 – Filing and Exchange

Under CPR 3.13, parties must file and exchange their Precedent H costs budgets in the prescribed form unless the court orders otherwise. The default position is that budgets must be filed and exchanged no later than 21 days before the first case management conference.

Compliance with CPR 3.13 is critical. A failure to file a budget when required can result in a party being treated as having filed a budget limited to court fees only, unless relief from sanctions is granted.

When is Costs Budgeting Required?

Costs budgeting applies to most multi-track claims, but not all proceedings fall within the regime.

Cases Where Costs Budgeting Applies

Costs budgeting will usually be required where:

• The claim proceeds on the multi-track
• The court has not disapplied costs management
• No automatic exemption applies

Budgets are typically prepared shortly after service of the claim form and in advance of the first case management conference (CMC).

Exemptions and “Otherwise Orders”

Certain cases are excluded from costs budgeting unless the court otherwise orders. These include:

• Claims valued at £10 million or more
• Proceedings involving a limited or severely impaired life expectation (5 years or less remaining)
• Other specialist categories identified in the rules

Even where an exemption applies, the court retains discretion to impose budgeting if it considers costs management appropriate.

Incurred Costs and Their Treatment

Costs budgets distinguish between:

• Incurred costs — costs already incurred at the date the budget is prepared
• Future estimated costs — costs anticipated for the remainder of the case

While the court does not formally approve incurred costs when making a costs management order, they are not ignored. Judges may comment on them, and they remain fully open to scrutiny at detailed assessment.

In practice, high incurred costs can influence how the court approaches future phases of the budget.

Agreed Budgets and the Budget Discussion Report

The rules require parties to engage constructively before the first CMC.

This includes:

• Exchanging costs budgets
• Discussing areas of agreement and dispute
• Preparing a budget discussion report

Where phases are agreed, those figures can be recorded as an agreed budget, narrowing the issues for the court. This cooperative approach is encouraged and often looked upon favourably by costs judges.

The Case Management Conference and Budget Hearing

Costs budgets are usually considered at the case management conference, which may also function as the budget hearing.

At this stage, the court may:

• Approve the budgets as submitted
• Revise specific phases
• Decline to approve certain elements
• Make a costs management order

The court’s role is not to conduct a line-by-line assessment but to consider whether the budgets are reasonable and proportionate, taking into account the overriding objective.

Costs Management Orders

A costs management order records the court’s approval of a party’s budget, subject to any revisions. Once made, the approved budget becomes the primary reference point for costs recovery.

When costs are later assessed, the court will not depart from the approved budget unless there is a good reason to do so. This makes the budgeting stage strategically important, particularly in complex or high-value litigation.

Expert Evidence and Budgeting

Expert evidence is often one of the most heavily scrutinised areas within a costs budget.

Courts expect parties to:

• Justify the need for expert evidence
• Explain the scope of expert involvement
• Demonstrate that expert costs are proportionate

Where expert costs are excessive or poorly justified, reductions may be made at the budgeting stage or restrictions imposed through court orders.

What Happens at the End of the Case?

At the conclusion of proceedings, costs may be agreed or subject to detailed assessment.

Where costs budgeting has applied, the approved budget plays a central role in the assessment process. The court will generally limit recovery to the budgeted figures unless a good reason for departure is established.

Importantly, an approved budget does not guarantee full recovery. Costs must still be reasonable and proportionate when claimed.

Why Costs Budgeting Matters

Costs budgeting is not a procedural exercise to be treated lightly. It has a direct impact on how litigation is conducted and how costs are ultimately recovered.

For solicitors and clients, effective engagement with the budgeting process:

• Improves cost predictability
• Reduces the risk of adverse costs consequences
• Strengthens recovery on assessment
• Supports compliance with the overriding objective

Specialist costs input at an early stage can be invaluable in ensuring budgets are realistic, defensible, and aligned with the court’s expectations, something ARC Costs regularly assists with.

How Can ARC Costs Assist with Costs Budgeting?

ARC Costs provides specialist support at every stage of the costs budgeting process. This includes preparing and reviewing costs budgets, advising on incurred costs, assisting with budget discussion reports, and representing clients at budget hearings and case management conferences.

We ensure budgets are realistic, proportionate, and compliant with the CPR to help solicitors reduce costs risk, strengthen recovery on assessment, and maintain effective cost management throughout the life of a case.