In civil litigation, controlling costs is essential for both parties and the court. The introduction of costs budgeting under the Civil Procedure Rules (CPR) has brought greater scrutiny to costs incurred in litigation. However, even with an approved costs budget, situations arise where costs exceed the planned limits. Understanding what to do when your costs budget is exceeded is crucial for effective case management and avoiding disputes over recoverable costs.

The role of costs budgets

A costs budget is a projection of the legal costs a party expects to incur during proceedings. Under the Costs Management framework, parties in multi-track cases, and certain fast-track claims, are generally required to file a budget. The court will review the submitted budget and, where appropriate, issue a Costs Management Order (CMO) approving the estimated figures.

While a CMO provides guidance on recoverable costs, it does not act as an absolute cap. The court will consider whether costs remain proportionate under CPR 3.18, even if they exceed the approved budget. Any departure from the budget must be justified with a good reason to depart, demonstrating that additional costs were reasonable and necessary.

Consequences of exceeding the approved budget

Exceeding the approved budgeted costs invites scrutiny at the assessment stage. The costs judge will assess whether the excess is justified, focusing on:

• The complexity of the case and unforeseen developments
• The proportionality of costs incurred relative to the issues in dispute
• Whether any additional costs were incurred on an indemnity basis

Costs that exceed the approved budget without proper justification risk being disallowed or reduced. The court will weigh the principles of proportionality and reasonableness, ensuring that the expenditure is appropriate to the matters at issue.

Practical steps when costs exceed the budget

Compare actual costs with the approved budget – Review the costs incurred against the approved budgeted figures, identifying areas where costs have exceeded the estimate.

Document reasons for the excess – Prepare a clear, detailed justification for each area of overspend. Reference specific developments in the case that necessitated additional expenditure and relate this to CPR 3.18 principles of proportionality.

Communicate proactively with the court – Early communication with the court can prevent disputes at the costs assessment stage. The court may vary a Costs Management Order is a good reason to depart is demonstrated.

Engage with the opposing party – Where appropriate, negotiate with the other party to agree on the recoverability of additional costs. This can streamline the assessment process and reduce the risk of contested hearings before a costs judge.

Prepare thorough documentation for assessment – Maintain comprehensive records of work completed, invoices, and correspondence. Clearly demonstrate why additional costs were necessary, proportionate, and, where applicable, incurred on an indemnity basis.

How Costs Draftsmen and Costs Lawyers can support recovery of excess costs

Costs draftsmen play a crucial role in both preparing and managing costs budgets. When a budget is required, they work closely with solicitors to create a detailed and realistic estimate of the legal costs likely to be incurred throughout the litigation. They take into account each stage of the case, from pre-action work through to trial preparation and disbursements.

They assess the complexity of the matter and provide strategic advice on cost-effective approaches, helping to ensure that the budget is proportionate and compliant with court rules. Once the budget is prepared, costs draftsmen can draft and submit it to the court, respond to challenges from the opposing party, and attend hearings to support the approval of the budget.

If the costs incurred exceed the approved budget, costs draftsmen are able to analyse which elements caused the overrun and whether these additional costs were reasonable. They prepare detailed justifications for the court and advise on the best approach to recover costs after the conclusion of the case. Throughout the process, they provide guidance on risk management, helping firms to monitor costs, and avoid unnecessary overruns.

How can ARC Costs assist?

ARC Costs regularly assists law firms and clients in preparing realistic and compliant costs budgets, ensuring costs are proportionate and properly documented. If costs exceed expectations, our team can review and analyse the reasons, provide guidance on how to justify additional costs to the court, and assist with managing recoveries.

Our team also assists with detailed assessment hearings, bill of costs, negotiations and points of reply. As an independent expert, we also represent Paying Parties, and our costs team are adept at Points of Dispute as well as advising on, and negotiating on your behalf if you wish, the maximum possible reductions to be achieved.

For assistance with your costs related queries, contact one of the team at info@arccosts.co.uk, or speak to one of our experts by calling 01204 397302.