What is costs budgeting?
Costs budgeting can best be described as project management of costs throughout the litigation process. Parties caught by the provisions must prepare a costs budget (verified by a statement of truth) considering the issues in the case, the procedural stages and the amount of time each stage of the litigation is likely to take. When preparing the budget, a party must consider who will be working on the case, their hourly rates, and build in contingencies.
The deadline for filing and exchange of costs budgets will be stated in the notice of proposed allocation sent to the parties after the defence is filed. If no date is specified, the deadline will be seven days before the first Case Management Conference (CMC).
There are a number of key issues relating to costs budgeting, namely:
- All parties (except litigants in person) must prepare, file and exchange and try to agree costs budgets.
- If there is no agreement, the court can revise those budgets.
- The court can decide to impose a costs management order on one or more of the parties. If the court decides to do this, it will actively manage the costs incurred throughout the litigation and ensure that costs do not exceed the budgeted amount at each procedural stage.
- When recoverable costs are considered at the end of the litigation, the court will assess costs in accordance with the latest approved or agreed costs budget between the parties for each procedural step in the litigation. The winning party should then be able to recover its costs within 14 days of the end of the hearing instead of going through a detailed assessment.
Am I caught by the new provisions?
The new costs management provisions apply to all High Court and County Court multi-track cases (i.e. those claims of £25,000 or more) commenced on or after 1 April 2013, unless the court orders otherwise.
Unless the court decides costs budgeting is applicable to a particular case, the new provisions do not apply to cases:
- in the Commercial Court;
- to cases in the Chancery Division, Technology and Construction Court or Mercantile Court where the disputed amount exceeds £2m (excluding interest and costs).
What happens if parties are unable to agree?
If the parties are unable to agree costs budgets, the court will require the parties to address non-agreed items at the first CMC.
One of the underlying principles in the Jackson reforms as a whole is cooperation between the parties. In terms of costs budgeting, parties are required to cooperate before and during the CMC.
Failure to cooperate may result in a sanction being imposed.
Furthermore, if parties are unable to agree budgets at the CMC, the court may decide to adjourn the issue of costs to a later hearing which may result in cost penalties, such as wasted costs orders.
Revise and update your budget
Costs budgeting is not a one off action to be completed before the CMC. It is an ongoing process. If you do not keep your budget up to date, your recoverable costs may be restricted to the last approved or agreed budget unless you can persuade the court that there was a good reason to depart from the budget.
Costs budgets can be a useful tool in highlighting the impact a party's conduct is having on the litigation. If a party is behaving aggressively, the costs may be disproportionate to the issues in the case.
If your costs are being increased because you are doing more work to respond to such behaviour or if you need to revise your costs budget for any other reason, it is important to revise your costs budget and submit it to the court for approval, setting out the reasons for the increase.
Although the pre-Jackson Court of Appeal case Henry v News Group Newspapers Ltd  EWCA Civ 19 demonstrated that the court will not be required to keep a party to its budget, the court emphasised that under the new costs budgeting provisions the court would be likely to 'place particular emphasis on the function of the budget as imposing a limit on recoverable costs'.
At this early, post-Jackson stage, it is unclear whether or not the decision in Henry will increase the number of appeals from strict first instance decisions on costs budgeting.
- There is likely to be limited significance for larger claims, because the new provisions do not apply to the Commercial Court or to cases in the Chancery Division, Technology and Construction Court or Mercantile Court where the disputed amount exceeds £2m (excluding interest and costs). However, it is important to remember that a court has the power to order that the costs budgeting provisions apply to a case if it decides it is appropriate.
- Prepare and file accurate costs budgets. A party who fails to file a costs budget when required will be deemed to have filed a budget only consisting of applicable court fees, unless the court orders otherwise.
- Review your costs budget throughout the case.
- Co-operate with the other party/parties throughout the case.
- Failure to cooperate or to review/resubmit your budget is likely to result in reduced costs recovery at the end of the case.
If you are in any doubt about how costs management works or how it applies to your case, please do not hesitate to get in touch.