Costs Budgeting and the Management of Legal Costs
Why is costs budgeting important in litigation?
Budgeting costs in litigation is important because it helps to ensure that the legal process remains financially manageable, and that the parties involved have a clear understanding of the expected costs of the proceedings. This can help to avoid surprises and unanticipated expenses, as well as provide a framework for making informed decisions about the case. By setting a budget, the parties can allocate resources more effectively and make more informed decisions about settlement, negotiation, and trial strategy. Additionally, budgeting costs can also assist with financial planning and forecasting, and help the parties to manage their exposure to financial risk.
The costs budgeting process
Preparing and filing a cost budget involves the following steps:
- Review the relevant rules and guidance: Familiarise yourself with the relevant rules, such as the Civil Procedure Rules (CPR) and Practice Direction 3E, which govern cost budgeting in civil litigation.
- Gather the necessary information: This includes the details of all expected costs, including fees for solicitors, barristers, experts, and any other expenses. You will need to consider the nature and complexity of the case, the likely length of the proceedings, and any other relevant factors.
- Prepare the cost budget: Use the standard form provided by the court to prepare the cost budget, which should include a detailed breakdown of all expected costs and a summary of the total costs.
- Agree the cost budget with the other side: If possible, try to reach agreement with the other side on the cost budget using a budget discussion report. If an agreement cannot be reached, each side will need to file their own separate cost budget with the court.
- File the cost budget with the court: The cost budget must be filed with the court in accordance with the relevant deadlines and in accordance with the required form and format.
- Attend a costs and case management conference: If the court requires it, attend a costs management hearing, where the court will review the cost budgets and consider any objections or disputes.
- Update the cost budget: Regularly review and update the cost budget as the case progresses and seek prior agreement or court approval for any significant changes or deviations from the approved budget.
Costs Budgeting and Practice Direction 3E
Practice Direction 3E (PD 3E) is a rule in the English civil justice system that governs the preparation and use of cost budgets in civil litigation proceedings. It was introduced in April 2013 as part of the Civil Procedure Rules (CPR), and applies to all multi-track cases (i.e. cases that are too complex for the small claims track or the fast track).
The purpose of Practice Direction 3E is to promote cost efficiency and certainty in civil litigation by encouraging the parties to agree on a cost budget and to provide the court with an accurate estimate of the expected costs of the proceedings. The Practice Direction sets out the procedure for preparing, filing and exchanging a cost budget, including the information that must be included, the deadlines for filing, and the consequences of failing to file a budget or of departing from the approved budget.
Under Practice Direction 3E, the court will generally approve the parties’ agreed cost budget, unless it is not reasonable or proportionate. Once the budget is approved, the parties are expected to stick to it, and the court may make cost management orders to enforce compliance with the approved budget. However, the court also has the discretion to allow additional costs if they are reasonably and necessarily incurred in the course of the proceedings, even if they were not included in the approved budget.
Will the court allow parties to recover costs not listed within the budget?
In general, the court will consider the approved budget as a guide for the parties’ estimated costs, but it is not a binding agreement. The court may allow additional costs if they were reasonably and necessarily incurred in the course of the proceedings, even if they were not included in the approved budget.
However, if a party incurs costs that are significantly higher than the approved budget without prior agreement or good reason, they may be ordered by the court to pay a portion or all of these costs themselves, or face other adverse cost awards.
Therefore, it is important for the parties to regularly review and update their budget as the case progresses.
Relief from sanctions in costs budgeting
Relief from sanctions may be sought where a party has failed to file a cost budget, or has departed from an approved budget, and as a result, they are facing adverse cost consequences, such as an order to pay the other side’s costs or other sanctions.
The test for granting relief from sanctions was established in the landmark case of Mitchell v News Group Newspapers Ltd  EWCA Civ 1537, and it requires the court to consider the following three-stage test:
- Was the breach serious or significant?
- Was the breach caused by the party’s failure to take reasonable steps to comply with the court order or rule?
- Does the interest of justice require relief from the consequences of the breach?
The court has a wide discretion to grant relief, but it is generally only granted in exceptional circumstances.
How can Greener Costs assist?
At Greener Costs, our team of Costs Lawyers and Costs Draftsman possess many years of experience specialising in the laws surrounding legal costs services and negotiations and are able to assist clients from a range of background on a variety of cases, whether you are the paying party or receiving party.
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