Do I need to file a budget?
Almost all Multi Track cases issued since April 2013 are now subject to costs budgeting. The exceptions are where:
the claim is commenced on or after 22nd April 2014 and the amount of money claimed as stated on the claim form is £10 million or more; or
the claim is commenced on or after 22nd April 2014 and is for a monetary claim which is not quantified or not fully quantified or is for a non-monetary claim and in any such case the claim form contains a statement that the claim is valued at £10 million or more; or
in proceedings commenced on or after 6th April 2016 a claim is made by or on behalf of a person under the age of 18 (a child) (and on a child reaching majority this exception will continue to apply unless the court otherwise orders); or
the proceedings are the subject of fixed costs or scale costs; or
the court otherwise orders.
When does it have to be filed?
(1) Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets—
(a) where the stated value of the claim on the claim form is less than £50,000, with their directions questionnaires; or
(b) in any other case, not later than 21 days before the first case management conference.
(2) In the event that a party files and exchanges a budget under paragraph (1), all other parties, not being litigants in person, must file an agreed budget discussion report no later than 7 days before the first case management conference.
What form do I use?
(a) Unless the court otherwise orders, a budget must be in the form of Precedent H. It must be in landscape format with an easily legible typeface. In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings. A budget must be dated and verified by a statement of truth signed by a senior legal representative of the party.
(b) Parties must follow the Precedent H Guidance Note in all respects.
(c) In cases where a party’s budgeted costs do not exceed £25,000 or the value of the claim as stated on the claim form is less than £50,000, the parties must only use the first page of Precedent H .
PD 3E B (6)
What is a budget discussion report?
The budget discussion report required by rule 3.13(2) must set out—
(a) those figures which are agreed for each phase;
(b) those figures which are not agreed for each phase; and
(c) a brief summary of the grounds of dispute.
PD 3E C 6A
Always bear in mind...
In any case where the parties are not required by rules 3.12 and 3.13 to file and exchange costs budgets, the court has a discretion to make an order requiring them to do so. That power may be exercised by the court on its own initiative or on the application of a party. Where costs budgets are filed and exchanged, the court will be in a position to consider making a costs management order ... In all cases the court will have regard to the need for litigation to be conducted justly and at proportionate cost in accordance with the overriding objective.
PD 3E (2) (a)
What and when to consider?
At an early stage in the litigation the parties should consider and, where practicable, discuss whether to apply for an order for the provision of costs budgets, with a view to a costs management order being made.
PD 3E A (3)
If all parties consent to an application for an order for provision of costs budgets, the court will (other than in exceptional cases) make such an order.
PD 3E A (4)
Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.
However, all is not lost... quite
In the unfortunate event that a litigant falls foul of CPR 3.14 a good Part 36 Offer could save them, to an extent.
Where an party who has been treated as filing a budget limited to applicable court fees beats their own Part 36 offer they will be entitled to recover 50% of their assessed costs without reference to the limitation from expiry of the relevant period.
How will the court treat the budget?
(1) In addition to exercising its other powers, the court may manage the costs to be incurred (the budgeted costs) by any party in any proceedings.
(2) The court may at any time make a ‘costs management order’. Where costs budgets have been filed and exchanged the court will make a costs management order unless it is satisfied that the litigation can be conducted justly and at proportionate cost in accordance with the overriding objective without such an order being made. By a costs management order the court will—
(a) record the extent to which the budgeted [to be incurred] costs are agreed between the parties;
(b) in respect of the budgeted costs which are not agreed, record the court’s approval after making appropriate revisions;
(c) record the extent (if any) to which incurred costs are agreed.
(3) If a costs management order has been made, the court will thereafter control the parties’ budgets in respect of recoverable costs.
(4) Whether or not the court makes a costs management order, it may record on the face of any case management order any comments it has about the incurred costs which are to be taken into account in any subsequent assessment proceedings.
Does a costs management order relate to all costs within the budget?
As part of the costs management process the court may not approve costs incurred before the date of any costs management hearing. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all budgeted costs.
PD 3E D 7.4
Can a budget be revised?
Yes, in certain circumstances.
Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions. Such amended budgets shall be submitted to the other parties for agreement. In default of agreement, the amended budgets shall be submitted to the court, together with a note of (a) the changes made and the reasons for those changes and (b) the objections of any other party. The court may approve, vary or disapprove the revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed.
PD 3E D 7.6
What if unexpected applications arise?
If interim applications are made which, reasonably, were not included in a budget, then the costs of such interim applications shall be treated as additional to the approved budgets.
PD 3E D 7.9
It's not all in the detail
The making of a costs management order under rule 3.15 concerns the totals allowed for each phase of the budget. It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.
PD 3E D 7.10
Are the costs of the budgeting process recoverable?
Save in exceptional circumstances-
(a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved or agreed budget; and
(b) all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the approved or agreed budget.
PD 3E D 7.2
How does any costs management order affect the recovery of costs?
In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party’s last approved or agreed budgeted costs for each phase of the proceedings;
(b) not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so*; and
(c) take into account any comments made pursuant to rule 3.15(4) or paragraph 7.4 of Practice Direction 3E and recorded on the face of the order.
What if a budget is filed but no costs management order is made?
If there is a difference of 20% or more between the costs claimed by a receiving party on detailed assessment and the costs shown in a budget filed by that party, the receiving party must provide a statement of the reasons for the difference with the bill of costs.
PD 44 3.2
If a paying party –
(a) claims to have reasonably relied on a budget filed by a receiving party; or
(b) wishes to rely upon the costs shown in the budget in order to dispute the reasonableness or proportionality of the costs claimed,
the paying party must serve a statement setting out the case in this regard in that party's points of dispute.
PD 44 3.3
Where it appears to the court that the paying party reasonably relied on the budget, the court may restrict the recoverable costs to such sum as is reasonable for the paying party to pay in the light of that reliance, notwithstanding that such sum is less than the amount of costs reasonably and proportionately incurred by the receiving party.
PD 44 3.6
Where it appears to the court that the receiving party has not provided a satisfactory explanation for that difference, the court may regard the difference between the costs claimed and the costs shown in the budget as evidence that the costs claimed are unreasonable or disproportionate.
PD 44 3.7
In summary …
- A budget must be filed in all applicable Multi Track cases no less than 21 days before the case management conference in cases where the stated value of the claim on the claim form is more than £50,000 and, in all other cases, with the Directions Questionnaire
- A failure to file a budget on time may result in recoverable costs being limited to applicable court fees
- However, a good Part 36 Offer could rescue half of the otherwise lost costs
- A budget must be updated as and when ordered by the court or at any stage in the litigation that a significant development warrants a revision
- The court will review, manage and control the costs expenditure with reference to the budgets throughout the life of the litigation
- The budget will play a significant and highly influential part on any detailed assessment of costs
- Unless 'good reason' can be shown the court will not depart from any approved or agreed budgeted costs... in either direction.