For businesses beginning commercial litigation proceedings, costs of the case may not be a primary consideration and is seen as something to attend to once the dispute is resolved. However, this approach risks parties incurring hefty legal costs where they may not be able to recover the amount that they had expected, or they are unable to pay if costs are awarded against them. The costs management regime in England and Wales helps control the expenses of legal proceedings and requires parties to plan their budgets for litigation from the early stages.
Cost Budgeting
Cost budgeting was introduced to address a longstanding issue in legal proceedings, where the matter of costs would only be reviewed and determined at the end of proceedings. Previously, neither the parties nor the court had any meaningful control or concept over the extent of legal costs on their cases.
By introducing a system where parties are required to set out their anticipated costs upfront and at different stages of litigation, it puts the courts in a role of responsibility to keep litigation proportionate and financially feasible for all sides of the case.
This regime is governed by Part 3, Section II of the Civil Procedure Rules (specifically rules 3.12 to 3.18) and Practice Direction 3E and applies to all parties. Both claimants and defendants are expected to file and exchange budgets at the same time.
Costs budgeting doesn’t apply to all cases, however. Generally, it applies to multi-track cases with claims valued above £100,000 or those that are too complex for the fast or intermediate tracks. Even within multi-track litigation, a judge may decide that budget plans are disproportionate or not applicable to certain cases.
Precedent H
In the event that cost budgeting does apply, the budget must generally be filed 21 days prior to the first case management conference (“CMC”). The level of detail required varies in line with the value of the case where higher-value claims typically require the full budget form to be completed.
Precedent H requires costs to be broken down according to different phases of litigation, main ones being pre-action, issue, statements of case, disclosure, witness statements, and trial preparation. This allows for the separation of costs between those already incurred, and those to be determined. Once a costs management order is made, the court sets a price ceiling for each phase where recovering more than the maximum amount determined from the losing party later on requires “good reason” for departing from the originally approved budget.
Precedent R
Once a party files its Precedent H, other parties must respond with a Precedent R budget discussion report. Here, they record the agreed figures and those which are not (with reasons set out as to why it is disagreed), typically no later than the 7 days after the last CMC is filed. The court records what has been agreed between the parties and determines the remainder of the contested budget at a costs case management conference based on what it considers reasonable and proportionate.
Parties are encouraged to carefully plan out their estimated costs and to be ready to justify and defend the figures they present. This places them at a more prepared and legally stronger position than if they did not.
Under CPR 3.14, a party who fails to file Precedent H on time is treated as having filed a budget limited to court fees, which excludes professional costs of solicitors, counsel and experts where necessary. This means that even if a party succeeds in litigation, they may not be able to recover the legal costs they have incurred and may have to use the monies awarded by the court to repay them.
If you require help with a dispute or impending litigation, please contact Nath Solicitors on 0203 983 8278 or get in touch with the firm online.