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Dispute Resolution
Monday 18th July 2022 Sunil Patel 

Understanding the Budget in Court Proceedings

The introduction of the Budget (or ‘Precedent H’) is a recent innovation in litigation in England and Wales. Where a claim is brought under Part 7 of the Civil Procedure Rules which governs litigation in England and Wales, where a claim is valued at £25,000 or over, unless a Court orders otherwise, a Budget has to be filed at Court and served on the opposing parties. This allows the Court to manage the costs of a claim.

The purpose of this article is to explain the Budget Form and its role in the litigation process. Once filed and served then approved by the Court, the budget remains important during the lifespan of the claim as it limits the costs recoverable. Litigation is by its very nature unpredictable. If as a result of unforeseen changes in the claim, the costs being incurred by a party exceeds the figures stated in the approved budget, such costs would not be recoverable. Where the costs of the litigation could be high relative to the value of the claim or even disproportionate, the budget takes on a greater significance and may form an outsized role in determining whether a claim is negotiated and/or settled.

When is a Budget needed?

There is a requirement of parties represented by a solicitor to file at Court and serve on the other parties a copy of the budget 21 days before a hearing called a Costs and Case Management Conference (‘CCMC’),– this is for budgets over £50,000, if it is under then it needs to be filed with the Directions Questionnaire. That hearing is listed in the Court diary after the parties have filed Statements of Case setting out their positions and questionnaires submitted to the Court answering questions to help the Court determine the road map. It is imperative that the Budget is filed and served 21 days before that hearing otherwise save for Court fees, that party loses the right to recover costs. In the case of a claim that is valued over £25,000 but less than £50,000, only the first page of the budget needs to be filed and served. If the amount claimed is valued over £50,000, the whole form should be filed and served.

The parties are encouraged to discuss their respective budgets. The aim is for the parties to agree their costs. The parties must file and serve a Discussion Report (or ‘Precedent R’) recording any discussions they may have 7 days prior to the CCMC. At the hearing, the Court will then consider the Budgets of the parties and comments and embody their decision in the Costs and Case Management Order. The parties must then file the amended front sheet of the budget with the Court. A party would then have to work with the monies allocated to each phase. If any work carried out exceeded the phase and permission to increase the limit is not sought from the Court in advance, those costs will not normally be recoverable from the opponent(s) if the litigation is successful.

The Budget Form

Budget Form is available from the Court Service as an Excel spreadsheet and can be downloaded from its website: https://www.gov.uk/government/publications/form-precedent-h-and-r-costs-budget-precedent-h-and-budget-discussion-report-precedent-r.

The first page of the Budget provides a useful overview of the different stages:

1. Pre-action costs

2. Issue/statements of case

3. CMC

4. Disclosure

5. Witness statements

6. Expert reports

7. PTR

8. Trial Preparation

9. Trial

10. ADR/ Settlement discussions

11. Contingent cost A

12. Contingent cost B

In completing the form, usually a solicitor (or in some cases, a costs lawyer or costs draftsman) will calculate the costs incurred prior to the hearing and insert figures into the ‘columns of the form. ‘Incurred Costs’ are those costs that the party has already incurred when the Budget form is completed. Along with the costs of attending the CCMH, these are not considered by the Court at the CCMC.

To complete the ‘Estimated Costs’ columns for each category, the solicitor (or costs lawyer/draftsman) will need to consider not just the likely direction of the claim, but also what evidence will need to be disclosed, time needed to prepare witness evidence, if relevant, expert reports and the necessary steps leading up to trial. The Budget provides contingencies for additional work such as applications which will be necessary depending on the nature and progression of the litigation. For instance, an application may be needed to compel a party to disclose evidence. For completeness, all likely costs such as the Court fee, barrister’s fee and solicitors’ costs would need to be calculated and inserted. Like ‘Incurred Costs’, the columns for ‘Estimated Costs’ are divided for ‘Disbursements’ and solicitors’ costs which are stated as ‘Time Costs.’ Each type of solicitor, trainee or paralegal will be separately stated along with their hourly rate and number of hours at each stage.

The Courts encourage parties to try and resolve the dispute before and during the course of the claim. The Section ‘ADR/Settlement discussions’ allows the parties to claim costs for this work. This could include costs for a mediation and without prejudice correspondence particularly offers.

The 6 pages that follow the first summary sheet provide tables for each of the above categories. The name of each person working on the file at the solicitor’s firm will be inserted alongside their hourly rate and number of hours. Below, after consulting the barrister’s clerk, the barrister’s estimated time will be inserted. Most cases involve a single barrister om each side so time will be inserted in the ‘Junior Counsel’ row. In major cases where there is a substantial value claimed, important issues or both, a ‘Leading Counsel’ such as a Queens Counsel (or QC) will be retained with Junior Counsel. There is a section on each of these pages to set out ‘Assumptions’ so an explanation can be provided for the calculation of time. Such reasons for an explanation may include onerous disclosure of evidence or a large number of witness statements that would justify a claim for a greater amount of time (and costs) than would normally be expected. The expenses allowed for each section allows the solicitor to claim for costs incurred either for that stage (expert opinion needed on specific times in the claim such as in a construction dispute) or throughout, if the client is in need of an interpreter and translation of documents. Where a witness is based abroad, the amount claimed would include cost of hiring the venue and facilities that must be suitable to the Court’s requirements and time in liaising with the Court to make necessary arrangements for the trial.

Once completed, the Budget has to be certified by a solicitor by signing a Statement of Truth confirming that the amounts claim are ‘a fair and accurate statement of incurred and estimated costs which it would be reasonable and proportionate … to incur’ in that litigation.

The exercise of completing this form is important. Once completed, the party has set out their claim of costs which will be discussed by the parties before the CCMC and examined by the Court on the day of the hearing. The Court will set figures for each category. Your solicitor is entitled to include their client’s costs for preparing the Budget.

Once the Budget has been filed, it is not uncommon to file an updated Budget subsequent to filing a Budget 21 days before the hearing.

If during the claim a party seeks an increase in the Budget, they would need to make an application the cost of which they may not recover particularly if refused by the Court.


The approved Budget

As discussed above, the Budgets of the parties represented by solicitors will be considered by a Judge who will determine final figures of each stage and a total. Once decided, the party can only recover costs within that approved budget. If during the course of the proceedings, the costs are likely to exceed anyone or more of the stages, the solicitor should apply for an increase setting out reasons for the request.

The approved budget is also important in that it puts the opposing party or parties on notice of the potential costs liability they may incur if unsuccessful. Whilst the payment of a successful party can be subject to an assessment by a Court, the budget provides the parameters for the amount that could be payable.

If the budget is not updated but you have exceeded one or more of your phases, you have one last opportunity at detailed assessment at the end of the claim where the Court determines the costs figure payable, to put forward good reasons as to why it was exceeded. The Court will take these reasons into consideration when determining the final costs figure.

Relief from Sanctions

If a solicitor does not file a Budget on time (i.e. 21 days before the hearing), the automatic sanction imposed by the Civil Procedure Rules is that the client will only be able to recover the Court fees incurred if successful or the opposing parties are ordered to pay costs. If there is a failure of late filing, the solicitor should make an application at the earliest opportunity seeking relief from the sanction. This application seeks the Court’s permission to file the Budget late which if granted, the client would escape the sanction. The Court has wide discretion to grant such relief. It is advisable when making such an application to first seek the opposing party or parties’ consent not to oppose the application and file and serve the budget. This should be done as a matter of urgency. If made late and without good reason, the Court is unlikely to grant the request. The Court may not list a separate hearing to consider the application but deal with the request at the CCMC. A more detailed consideration of the application for relief for sanctions is a separate topic and beyond the scope of this article.

In the recent case of Alexandra Handy v. Dr Mohammed Azhar Aslam and Linia Limited [2021] the Court considered the late filing of the Discussion Report. Where there is failure to file on time, the opposing party or parties could view their costs as unchallenged. In such circumstances, the Court could also impose a sanction.

The management of costs in court proceedings and recovery from the unsuccessful opposing side is an important feature of the work the litigation team frequently carry out. If you wish to be represented by this firm in an existing claim or would like to discuss the likely cost of litigation before starting a claim, please contact Sunil Patel of our Litigation Department on 07836 533 030 or email at spatel@jpclaw.co.uk or connect with him on LinkedIn.

Disclaimer

All articles on this website do not necessarily cover every aspect of a topic and are designed for information purposes. Reliance should not be placed on their contents without specific legal and financial advice first being taken.

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