- What changed?
- How was the change implemented?
- What do the rules require?
- What is the effect of making a costs management order?
- What if the court does not make a costs management order?
- Are the costs of the costs management procedures recoverable?
- What are the implications for commercial parties?
“Costs management” procedures were introduced for multi-track cases commenced on or after 1 April 2013 in both the county court and the High Court, following a pilot in the Mercantile Courts and Technology and Construction Court (TCC) and a separate pilot in defamation cases. Initially, there were exceptions for the Commercial Court, and cases in the Chancery Division, TCC and Mercantile Courts where the sums in dispute exceed £2 million excluding interest and costs.
For cases commenced on or after 22 April 2014, however, the budgeting regime applies to all Part 7 multi-track cases below £10 million in all courts including the Commercial Court (see “Costs budgeting to be extended to cases below £10 million in all courts“).
The change was implemented by the introduction of new Civil Procedure Rules 3.12 to 3.18 and new Practice Direction 3E on Costs Management, as well as amendments to the Costs Practice Direction.
All parties (except litigants in person) have to file and exchange budgets setting out their estimated costs for each stage in the proceedings. The budgets have to be filed not later than 21 (clear) days before the first CMC. The budget must be verified by a statement of truth signed by a senior legal representative of the party.
Where a party files and exchanges a budget, all other parties (except litigants in person) must file an agreed budget discussion report no later than 7 (clear) days before the first case management conference. These must set out which figures in an opponent’s budget are agreed, or not agreed, for each phase of the budget and a brief summary of the grounds of dispute.
The court may at any time make a “costs management order”, in which it will record the extent to which the budgets are agreed between the parties, or (to the extent not agreed) record the court’s approval of a budget, if necessary after making appropriate revisions. 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”.
Whether or not the court has made a costs management order, when making any case management decision it will have regard to the budgets and take into account the costs involved in each procedural step.
If a costs management order has been made:
- The court will then control the parties’ budgets in respect of recoverable costs.
- Crucially, when assessing costs on the standard basis, the court will have regard to a party’s last approved or agreed budget and will not depart from it unless satisfied that there is good reason to do so.
Where the parties have filed budgets but the court has not made a costs management order, the court may still take the budgets into account when assessing the reasonableness and proportionality of any costs claimed on a detailed assessment.
If there is a difference of 20% or more between the costs a party is claiming on detailed assessment and its budgeted costs:
- That party must provide a statement of the reasons for the difference with its bill of costs. If those reasons are not satisfactory, the court may regard this as evidence that the costs claimed are unreasonable or disproportionate.
- 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.
Yes, within limits:
- No more than £1,000 or 1% of the approved budget (whichever is higher) is recoverable for preparing the initial budget.
- No more than 2% of the approved budget is recoverable for all other aspects of the budgeting and costs management process.
It is essential for parties to prepare accurate budgets and keep them up to date.
Any party which fails to file a budget when required to do so will be treated as having filed a budget comprising only the applicable court fees, unless the court orders otherwise. It appears that this sanction will be applied strictly and the courts will, generally, be slow to grant relief unless there is good reason for the failure to comply (see “Court of Appeal sends clear message on need for strict compliance in Mitchell decision“, “Court of Appeal softens Mitchell guidance but insists no return to old culture of non-compliance” and “Court of Appeal upholds order limiting recoverable costs to court fees where party failed to file costs budget“).
Note: Content up to date as at 23 April 2021
Click here to return to the ”Handy client guide to the Jackson reforms” home page, or on the links below to access information on other Jackson topics:
- Contingency fees or damages-based agreements (DBAs)
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- 10% increase in general damages
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