The Jackson reforms introduced new rules providing courts with the ability, and responsibility, to costs manage in the vast majority of civil claims. In cases issued after 1 April 2013, and in other cases where the court so orders, the court is required to manage the steps taken by the parties and the costs incurred in proceedings to ensure compliance with the updated overriding objective. The revised objective insists that cases are not only dealt with justly (as before 1 April) but now also at proportionate cost.

As the courts and parties come to terms with the new rules introduced in April 2013, we are likely to see disputes for some time.

Nevertheless, the judicial guidance provided so far already illustrates that courts are expected to apply the new principles.

The guidance also highlights the importance and benefits of accurate budgeting, confirming that it is vital to remain vigilant throughout the life of a case and continually monitor each element of the budget.

Getting budgeting wrong

  • Initial judicial guidance was thought to be provided in Henry v News Group Newspapers Ltd [2013], a case caught by the defamation pilot scheme. In summary, on settlement of the claim, the Court of Appeal directed that consideration ought still to be given as to whether additional costs – over and above the approved budgeted amount – should be awarded to the Claimant.
  • In Henry, the Claimant sought costs which exceeded the approved budget by almost £300,000. The Court of Appeal held that the costs incurred had increased due to the Defendant’s approach to the claim. The Court also had regard to the fact that the Defendant had far exceeded its own budget, and had failed to raise issue with the Claimant’s costs when advised ahead of settlement. On this basis, the Court found "good reason" to depart from the previously approved budget. However, one should not place too much emphasis on Henry. It was decided under the previous (less strict) budgeting scheme rules and before the new version of the overriding objective. In normal circumstances, where an approved budget is in place, costs incurred will be limited by reference to this.
  • In Troy Foods v Manton [2013], the Court of Appeal came close to providing guidance on the proper approach to be taken by costs judges. Permission to appeal having been allowed to give such guidance, the case subsequently settled. However, Lord Justice Moore-Brick was firm in his view that just because costs fall within an approved budget, they are not necessarily reasonable or proportionate. An "approved budget was not to be taken as a licence to conduct litigation in an unnecessarily expensive way".
  • Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] involved an approved budget for the Defendant of £268,488. Ahead of trial, the Defendant provided an amended budget of £531,946, though failed to make any formal application to amend its budget. The amendment largely sought to correct the previously underestimated item for expert evidence. Following success at trial, the Defendant sought costs of £497,593. The Court found that the provision of an updated budget ahead of trial was insufficient without a formal application, that such an application post trial was a "contradiction in terms" and in any event there remained no good reason to depart from the approved budget. It held that costs should be assessed with reference to the previously approved budget.

Righting the wrong

  • Murray and another v Neil Dowlman Architecture Ltd [2013] illustrates the importance of seeking to rectify incorrect or undervalued budgets. The Claimants, in filing their budget, failed to advise that the budget excluded a success fee and ATE premium. The budget was approved by the Court. The Defendant advised that, as the budget made no reference to these additional costs, they would seek to argue that no costs over and above the approved budget would be recoverable should the Claimants succeed. Realising their error, the Claimants quickly applied to vary the budget, albeit under the erroneous guise of an application for relief from sanctions. The Court took into account the fact that the Defendant was aware of the Claimants’ funding arrangements. In addition, the Claimants had completed their own version of the costs budgeting form and thus failed to tick a box which would have been present if the correct form had been used. The Court allowed the Claimants to amend the budget, to include express provision that the success fee and ATE premium would be allowed in addition.

Getting budgeting right

  • The benefits of accurate costs budgeting have been illustrated in Slick Seating Systems and another v Adams and others [2013]. The Court had approved the Claimants' budget of £359,710.35. At trial, the Claimants sought costs of £351,267.35. The Court summarily assessed the Claimants' costs in the sum of £351,267.35 as claimed, and ordered this amount be paid within 14 days.

Lessons to be learned

The courts will almost certainly require parties to maintain ever more accurate budgets as all involved become more familiar with the process. Decisions such as those in Henry and Murray are unlikely to be repeated.

Where a party appears likely to exceed its budget, it should immediately apply to the court to amend the budget. The court will need to be persuaded that the issues in the case, rather than any error in the original budget, indicate that an amendment would be reasonable.

The benefits of accurate budgeting are obvious. The courts would appear to be willing to order payment of costs within budget immediately. Even if the courts did not immediately assess costs, it would take a brave party to challenge costs presented within budget.