With the imminence of the Jackson Reforms, the new era of costs budgeting will soon be upon us. Costs budgeting is one of the many reforms to be introduced in April 2013.

Parties to all cases including personal Injury and clinical negligence claims that fall in the multi-tack (those worth more than £25,000) save for those started in the Admiralty and Commercial Courts and litigants in person will be required to exchange and file costs budgets within 28 days of the service of the defence unless the court otherwise orders.

The aim is to give the court control over costs and supposedly to ensure the parties are on an equal footing. CPR Part 3 is being amended to include additional case management powers of the court in relation to costs and there will be a new practice direction to supplement that.

This will essentially mean that all parties will have to provide a detailed analysis of their likely costs in the new prescribed form of “precedent H”, setting out what they believe will be their costs of bringing/defending the claim to a conclusion up to and including trial. This will include the fees of the parties’ lawyers (both solicitors and barristers), court fees, medical records fees and experts’ fees.

If and when either party objects to the other’s budget, the court will intervene and set a budget at a costs management conference. If at any stage either party’s budget exceeds the agreed or approved budget they must notify their opponent and the court. Failure to do so is likely to limit recovery of costs to the agreed/approved budget and consequently cause a loss to the party who exceeded the budget and failed to update their opponent and court.

This was the unfortunate consequence for the claimant in the case of Henry v News Group Newspapers Ltd. This was a defamation case that was part of a number of costs budgeting pilot schemes set up in the Birmingham Mercantile and TCC courts and in defamation cases in London and Manchester. During the course of the proceedings the defendant had amended its defence four times and served 10 lists of documents, all of which required the claimant to undertake substantial additional work. Whilst the defendant did not escape criticism, the fact that it had informed the claimant of its increased costs and sought to exchange updated budgets with the claimant was held in its favour. The defendant had not been aware the claimant had exceeded her approved budget until a month before the trial. The judge accepted the defendant’s conduct justified the extra work carried out by the claimant, which would in normal circumstances be considered “reasonable and proportionate.” However, there was “no good reason” to depart from the approved budget as the provisions of the pilot were in mandatory terms. Therefore the costs exceeding the budget were disallowed and the claimant recovered £268,832 less that than the reasonable and proportionate costs which she had actually incurred.

Contrast this with the case of Safetynet Security Ltd v (1) Leonard Coppage (2) Freedom Security Solutions Ltd [2012] EWHC B11 (Mercantile). In this case the court decided shortly after the substantive hearing that it would be “an expensive and futile exercise” for costs to be dealt with at detailed assessment in view of the fact that claimant had not exceeded its approved costs budget. The claimant was therefore awarded the full amount of the budget and quite possibly ended up with more costs than it would have been awarded at detailed assessment.

These two cases highlight the importance of getting costs budgets right. It will in the future be imperative for parties to ensure they inform their opponents of their costs budgets at regular intervals and make sure these are approved by the court if they are to be paid for the work carried out on behalf of their clients.