Costs budgeting – welcome clarity from the Court of Appeal

Costs budgeting is now a central part of civil litigation.  The Court, lawyers and litigants are getting more comfortable with the process and it leads to much greater transparency and certainty.

Costs budgeting typically takes place at the costs and case management conference (CCMC), by which time the parties have already incurred pre-action costs, the costs of drafting the statements of case and of preparing for the CCMC itself.  The parties prepare budgets to cover their incurred and estimated future costs.  The Court fixes a budget for costs over the remainder of the litigation but not the costs incurred to date.

The final bill payable by the losing party at the end of litigation, unless agreement is reached, is decided by detailed assessment.  There had been some uncertainty over the interaction between costs budgeting and detailed assessment.

These issues were considered by the Court of Appeal in the case of Harrison -v- University Hospitals Coventry and Warwickshire NHS Trust.  This was a clinical negligence case that settled shortly before trial for payment of £20,000 plus costs.  The Claimant’s approved costs budget was £197,000, including £108,000 incurred costs but excluding success fees and ATE insurance premium.  The Claimant’s total costs bill to the date of settlement was £467,000, including success fee, ATE premium and VAT.  As the parties could not agree the matter went to detailed assessment.  In particular, the parties could not agree on the extent to which the costs budgeting process was binding on detailed assessment.

The Court of Appeal ruled that:

1. Budgeted estimated costs would only be departed from (upwards or downwards) during detailed assessment if there was good reason. The Court of Appeal made clear this was a high hurdle.

2. Incurred costs at the date of the CCMC had not been ‘budgeted’ and would still be subject to detailed assessment in the usual way.

3. The total of the assessed incurred costs and the budgeted costs will be liable to further reduction if disproportionate to value of the claim.

In addition to providing clarity to litigants, this case emphasises the importance of costs budgeting and ensuring that a realistic budget for litigation is set at an early stage in the proceedings.