Understanding Costs Budgets in Litigation: Why They Matter and the Risks of Non-Compliance

Introduction

When engaging in litigation, it’s essential to understand not only the legal merits of your claim but also the procedural framework governing costs. Nowhere is this more critical than in cases assigned to the multi-track, where costs and costs budgets play a pivotal role.

This article explains what a costs budget is, why it is important in multi-track claims, and the potentially draconian consequences of failing to comply with budgeting rules. If you’re contemplating or already involved in litigation, understanding this aspect of the process could significantly impact your case, financially and strategically.

This article implies that you have a basic understanding of the general litigation process in England and Wales. If you do not, a good starting point would be our article providing an overview of the litigation process here, and our articles on litigation ‘tracks’ here, as well as our article on how costs are dealt with in litigation here.

What is a Costs Budget?

A costs budget is a detailed estimate of the legal costs that each party expects to incur throughout the litigation process. Formally referred to as a Precedent H, this document sets out projected costs in various phases of the litigation (leading all the way to the trial), such as disclosure, witness statements, and trial preparation.

Costs budgets are required in the vast majority of multi-track cases, a procedural track used for more complex claims, typically where the amount in dispute is significant, and/or where there are complexities to the claim itself.

The costs budget provides transparency and encourages proportionality. It also plays a key role in how much a winning party can recover from the losing side. Essentially, if costs aren’t budgeted for and approved, they may not be recoverable later, even if you win your case.

The importance of the costs budget and getting it right is not to be underestimated.

Why Are Costs Budgets Required?

There are various reasons why costs budgets are required and it is necessary to keep in mind the overriding objective, namely for litigation cases to be dealt with fairly, justly and at proportionate cost.

1. Control and Proportionality

One of the key objectives of the Civil Procedure Rules 1998 (CPR) is to ensure that litigation is conducted at proportionate cost.

The introduction of mandatory costs budgeting in multi-track claims (under CPR Part 3 and Practice Direction 3E) was designed to address the problem of excessive legal costs, often described as one of the principal barriers to justice.

By requiring parties to outline and justify their anticipated costs early in the process, the court can ensure that spending aligns with the value and complexity of the case. This also discourages disproportionate litigation tactics.

2. Early Financial Planning

From a client’s perspective, a costs budget helps you understand and plan for the financial implications of litigation.

It breaks down expected costs into distinct stages, such as case management and expert evidence, allowing you to manage cash flow and avoid any surprises later on.

3. Limits on Recoverable Costs

Perhaps most importantly, a costs budget dictates what you can recover from your opponent if you succeed.

While you can still spend more than the budgeted amounts on your own legal team, you may not recover those excess costs from the other side unless you obtain the court’s permission in advance (known as a “variation” to the costs budget).

When Are Costs Budgets Required?

In general, a costs budget must be filed and exchanged by each party:

At least 21 days before the first Costs and Case Management Conference (CCMC) for most multi-track claims; or

With the Directions Questionnaire in certain cases (i.e., if the value of the claim is less than £50,000).

There are exceptions, and it is important that you promptly seek competent professional legal advice. For example, the court may decide to make a formal court order and demand costs budgets by a certain date – this is something you need to look out for so that you can get your costs budget filed in due time before any deadline imposed by the court or CPR.

What Happens If You Fail To File A Costs Budget?

This is where the implications become serious. If a party fails to file a costs budget when required without a good reason, the court may order that the party is only entitled to recover court fees (and nothing more) regardless of whether they win the case.

This outcome would clearly be disastrous. The consequences are outlined in Rule 3.14 of the CPR, which states:

“Unless the court otherwise orders, any party which fails to file a budget shall be treated as having filed a budget comprising only the applicable court fees.”

If you do fail to file a costs budget, you can apply for relief from sanctions, but it is not guaranteed that the court will approve the application. Courts expect solicitors and parties to take budgeting requirements seriously, and relief will generally only be granted where the breach was trivial or the default had a compelling justification (e.g., serious illness, system failure).

What About Litigants in Person (LiPs)?

LiPs (individuals who represent themselves in court without legal representation) are not automatically exempt from the rules around costs budgeting. However, the way costs budgeting rules apply to them is somewhat different.

In general, LiPs are not required to complete a formal Precedent H like legally represented parties, as per rule 3.13(1) of the CPR. The CPR recognises that LiPs may not have the knowledge or resources to complete detailed legal budgeting documents. That said, LiPs are still subject to cost limitations if they intend to claim any costs, for example, for time spent preparing the case or for disbursements like expert reports or court fees.

Under CPR 46.5, a litigant in person who wins their case may be entitled to recover:

• Reasonable out-of-pocket expenses (such as travel or copying); and
• A fixed hourly rate for time spent on the case, currently set at £19 per hour (in accordance with paragraph 3.4 of Practice Direction 46), unless the court allows a higher figure based on evidence of actual loss (e.g., loss of income).

LiPs are not entitled to recover legal fees unless they have paid for specific assistance (e.g., from a solicitor or barrister on a limited retainer), and even then, this must be properly evidenced.

While LiPs do not submit traditional costs budgets (save for certain circumstances, i.e., if the court orders that they so do comply with costs budgeting requirements), they should still keep detailed records of time spent and expenses incurred. This is especially important if they later seek to recover costs, as the court will require evidence to assess reasonableness.

More broadly, LiPs should be aware that lack of knowledge about procedural requirements (including budgeting and disclosure rules) is not always an acceptable excuse for non-compliance. Courts can show some leeway at its discretion, but persistent or serious defaults, such as missing deadlines or failing to cooperate with budgeting orders, can still result in penalties such as sanctions or adverse costs orders.

Amending a Costs Budget

Litigation rarely proceeds exactly as planned, so what happens if your costs increase unexpectedly?

If you need to exceed your budget, you must apply to amend it using a Precedent T form. You’ll need to explain the reason for the change, such as the emergence of new evidence, additional expert requirements, or delay by the other side. Crucially, the application should be made promptly and ideally before the extra costs are incurred

Failure to do so could result in the excess being deemed unrecoverable, even if those costs were reasonable and necessary.

What is a Budget Discussion Report?

After exchanging costs budgets in multi-track litigation, each party must prepare and serve a Budget Discussion Report (Precedent R) no later than seven days before the first CCMC

This document outlines which parts of the opponent’s budget are agreed, which are disputed (with reasons), and sets out any proposed alternatives. It’s important for clients to understand that meaningful engagement with the process, especially on figures relating to disclosure, witness evidence, and expert costs, can influence how much of your legal costs are later recoverable.

What Happens at the CCMC?

At the CCMC, the judge will review the costs budgets and the Budget Discussion Reports to decide which elements to approve, adjust, or disallow. The court can approve budgets in whole or part, revise costs deemed disproportionate, or impose sanctions for non-compliance, such as refusing to consider the budget at all.

If a Budget Discussion Report isn’t filed on time, it can undermine your position and may lead to adverse cost consequences. Courts expect all parties to take budgeting seriously, and failure to cooperate or meet deadlines can weaken your costs recovery, even if you win the case.

Conclusion & How We Can Help

Costs budgeting may seem like an administrative burden, but it is a central part of modern litigation. It protects litigants, promotes fairness, and ensures that access to justice is not undermined by disproportionate costs.

Failing to comply with budgeting obligations can have devastating consequences, particularly for claimants who expect to recover substantial legal fees. By working with solicitors who understand the budgeting regime and who take compliance seriously, you place yourself in a much stronger position, both legally and financially.

If you are involved in or considering a multi-track claim, make sure that costs budgeting is not an afterthought. It should be a core part of your litigation strategy from day one. We’re here to help.

If you require help, we offer a no-cost, no-obligation 20-minute introductory call as a starting point or, in some cases, if you would just like some initial advice and guidance, we will instead offer a one-hour fixed fee appointment (charged from £250 plus VAT to £350 plus VAT* depending on the complexity of the issues and seniority of the fee earner).

Please email wewillhelp@jonathanlea.net providing us with any relevant information ensuring that any call we have is as productive as possible or call us on 01444 708 640. After this call, we can then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information mentioned on the call.

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Helpful Links

Below are some helpful links which demonstrate the layout of costs budgets (Precedent H), budget discussion reports (Precedent R), and Budget Variation Precedent (Precedent T):

a) Costs Budget (Precedent H);

b) Cost Budget (Precedent H) Guidance Notes;

c) Budget Discussion Report (Precedent R); and

d) Budget Variation Precedent (Precedent T).

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.