Tag: #costsbudgeting

Budgeting GLOs: Second CMC (Mark 2), Tranche 3

Anna LockyerLeave a comment

“Over-lawyering” was the key criticism of the High Court in another round of costs budgeting the Pan Nox Emissions group litigations.

In this third Tranche, the Claimants’ budgets were reduced from £55.7m to £21m and the Defendants’ budgets from £75.8m to £48m with Mrs Justice Cockerill DBE and Senior Costs Judge Rowley deciding that in respect of the Claimants’ budgets “the largest reductions stem from the layers of representation leading to, for example, claims for individual, non-lead firms to audit or replicate work already being done by the Lead firms”.

The full judgment can be read here: Various Claimants v Mercedes-Benz Group AG & Ors (Re Pan NOx Emissions Litigation) [2025] EWHC 2307 (KB) (10 September 2025)

An Insight into the General Principles and Rationale of the Costs Budgeting Process

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Introduction

The judgement of Master Brightwell in Atlantic Ways Holding SA v Freetown Terminal Holding Ltd [2025] EWHC 674 (Ch), provides an insight into the costs budgeting process and emphasises the importance of proportionality in the costs management process, regardless of whether costs in the first instance were reasonable in nature.

Background of the case

A cost management hearing took place on 25 February 2025, where there was a disparity between the budgets of the Claimant and the Defendant. The Claimant’s budget had been agreed at £449,000 and the Defendant’s budget was drawn at £808,000 and was disputed. Due to this disparity, Master Brightwell set out the general principles of each parties’ proposals, in comparison to the principles of costs management.

The Judgement

Master Brightwell made clear that a budget is set by the Court without undertaking a detailed assessment in advance. However once set, the Court would not depart from this without adequate reason, and it is the role of the Court to set the budget “with an eye to what would be permitted on a detailed assessment on the standard basis” meaning any doubt will be resolved in favour of the paying party. It was also highlighted that the Court is to avoid comparing parties’ budgets, whilst acknowledging that it remains impossible to fix one budget and ignore the other. The Master went on to confirm that the budgeted costs are still considered reasonable and proportionate if they fall at the outer end of the range.

In respect of hourly rates, Master Brightwell emphasised that it is not for the Court to set or approve the charging rates or the time spent by each level of fee-earner and Counsel. However, if the charging rates are not within a reasonable range, then this would affect the reasonableness and proportionality of the budget. The rates used in the Defendant’s costs budget significantly exceeded even the London 1 rates which are for “the heaviest corporate and commercial work,” and whilst the claim was not insignificant, it still was not the most substantial case type dealt with by the Court. Therefore, the London 1 guideline rates would be the maximum permitted.

Master Brightwell then explained his rationale for the budget set for the Defendant by applying the principles of reasonableness and proportionality to each phase.

Each phase of the budget was reduced. However, whilst the amount sought by the Defendant for the expert reports is unclear, the Master granted the Defendant’s budget for this phase at £55,000 in comparison to the Claimant’s budget at £40,000 to allow margin for error. This itself is another useful insight into the budgeting process and acknowledges that the Courts are willing on occasion, to allow variations during a hearing where developments justify it.

Duplication and involvement of multiple fee-earners was addressed by the Court, with reductions made due to fears regarding duplication. The Master noted Practice Direction 57AC, highlighting that witness detailed investigations of documents were not to be conducted and what was said in documents was not to be recited, rather the idea of the witness statement phase is to take the witness’ own evidence. Attendance at trial by multiple fee earners was also reduced by the Court, with attendance by two fee-earners and another present for assistance being provisioned, as opposed to four fee earners that were sought.

Despite DKH Retail Ltd and others v City Football Group Ltd [2024] EWHC 3231 (Ch) where the court ordered for mediation to occur before trial, Master Brightwell in this case reduced the budget for ADR to exclude the assumption of mediation. Master Brightwell explained that if mediation was to occur, then the budget could be revised on the basis of a substantial development.

Conclusion

Overall, the case provides a useful step by step approach to each phase of a costs budget during the cost management process and emphasises the application of the principle that proportionality trumps reasonableness, even at the cost budgeting stage.

 

Angela Nako is a Paralegal in the Costs and Litigation Funding Department at Clarion Solicitors.  You can contact the team at civilandcommercialcosts@clarionsolicitors.com

Costs Budgeting Reform Gains Momentum

Anna LockyerLeave a comment

Flexible budgeting recommendations made by the CJC’s report of May last year have been accepted by the Master of the Rolls and more recently discussed at last month’s CPRC meeting.

Key points:

  • A new Precedent H costs form has been proposed, modelled on the existing Precedent H
  • A draft new Practice Direction includes budgeting claims with a value of over £10m
  • A draft pilot Practice Direction provides for 5 categories of case, each limited in certain courts:

– Business & Property Courts (BPC) claims with a value of £1m or more;

– BPC claims with a value of less than £1m;

– Qualified One-Way Costs (QOCS) claims;

– Non-QOCS claims; and

– Certain other non-BPC claims.

It was agreed in principle that each case category may have its own Practice Direction and the implementation dates need not be the same.

Watch this space for further updates…

Falling short when advising client of ‘shortfall’

Anna LockyerLeave a comment

The importance of clear client communication on costs budgets has again come to the fore, this time in the context of solicitor-own client costs.

When a case is subject to a costs management order, if budgeted costs are to be exceeded it follows that the implications of that overspend are properly explained to the client. Even if the client has been notified that the excess may not be recoverable from the opponent, further steps need to be taken before deductions can instead be made from damages.

The SCCO case of ST v ZY [2022] EWHC B5 (Costs) (21 February 2022) highlighted exactly that. The costs exceeded the budget by £31,304.68 in the following phases:

-Issue/statements of case: the figure approved was £4,792.46, but £10,771.50 was claimed, an excess of £5,979.04.

-Witness statements: the figure approved was £1,391.51, but £7,643.50 was claimed, an excess of £6,251.99.

-ADR/Settlement: the figure approved was £12,452.85, but £31,526.50 was claimed, an excess of £19,073.65.

In points of dispute, the Defendant relied on the ‘good reason’ requirement of CPR 3.18 (b) not being met to challenge the Claimant’s departure from their budgeted costs.

No attempts were made by the Claimant to advance a reply on the grounds of ‘good reason’ in relation to the excess in the issue/statements of case or the ADR/settlement phases. Recovery from the Client’s damages was instead the default position.

In relation to the overspend in the witness phase, the Claimant did however seek to justify extra costs on the basis that some unexpected work was required in relation to additional witness statements. The time included in the bill of costs for this amounted to 1.9 hours. Unsurprisingly no good reason was found for the £6,251.99 overspend.  

The Defendant also took issue with £11,038 being claimed over and above the 1% and 2% caps allowed for costs management. The Claimant conceded that recovery of this additional excess from the Defendant was not possible and again turned to the Client’s damages.

Senior Costs Judge Gordon-Saker commented in his judgement that he had seen nothing to suggest that the excess had been explained to the Client.

Counsel for the Claimant set out in his skeleton argument that costs information had been provided to the extent that she had been advised there would be a shortfall and the advice letters estimated that shortfall to be £43,500 plus VAT the month before settlement. This figure was very close to the budget overspend of both the budget phases and the costs management cap combined, which altogether totalled £42,342.68 plus VAT.

Claimant’s Counsel submitted that the excess costs were not unusual in nature or in amount and were therefore reasonably incurred so the presumption as per CPR 46.9(3)(c) was not applicable. SCJ Gordon-Saker agreed that they were not of an unusual nature but did consider them to be unusual in amount, distinguishing both elements with a simple analogy:

“Paying a brief fee of £50,000 when the usual fee would be £5,000 would be unusual and one can easily see that the solicitor should be at risk if the client is not informed that the fee might not be recovered because of that. The amount can be unusual without the nature being unusual.”

On the facts of this case SCJ Gordon-Saker then pointed out that the issue/statement of case budgeted costs were exceeded by 100%, witness statement budgeted costs by over 400% and ADR/settlement budgeted costs by over 150%.

He did however accept that the Client was advised throughout that there would be costs deducted from damages because they were not recoverable from the Defendant, but that there was nothing to suggest she was told about the set budget or the effect of the budget. He further went on to say:

“To avoid the presumption applied by CPR 46.9(3)(c), the solicitor must tell the client that as a result the costs might not be recovered from the other party. That must mean as a result of their unusual nature or amount. Telling the client that some costs might not be recovered from the other side is not sufficient. ST should have been told that the budget was being exceeded by a wide margin and that, as a result, those costs might not (and, indeed, almost certainly would not) be recovered from the other side.”

Consequently, costs in excess of both the budget and the 1% and 2% caps were presumed to have been unreasonably incurred. On a practical note SCJ Gordon-Saker concluded his judgment by stating:

“I should add that I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and that the costs in excess of the budget would not be recoverable. At that point the client is moving from pursuing a claim in which reasonable and proportionate costs will be recoverable to a claim where no further costs will be recoverable in respect of some or all of the phases.”

This case exemplifies the interplay between budgeted cases and solicitor-own client costs and the consequences of ambiguity.

When a budget is to be exceeded and it is apparent that those costs would neither satisfy the ‘significant development’ requirement for upward budget revision nor the ‘good reason’ test at assessment, the client needs to be advised of ‘unusual’ costs from all angles to minimise any potential write-off.  If and when a budget has actually been set, be clear about the consequences of exceeding that budget, especially if the client is to foot the shortfall bill. 

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilandCommercialCosts@clarionsolicitors.com.

Filing a Costs Budget Late: High Court Decisions in 2020

Anna LockyerLeave a comment

Back in January of this year Lionel Persey QC, sitting as a Deputy Judge of the High Court, took a fairly lenient approach towards the defaulting party in the case of Manchester Shipping Ltd v Balfour Shipping Limited & Anor [2020] EWHC 164 (Comm) when he granted relief from sanctions to Defendants who filed a costs budget 13 days late.

The Judge took the stance that “The breach, although serious in terms of lateness, did not prevent the litigation from being conducted efficiently or at proportionate cost. No inconvenience was caused to the court or to other court users”. This ruling seemed to mark a shift from the strict application of CPR 3.14 which provides that: unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.

More recently however, His Honour Judge Simon Barker QC in Heathfield International LLC v (1) Axiom Stone (London) Ltd & (2) Medecall Limited [2020] EWHC 1075 (Ch) determined that the defaulting party, in this case the second Defendant, was to be treated as having filed a budget comprising only the applicable court fees.

The surrounding circumstances were that the defaulting party failed to file a Budget 21 days before the originally listed CCMC. This first CCMC was vacated 4 days before it was due to take place as a result of the parties making applications in respect of security for costs. The second Defendant attempted to excuse the fact it had not filed a budget on the basis that the parties had agreed for the CCMC to be relisted. The timing of this agreement was ambiguous and could not be substantiated. The second Defendant then failed to file and serve its budget 21 days before the relisted CCMC and did so late by at least 5 days. Furthermore, they did not file and serve a Precedent R or engage in budget discussions. Relief from sanctions was subsequently applied for 2 days before the re-listed CCMC.

Counsel for the second Defendant attempted to use Manchester Shipping in support but it was found to be incomparable on the facts.

HHJ Barker QC commented on the fact that the first Defendant’s response to the Claimant’s claim had been the cause of the second Defendant on a secondary alternative basis “but that does not entitle D2 to take a more relaxed or casual approach to participation as a party in this litigation”.

The sums of money in issue, at approximately £260k plus £100k for interest and statutory penalty, and the type of litigation as a claim for unpaid invoices were also referred to in the context that “costs may easily become disproportionate” thus “costs control and costs budgeting are all the more important”.

Reference was also made to the court’s discretion under CPR 3.14 being “entirely open”.

A form of hybrid relief was contemplated but ultimately it was decided that the defaulting party should be treated as having filed a budget comprising of court fees only.

Anna Lockyer is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at anna.lockyer@clarionsolicitors.com and 0113 288 5619, or the Clarion Costs Team on 0113 246 0622