It might seem hard to believe but it has been over 10 years since costs management  and budgeting was first introduced for multi-track claims. This article reflects on whether or not budgeting has been a success and considers what the future holds.

Why was budgeting introduced?

There was an acceptance that costs were not being controlled as well as they should be and that detailed assessment proceedings could only deal with problems after the event. Cost estimates introduced with the CPR were considered toothless and an alternative system was required.

The very purpose of costs management is even stated in the CPR at 3.12(2) – The court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective.

What are the typical problems with budgeting?

Budgeting takes place relatively early in proceedings. On the face of it, that makes a lot of sense. However, at this early stage it can be very difficult to make an accurate prediction about how the proceedings will develop. Budgeting requires parties to make estimates about a large number of different variables, most of which cannot be accurately determined at such an early juncture.

For example, despite being around for over 10 years, it has proven no easier to accurately predict how much disclosure is likely to be received from an opposing party. Some parties do not properly identify the number of witnesses they intend to rely upon in their Directions Questionnaire. How is a party meant to accurately estimate costs from such limited information? These types of problems only increase if directions are not agreed.

For lower value and more simple claims, it may be an easier task to undertake, but for more complex cases there is an inherent difficulty in trying to estimate your costs when you have little idea how the other side are going to deal with proceedings, what issues will be raised and what documents are going to be disclosed.

Another inherent problem is the approach taken by different judges can vary significantly. There is a camp of judges who are inclined to ensure costs are kept to a proportionate figure, regardless of the issues and are quite willing to limit steps that the parties may deem as necessary, in order to keep the costs down. Another camp of judges give preference to the steps that the parties deem as required to conduct the litigation thoroughly, and then mould the budget around those steps.

What has worked ?

Budgeting definitely gives parties a degree of certainty in relation to recoverable costs. Likewise, they have a better idea of the potential costs liability if they lose. Even though a party may be disappointed with an approved budget, the information it provides is meaningful.

In multitrack claims where cost management applies, it has reduced the costs of detailed assessment proceedings. Following the judgement of Merrix v Heart of England NHS Foundation Trust [2017] 346 (QB), there are generally few challenges to the costs of phases that have not been exceeded. This enables at least some of the costs in a bill to be agreed. Therefore, even if the total cannot be agreed, it reduces the number of costs to be assessed determined at detailed assessment hearing.

However, the additional costs of the cost management process itself have to be taken into account and it is arguable that these added costs negate any cost savings from some shorter detailed assessment proceedings. Furthermore, a budgeted case requires a phased electronic bill of costs and the costs of preparing those bills is higher than a typical paper bill.

Has it been a success?

This is a difficult question to answer but, on balance, it would appear that cost management has been broadly successful. It is interesting to note that, whilst cost management often comes in for a lot of criticism, a recent survey indicated that practitioners were still very much in favour of keeping cost management in place although there are many who would like to make changes to the way it is dealt with. Most people view cost management as preferable to the extension of fixed costs into the multi track.

The future

The Civil Justice Council Costs Review – Final Report was published last year and gave us an insight into what lies ahead for costs management. The report recommended a more flexible approach to costs budgeting and, as a result, new pilot schemes are emerging.

A new and more simplified costs management system is to be piloted for some claims valued up to £1m in the business and property courts.   The pilot is due to begin in April 2025 and last for three years.

A separate scheme, known as ‘costs budgeting light ’, is to be introduced in certain cases too. Unfortunately, the details of the scheme and the proposed district registries where it will operate are yet to be confirmed. It is believed that this scheme will capture very few claims but enough to enable the benefits of the scheme to be evaluated when it concludes.

The pilot schemes were agreed by the CPRC at its November 2024 meeting, albeit subject to final drafting revisions of the Practice Directions (51ZG1 and 51ZG2), together with the new proposed Precedent Z Costs Form (Simplified Costs Budget) which consists of just two pages and is modelled on the existing Precedent H Form, and RZ Form (Budget Discussion Report).

Regardless of the arguments about how successful costs management has been, one piece of advice still remains as true today as it did 10 years ago; try not to go over budget!