Costs Budgeting: A Complete Guide

When a case is allocated to the multi-track, the parties will normally be required to file and exchange costs budgets before the first case management conference. The budget, and the court’s approval of it, then shapes how much is recoverable if the case is won. Getting it right matters at the outset: a budget cut at the costs management conference is hard to recover from, and one that runs over without a timely variation application can leave costs unrecoverable at detailed assessment. This guide explains what costs budgeting is, when it applies, the process stage by stage, the sanctions for default, how budgets are revised, and the effect of an approved budget on later assessment, under CPR Part 3, Section II.

What is costs budgeting?

Costs budgeting is the process by which the court, at an early stage in multi-track litigation, considers and approves the estimated future costs that each party expects to incur in taking the case to trial. It is governed by CPR Part 3, Section II (rules 3.12 to 3.18) and their supporting Practice Directions.

Its purpose is to give both the court and the parties visibility of what the litigation is likely to cost before those costs are incurred, and to build proportionality into the exercise at the start rather than at the end. Where costs management takes place, the approved budget provides the ceiling against which the receiving party’s costs are assessed if the case is won, unless there is good reason to depart from it.

Costs budgeting is not the same as detailed assessment. At the budgeting stage, the court is not assessing costs item by item. It is approving a reasonable and proportionate sum for each phase of the litigation, looking forward to what the case will require. Detailed assessment comes later, if costs cannot be agreed, and involves the bill of costs and points of dispute.

When does costs budgeting apply?

Costs budgeting applies automatically to almost all Part 7 multi-track claims under CPR 3.12. The main exceptions are proceedings subject to fixed or scale costs, and (since 6 April 2016) claims made by or on behalf of a person under the age of 18.

On the question of value, very high-value claims (stated at £10 million or more on the claim form) were previously automatically exempt. That position has been modified: there is no longer a presumption against ordering costs management in high-value cases, and the court retains a full discretion to order it even where it would not apply automatically. In a 2025 case, Master Brown ordered costs budgeting in a child PI claim valued at over £10 million, finding that the risk of disproportionate costs outweighed other factors.

The 2025 pilot practice directions (PD 51ZG1, PD 51ZG2, and PD 51ZG3) introduced changes for some proceedings, including a new simplified form (Precedent Z), revised filing deadlines, and a modified sanction regime. Those pilots apply to specific courts and claim types.

Precedent H: the budget form

The standard costs budget form is Precedent H. It divides the litigation into phases (pre-action, issue and statements of case, CMC, disclosure, witness statements, expert reports, PTR, trial preparation, trial, ADR and settlement, and contingencies) and requires the party to set out both incurred costs (already spent) and estimated future costs for each phase.

Where a party’s budgeted costs do not exceed £25,000, or the value of the claim as stated on the claim form is less than £50,000, only the first page of Precedent H is required (CPR 3.13). For cases within the new 2025 pilots, a simplified Precedent Z is used instead.

The budget must be verified by a statement of truth, signed by a senior legal representative. Failure to verify correctly has generated its own satellite litigation.

Contingencies may be included in a Precedent H where the work is possible but not certain. The court will consider each contingency on its merits. Warby J gave guidance in Yeo v Times Newspapers [2015] EWHC 209 (QB), imposing a 3% cap on a specific contingency in the circumstances of that case, though that figure reflects the facts of the case rather than a universal rule.

Budget Discussion Reports (Precedent R) must be filed by represented parties no later than 7 days before the first CCMC, setting out which items are agreed and which remain in dispute.

The costs management conference

The costs management conference (CCMC) is the hearing at which the court approves the parties’ costs budgets. It is usually combined with the case management conference. The court considers the budgets phase by phase and, where satisfied that the figures for a given phase are reasonable and proportionate, approves that phase. Where it is not satisfied, it reduces the figure to one it considers reasonable and proportionate.

The court is not fixing hourly rates at the CCMC. The Practice Direction makes clear that the court’s role is to fix the total allowed for each phase, not to approve the underlying calculation. The detail in Precedent H, including hours and rates, is reference material to help the court understand how the total was reached. Whether the rates are reasonable remains a matter for detailed assessment if the case is concluded and costs are disputed.

The CCMC is not a dress rehearsal for detailed assessment. The court takes a broad, proportionate view of what is a reasonable overall sum for each phase, not a line-by-line audit. The correct approach is to identify a range of costs that could be reasonable and proportionate for the work in question: simply comparing the parties’ figures is not enough.

The courts have been prepared to penalise parties for filing unrealistic or unreasonably inflated budgets. In Worcester v Hopley, Master Thornett made a specific adverse costs order following substantial reductions to the claimant’s budget, finding the level of claimed partner time and the absence of structured delegation were particular concerns.

Time limits and the CPR 3.14 sanction

The filing deadlines are set by CPR 3.13:

• Claim value stated at under £50,000: file and exchange budgets with the directions questionnaires.
• All other cases: not later than 21 days before the first case management conference.
• Budget Discussion Report (Precedent R): file no later than 7 days before the first CCMC.

The consequence of missing the budget deadline is severe. Under CPR 3.14, a party who fails to file a budget in time is treated as having filed a budget comprising only the applicable court fees. Unless the court orders otherwise, that party’s recoverable future costs are effectively eliminated.

Relief from the CPR 3.14 sanction is possible but must satisfy the Denton three-stage test. In Page v RGC Restaurants Ltd, the court found that filing a Precedent H with future phases marked “TBA” was a breach engaging the sanction and declined relief for those phases. In Henderson and Jones Ltd v Stargunter Ltd, relief was granted where the failure was inadvertent and the costs management exercise had in practice been completed without inconvenience to the court or other parties.

The lesson from the cases is consistent: the sanction is a real one, and a party should not assume that lateness or incompleteness will be excused simply because no one was prejudiced. Outcomes turn on a full Denton analysis.

Incurred costs: can the court comment?

Incurred costs are costs already spent before the CCMC. The court cannot approve or disapprove them in the same way it approves estimated future costs: they have already been incurred, and the court’s role at the CCMC is forward-looking. However, under CPR 3.17(3)(b), the court may record a comment about incurred costs if it considers it appropriate to do so.

The courts have consistently cautioned against casual or impressionistic use of that power. Chief Master Marsh and Master Kaye have both emphasised that there is no value in a vague comment that incurred costs are “substantial” or “too high” unless the court is in a position to make a specific, well-founded observation. A comment made without that foundation risks fettering the discretion of the costs judge at detailed assessment without serving any useful purpose.

Revising a budget: significant developments (CPR 3.15A)

An approved budget is not immutable. CPR 3.15A provides that a party must revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions. The variation form is Precedent T.

The test is two-stage. First, the applicant must satisfy the court that there has been a significant development since the last approved or agreed budget: a development of such size and nature as to go beyond the circumstances taken into account, expressly or impliedly, in that budget. It need not be a single specific event; a combination of factors can qualify. Second, the application to vary must be made promptly.

Promptness is not a formal time limit, but a real requirement. In a 2026 decision, Master Kaye refused a variation application where the party had waited three years before applying, finding the delay fatal. In Barry v Barry, variations for disclosure and witness statements were refused for lack of promptness, while a variation for trial preparation was allowed following a late amendment by the other side.

The court has full discretion on quantum: it is not bound by any offer between the parties and will approve only what is reasonable and proportionate for the work attributable to the significant development. An application must not be used as an opportunity to revisit previously disallowed costs or to recover an overspend.

The effect on detailed assessment (CPR 3.18)

Once a costs management order has been made, it has a direct effect on any later detailed assessment. Under CPR 3.18, the court assessing costs on the standard basis will have regard to the receiving party’s last approved or agreed budget and will not depart from it unless satisfied that there is good reason to do so.

The leading authority is Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB), where Carr J confirmed that a costs judge is bound by the approved budget unless there is good reason to depart from it. The case also clarified the position on underspend: if the receiving party spends less than the budgeted amount for a phase, that underspend can itself be a good reason to depart downwards, opening that phase to full assessment. Conversely, a party who has exceeded their budget without a timely CPR 3.15A variation application will not automatically recover the excess.

The courts have been clear that the good-reason test is a deliberate and significant fetter on the costs judge’s discretion. A lax approach to it would undermine one of the principal purposes of the costs budgeting regime.

Proportionality and hourly rates in budgeting

The court’s task at a CCMC is to approve a reasonable and proportionate sum for each phase, not to conduct a detailed assessment. Proportionality is central to that exercise. A budget may be reasonable in the sense that every item was properly incurred, and still be reduced because the overall total is disproportionate to the value and complexity of the claim.

Hourly rates are not fixed at the CCMC. The Practice Direction is express: it is not the role of the court at a costs management hearing to fix or approve the hourly rates claimed in the budget. The detail in Precedent H, including hours and rates, is reference material to help the court set the overall phase total. Whether those rates are recoverable is ultimately a matter for detailed assessment.

That said, the courts have not treated this as a prohibition on any consideration of rates. A budget heavily reliant on partner-level time with limited delegation will attract proportionality scrutiny even where the court cannot formally approve or disapprove the rate itself. A court may factor the rate picture into its view of whether the overall phase total is reasonable and proportionate.

This guide is for general information and does not constitute legal advice. For advice on a specific matter, please contact TMC Legal.