Unless the court otherwise orders, where the stated value of the claim on the claim form is less than £50,000, all parties except litigants in person must file and exchange budgets with their directions questionnaires; or in any other case, not later than 21 days before the first case management conference.

All parties except litigants in person must then file an agreed budget discussion report no later than 7 days before the first case management conference.

CPR 3.15(5) provides that the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the total of the incurred costs and the budgeted costs. However, we never charge the full 1%. Instead, we ensure that our clients are able to recover sufficient costs for any time that they incur reviewing and checking the costs budget, and any other input they put into preparing the initial costs budget.

All other recoverable costs of the budgeting and costs management process shall not exceed 2% of the total of the incurred costs and the budgeted costs.

Paragraph 7.9 of CPR Practice Direction 3E provides that if there are interim applications during the claim that were not provided for in the budget, then any costs that arise from them are treated as additional to the budget.

There is little guidance as to what constitutes a significant development, but it is likely that such a development would require further court directions.

In Sharp v Blank [2017] EWHC 3390 (Ch) it was ruled that interim applications may constitute significant developments as may the consequences that flow from an interim application. The judge provided further guidance as to what constitutes a significant development as follows:

• The extension to the trial timetable was a significant development.
• If an application for specific disclosure results in many documents that must be reviewed and assimilated, that may be a significant development in the litigation.
• The claimants served, without having obtained permission from the court, an additional expert report. The Defendants could not have predicted such a report would be served when preparing the costs budget. Service of the additional report was a significant development as it was a change from the agreed basis upon which expert evidence was to be provided.
• The application for third-party disclosure was not a significant development. Such applications are common, and the Defendants knew of the likelihood of such an application before they prepared their budget.
• There must be something more than a modest increase in the anticipated costs of the work to amount to a significant development.
• In Al-Najar and Ors v The Cumberland Hotel (London) Ltd [2018] EWHC 3532 (QB) disclosure became of a scale and complexity much greater than reasonably envisaged. This constituted a significant development and entitled the claimants to revise their budget.

Finally, in Churchill v Boot [2016] EWHC 1322 (QB) doubling the value of the claim to £2million did not constitute a significant development in the litigation. The case had taken a predictable course following the original budget. As such, there had been no significant development.

The Civil Procedure (Amendment No. 3) Rules 2020 introduced a new rule CPR 3.15A, which took effect from 1 October 2020. This new rule sets out the process for revising and varying a costs budget as follows:

(1) A party must revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions.

(2) Any budgets revised must be submitted promptly to the other parties for agreement, and subsequently to the court.

(3) The revising party must:

(a) serve particulars of the variation proposed on every other party, using the form prescribed by Practice Direction 3E;

(b) confine the particulars to the additional costs occasioned by the significant development; and

(c) certify, in the form prescribed by Practice Direction 3E, that the additional costs are not included in any previous budgeted costs or variation.

(4) The revising party must submit the particulars of variation promptly to the court, together with the last approved or agreed budget, and with an explanation of the points of difference if they have not been agreed.

(5) The court may approve, vary or disallow the proposed variations, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed, or may list a further costs management hearing.

(6) Where the court makes an order for variation, it may vary the budget for costs related to that variation which have been incurred prior to the order for variation but after the costs management order.

Where the costs budget has been approved (or agreed) and a costs management order has been made, when assessing costs on the standard basis, the court will have regard to the budgeted costs for each phase of the proceedings and not depart from the same unless there is good reason to do so.

Therefore, if good reason to depart from the costs budget can be demonstrated, the receiving party may recover more than the costs budget. If the receiving party cannot demonstrate good reason, the budgeted costs will be immediately reduced to the level of the approved costs budget.

There is no definition of ‘good reason’ and there has been little guidance as to what constitutes good reason. However, the ‘good reason’ test comes with a high threshold (Nash v Ministry of Defence [2018] EWHC B4 (Costs) refers) and ultimately the Court of Appeal guidance in Harrison v University Hospitals Coventry and Warwickshire NHS Trust [2017] EWCA Civ 792 leaves the test wide so as to not to fetter the judge’s discretion and allow good reason to be determined on a case-specific basis.

Where however costs are assessed on the indemnity basis, the costs budget plays no part in the assessment of costs. This is because under CPR 3.18 the court will only have regard to the costs budget where costs are assessed on the standard basis.