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Elite Law Solicitors incorporates HM Law Costs Draftsmen Ltd and

The Pitfalls of Costs Budgeting

Following the introduction of costs budgeting, Solicitors are required to have a good understanding of procedures to ensure compliance with budgeting regulations. The penalty for non-compliance is extraordinarily draconian:

“Unless the Court orders otherwise, 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” [CPR 3.14]."

Commercial litigators could potentially be making themselves vulnerable to potential professional negligence claims over costs budget failures. Many law firms have reported that they are incurring costs over and above the agreed budget level, yet only a small percentage of firms have made applications to the Court to revise the agreed costs budget.

Typically Solicitors that have attempted to revise the budget upwards have claimed that the other side was responsible for developments within the litigation and sometimes overspend was inescapable. Overspend inevitably is very difficult to recover without applying to increase the approved budget.

It has also been established that many Solicitors are unware of the processes that exist in relation to the revision of budgets. Many of the Solicitors who are aware of this process feel that applications will fail in any event. This begs the question: What is the point in issuing an application for revision of a budget if it is doomed to fail from the outset?

This also highlights that once the threshold is met law firms could potentially be working for free and be limited in what they can recover.

Lord Jackson recently commented that costs budgets had been working well and brought significant benefits for Court users since they were introduced as part of the civil litigation reforms two years ago. Lord Jackson predicted that costs budgeting would be accepted as an “entirely normal discipline” by many law firms in the future.

Many Solicitors have had budgets approved and have successfully recovered their costs which have fallen within the scope of the budget. Solicitors are aware of the need to ensure that costs incurred when the matter is concluded, fall within the agreed Costs Budget. However there are clearly risks, including the prospect of overspend even if Solicitors are monitoring their costs. Litigation is not an exact science; there will always be issues that arise and unexpected turns within proceedings. Is it fair that solicitors are not able to recover their reasonable costs when they fall outside of the budget? Tweet us with your thoughts….