Are we seeing a court clampdown on unrealistic costs budgets?

The costs orders made by Master Thornett following the case and costs management hearings of Worcester v Hopley and Jenkins v Thurrock Council on 16 and 17 July 2024 respectively have led a number of legal practitioners and commentators to ask if courts are now more likely to take a harsher stance against parties who file costs budgets which are perceived to be ‘ambitious,’ ‘unreasonable’ or ‘unrealistic.’ For now, I would suggest such concerns are premature. 

As a costs lawyer, I and my colleagues have a vast amount of experience of costs management hearings up and down the country, both in county courts and the High Court, stretching back over a decade. As such, we are in a position to sense-check the decisions reached in these two cases against the range of opinions we often hear from the judiciary. In short, we would expect these decisions to be outliers and, in an attempt to put them into perspective, this seems to be more of…one judge having a bad couple of days.

In our broad experience, the costs of case and costs management hearings are almost always (save in very exceptional circumstances) ‘in the case;’ That is to say, the ultimate unsuccessful party in the litigation pays…and there are very good reasons for that being the case historically.

Those reasons have not changed and so I suspect most judges will follow their usual practice which is to continue to order ‘costs in the case’ because whilst estimating futures costs can involve some science, ‘proportionality’ remains very much like beauty…it’s in the eye of the beholder.

One judge may decide a party’s costs budget starts from a very high point, but that same judge must also acknowledge that the exercise is subjective, that another judge may reach a different decision and that the proceedings are early in the litigation timeline. Most litigation, at the CCMC stage, has not yet gone through significant costs-accumulating litigation phases such as disclosure, witness statements and expert reports…and whilst a party may know how it might conduct itself moving forward, it does not know how its opponent will conduct itself (and there are often signs that an opponent will cause a party to incur costs beyond the norm).

If there were concerns, as Master Thornett had here, he could (and if it were me, I would have) ordered that ‘costs be reserved’ as an alternative to costs being ‘in the case.’ That way, if matters subsequently develop in a way that suggests the original figures may not have been ‘ambitious,’ ‘unreasonable’ or ‘unrealistic’ after all, those developments can be taken into account later, once more becomes known, and reflected in the costs order. But it preserves the opportunity to still make the same decisions as were made here should it reflect the justice of things.

Committing to what appears to be a punitive costs order at the CCMC stage seems knee-jerky, emotive and loses sight and recognition of what can often be a difficult task predicting litigation whilst also ignoring the very high procedural bar set by the CPR should a party wish to vary its costs budget upwards (‘significant developments’ are required).

But, any judge who believes they are confident that a costs budget is ‘ambitious,’ ‘unreasonable’ or ‘unrealistic,’ should take a breath. Most judges recognise that predicting the costs of litigation a year, and sometimes many years, into the future is a difficult task and is one that, if like here, costs sanctions are under consideration, a more just approach would be to reserve costs so that matters can be considered at a later date when more is known. This is usually how the judiciary approaches costs management and, for now, I expect that to remain the case.

Nick McDonnell is a director and costs lawyer with costs firm Kain Knight