Staying Within Budget: The Consequences of Deviating from Approved Costs in Litigation

The role of cost budgeting in modern litigation has gained significant attention in recent years, in light of the Lord Jackson Report and the subsequent reforms in the UK.

The report, which was published in 2010, emphasized the need for greater transparency and predictability in legal costs.

As a result of the report, the UK introduced a number of measures to promote cost budgeting, including:
1️⃣ mandatory cost budgeting in more complex legal matters, and
2️⃣ the requirement for parties to file cost budgets at various stages of the litigation process.

Once the cost budget is approved by the judge, it serves as a guideline and a benchmark for the parties to follow throughout the litigation process.

The judge will review and approve the budgets at various stages of the litigation.

Deviations from the approved budget may be subject to scrutiny.

If a party exceeds their approved budget without good cause, they may have their costs limited to the budgeted amount in the event that they succeed at trial and costs are awarded to them.

For example, imagine a case where a plaintiff is suing for breach of contract.

The plaintiff's legal team prepared a detailed cost budget, outlining all of the expenses they anticipate incurring over the course of the litigation. After reviewing the budget, the judge approves it as reasonable and proportionate.

Throughout the litigation, the company's lawyers are not diligent in keeping their expenses within the approved budget.

After the trial, the judge awards costs to the plaintiff, but limits the sum to the amount budgeted, rather than the actual expenses incurred.

As a result, the out-of-pocket legal costs exceed the damages awarded for breach of contract, and it was a pointless exercise to have commenced the litigation. ▶ It cost more than was gained.

The process of costs budgeting serves as a powerful incentive for both parties to stay within their budget and to be mindful of the costs of their actions. Any deviation from the approved budget could result in significant financial consequences. Not to mention embarrassment for the lawyers involved.

This serves as a powerful incentive for parties to stay within their budget and to be mindful of the costs of their actions.

Additionally, it also helps to ensure that the litigation remains fair and proportionate, with the costs of the proceedings being proportionate to the amount in dispute.

While these reforms have not yet been implemented in Australia, it seems inevitable cost budgeting will be introduced to our legal system at some stage.