The Simplified Costs Budget Pilot Scheme: Making Costs Management More Proportionate to the Complexity and Value of Claims?

Posted 19 May 2025

In the ever-evolving landscape of civil litigation, striking a balance between the cost of prospectively managing costs in the majority of Multi Track disputes with a value of less than £10 million against the benefit of reducing the amount of disputes in post facto Detailed Assessments has always been a concern and a challenge.

The simplified costs budget pilot scheme has been borne of the May 2023 Final Report from the Civil Justice Council’s Costs Working Group. In terms of costs management, the report culminated in a fundamental recommendation as follows:

Costs budgeting should be retained, however coupled with its retention should be acceptance of the hypothesis that “one size does not necessarily fit all”. We suggest that it should be possible to permit a more tailored approach, to suit different work types and/or venues where the litigation is conducted.

Writing from the perspective of my principal practice area of Commercial Litigation in London, I am focussing on PD 51ZG1 which applies to cases proceeding in the Business and Property Courts (“BPC”) of England and Wales; BPCs in Manchester and Leeds; and Business and Property work in the County Courts at Manchester, Leeds and Central London.

The Costs Working Group recommended in their Final Report that a pilot scheme should be undertaken of a BPC specific approach to costs budgeting, with cases under £1 million claim value testing the benefit of a “costs budget light” and with a “lighter touch approach” to budgeting for all cases with a value above £1 million.

In this author’s opinion, the Practice Direction goes somewhat further than these recommendations, in particular the ‘lighter touch’ proposed in relation to cases with a value above £1 million has translated to the default position being that no Costs Management Order (“CMO”) at all will be made in those cases.

A New Framework for Costs Management in the Business & Property Courts (PD51ZG1)

Applying to cases issued on or after 6 April 2025 and running until 6 April 2028 there is now a dual stream approach to cases caught under PD51ZG1, which can be summarised thus:

Claim value of up to £1 million

File and serve the new simplified costs budget (Precedent Z) 21 days prior to the first CCMC
Default position is that a CMO will be made (Costs Management: Default ‘On’): file and serve a budget discussion report (Precedent RZ) 7 days prior to the CCMC
CMO to be made at the CCMC; unless the Court is satisfied that the case can be managed justly and at proportionate cost without a CMO
Budget can be varied if there is a ‘significant development’ utilising Precedent TZ; upon Detailed Assessment the Court will not depart from the approved/agreed budgeted sums unless there is ‘good reason’ to do so

Claim value £1 million up to £10 million

File and serve the new simplified costs budget (Precedent Z) 21 days prior to the first CCMC
Default position is that a Costs Management Order (“CMO”) will not be made (Costs Management: Default ‘Off’): no need to file and serve a budget discussion report prior to the CCMC
CMO will not be made at the CCMC, unless the Court is satisfied that the case cannot be managed justly and at proportionate cost without a CMO (if deciding to make a CMO, the Court has the discretion to direct budgeting under the simplified scheme, or using the full current scheme with a full Precedent h Costs Budget)
Where there is no CMO, parties to file and serve an updated Precedent Z the earlier of: i) 7 days prior to the PTR; or ii) 21 days prior to the commencement of trial
At detailed assessment refer to CPR 44 PD 3.2-3.7: if there is a difference of 20% or more between the costs claimed by a receiving party on detailed assessment and the costs shown in a budget filed by that party then: i) receiving party to provide a statement of reasons for the difference and in lieu of a ‘satisfactory explanation’ for that difference, the Court may regard that difference as evidence that the costs claimed are unreasonable or disproportionate; and ii) if the paying party reasonably relied on the budget the Court may restrict the recoverable costs to such sum as is reasonable for the paying party to pay in light of that reliance, notwithstanding that such sum is less than the amount of costs reasonably and proportionately incurred

Note that in either case, where a CMO is not made, the parties are required to file and serve an updated Precedent Z in the run up to trial.

Also note that the automatic CPR 3.14 sanction for not filing a budget in the correct time frame (limiting a part to having notionally filed a Costs Budget consisting of Court fees only) does not apply under the Practice Direction. Instead, there is a discretion afforded to the Court to sanction a party for failure to comply with any obligation under the Practice Direction, with specific reference to the fact that the Court may impose sanctions including limiting the recovery of costs to be incurred to the applicable Court fees only if a party fails to file a simplified costs budget.

Targets Achieved?

To the extent that the stated aim of the simplified process was to make the process more proportionate to the complexity and value of the claims (which has been opined as the aim of the scheme by many practitioners), having Costs Management Default ‘On’ in the lower value cases and Default ‘Off’ in higher value cases seems designed to achieve the opposite. Perhaps it is felt that there is a greater risk of costs being disproportionate in those lower value cases. So does the simplified procedure lower the cost of the process in those cases?

Simplified Costs Budget – Precedent Z

The simplified costs budget has been cut down to 2 pages. The first page is similar to the front-page summary on the full Precedent H Costs Budget (but with disbursements now split between counsel and non-counsel fees); the second page is reserved for the assumptions for each phase but also includes a box for ‘Hourly Rates (Solicitor & Counsel)’ – albeit with no guidance currently as to how this information is supposed to be presented.

What is missing from the Precedent Z is the phase-by-phase breakdown of the time spent by each fee earner at each hourly rate.

In terms of preparation of the Precedent Z, exclusion of this information does not seem (to the author at least) to have any implication on the cost of preparing the form. Without building an estimate of the elements of work required in each phase by each fee earner (normally drilling down in to far more detail that contained in even the current Precedent H), then are you really costs estimating at all, or just costs guesstimating?

However, exclusion of the detailed breakdown from the Precedent Z does seem to have a major advantage in that this seems to be aimed at avoiding (or at least reducing) the proliferation of arguments advanced at CCMCs about the roles and hourly rates of each fee earner. The Court is supposed to be focussed on simply allowing a total for each phase that is reasonable and proportionate – with the parties then free to spend that total in whatever way they wish without having to seek a variation to the approved sum for that phase. Whether this will ultimately be the case remains to be seen – it is concerning that the Precedent Z includes the box on page 2 for hourly rates which may be a back-door invitation for these otiose arguments to persist.

Precedent RZ and TZ

Changes to the Budget Discussion Report (Precedent RZ) and Budget Variation form (Precedent TZ) are limited essentially to insertion of a new column so that disbursements are split between counsel and non-counsel fees.

In terms of cases falling into the lower value ( <£1 million) bracket the process remains essentially the same with monitoring of budgets and variation applications where there are significant developments. Given what is said above about the cost of completing the Precedent Z simplified costs budget, it does not seem that there will be any significant cost saving in these lower value cases.

Higher Value Cases (value of £1 Million to £10 Million)

The default position in these higher value cases has changed (Costs Management: Default ‘Off’). However, the significant expense of preparation of a costs budget (albeit in the simplified format) remains and is added to with an additional budget being required at the trial stage. So, significant costs of the process remain, but the benefit of having a CMO and the degree of certainty that brings as to the level of recoverable costs is lost. A lose-lose situation?

It seems likely that in these higher value cases we will end up with many more cases where budgets have been filed, but no CMO is made. Up until now, CPR 44.3 PD 3.2-3.7 (difference of 20% or more between costs shown in a budget that was filed, but no CMO made) was rarely referred to – if a Costs Budget was filed, the Court generally makes a CMO under the current scheme. As such, there seems to be a new uncertainty in these cases – likely great news for costs practitioners looking to flaunt their legal wisdom, but perhaps not so great for clients seeking certainty as to costs.

To read part 2 of this article click below.