Renowned Chinese military strategist and philosopher General Sun Tzu once said: “he who wishes to fight must first count the cost!” This quote could not be more fitting to the current procedural rules in relation to costs applied in the English Court in both literal and figurative terms, as the rules require parties at the very early stages of litigation to accurately estimate their costs of the whole proceedings.

For proceedings commenced in the English Courts on or after 6th April 2016, unless the court orders otherwise, all parties (except litigants in person) must file and exchange budgets and an agreed budget discussion report setting out the estimated costs for each stage in the proceedings, and identifying the figures which are agreed and not agreed by the parties in their respective estimates for each phase of the budget, and a brief summary of the grounds of any dispute.

Failure by a party to comply with the above requirement will have severe consequences for that party, who will be treated as having filed a budget comprising only of the applicable court fees i.e. not allowing for any other legal costs.

The parties cannot simply agree any level of costs. It is essential first of all that the estimated costs are considered by the Court to be proportionate. When looking at the parties’ submitted cost budgets, the Court will consider the proportionality of the budgets in light of, among other things, the relief sought, the amounts in dispute and the complexity of the matter. Parties are required to demonstrate proportionality for every element of the costs budget.

Once the costs budgets are approved by the Court, the parties are expected to monitor the costs actually incurred against those estimated for each phase of the proceedings, and to ensure parity as far as possible. At the conclusion of the proceedings, the actual costs of the successful party will be assessed against its approved budget. If the actual costs are higher, they are likely to be disallowed by the Court.

It is therefore very important that costs that are incurred by the parties are constantly monitored and reviewed against the approved budgeted costs at each phase of the proceedings. Amendments should be made to the budgets if necessary as soon as reasonably practical, to avoid any adverse costs consequences at the end of the proceedings.