COST BITES 347: CLAIMANTS FAILURE TO “CUT THEIR CLOTH” MEANT COSTS OF BUDGETING PROCESS WERE REDUCED BY 20%

February 11, 2026 · by · in Applications, Civil evidence, Conduct, Costs, Costs budgeting

We have seen several cases where an “overambitious” costs budget has led to a reduction  or disallowance in the costs of budgeting. We have another example here.  The claimants were effectively given a second chance to produce budgets having had some earlier judicial critiques..  The revised budgets were subject to considerable reduction during the budgeting process.  The court considered whether the claimants should recover the costs of the budgeting process or whether the recoverable costs should be reduced.

” … the activity which, to our minds, demonstrates the resolute approach deprecated in previous decisions in maintaining an overly ambitious budget, is the preparation of the original budgets themselves. The claimants plainly took the view that further explanation was the correct step, rather than any attempt to cut their cloth. We explained in the main judgment that the explanation was inadequate – and that leaves the claimants essentially repeating their approach to the first CMH in respect of significant elements of their budget with the same consequence in terms of the marked reductions.”

KEY PRACTICE POINTS

Clearly the courts prefer parties to “cut their cloth” and listen to observations that have been made.  The penalty here was a 20% reduction in costs should the claimants be successful.  Given the costs in this particular piece of litigation that is a substantial sum.

THE FACTS

The court had earlier budgeted costs in relation to the Mercedes-Benz emission litigation.  The claimants’ budgets were reduced substantially in certain areas. (Earlier posts on the assessment in this  and other group litigation are set out below).

THE ISSUES

The defendants argued that the claimants conduct was such that they should not recover the costs of the budgeting process. The claimants budgets had, in effect, repeated claims which the courts had criticised at earlier hearings.

WHAT HAPPENED IN A NUTSHELL

The court agreed – to a point.  It was ordered that the claimants, if successful, should only recover 80% of the costs of budgeting.

THE JUDGMENT

 

  1. The usual order to be made at such hearings is for costs to be “in the case” so that the costs of the hearing are ultimately claimed by the party successful in the proceedings. The nature of hearings to consider the reasonableness of the budgets put before the court is such that there will generally be some reduction in the figures claimed. There is inevitably a range in the reasonable and proportionate figures that a court will allow at a CMH and the fact that there is some reduction does not mean that the party concerned has been unsuccessful in the CMO that is made. As Constable J said in GS Woodland v RGCM[2025] EWHC 285 (TCC) at paragraph 22:

“There will be a range within which, in the round, and even where there is a separate costs management specific hearing, the appropriate starting point of costs in case remains the appropriate order, if the conduct of both parties is within the range of reasonableness.”

  1. Where, however, a party’s conduct takes it onto “the wrong side of the line” by resolutely pursuing an unrealistic or overly ambitious budget, then this may sound in the order for costs. As Constable J put it, the question is “[h]ave the parties had a realistic view as to what is reasonable and proportionate and likely to be recovered?”
  2. When sitting as a managing judge in this litigation, Constable J, together with Senior Costs Judge Gordon-Saker, took the view that the significant reductions in the budgets at the first CMH did not fall on the wrong side of the line. In written reasons appended to the Order dated 30 July 2024, the judges said:

“We are unpersuaded that it is appropriate to depart from the ordinary order that costs management costs are to be costs in the case. It is correct that the Judgment contains numerous criticisms of the Claimants’ approach, but these criticisms largely sounded in significant reductions to the Claimants’ costs budget. The Defendant’s costs budgets were also subject to significant adjustment. We do not consider it likely that, even in circumstances where the Claimants’ starting position was more realistic or the supporting information was more detailed, any steps within the overall management process including the three-day hearing would have been avoided.”

  1. The claimants rely upon this passage in support of their argument that reductions to a budget are not a good reason to depart from the usual order. Even where such reductions are significant, it would be a rare case, say the claimants, that any material additional costs had been incurred by the opponent as a result of any overly ambitious estimates, particularly where there was no prospect of a hearing being avoided. Here, the second CMH obviously went ahead and the reductions were less significant than were made at the first CMH. As such, the claimants say that the usual order of “costs in the case” should apply.
  2. The defendants contend for a variation on that usual order. They submit that the costs of preparation of the budgets, including the discussion reports should be costs in the case, but that the costs of preparing for and attending the CMH itself should be “Defendants’ costs in the case and there is no order as to the Claimants’ costs.”
  3. The table set out at paragraph 4.2 of the Practice Direction to Part 44 describes an order for the claimant / defendant’s costs in the case in the following way:

“If the party in whose favour the costs order is made is awarded costs at the end the proceedings, that party is entitled to that party’s costs of the part of the proceedings to which the order relates. If any other party is awarded costs at the end of the proceedings, the party in whose favour the final costs order is made is not liable to pay the costs of any other party in respect of the part of the proceedings to which the order relates.”

  1. In other words, the defendants’ draft order means that if they are ultimately successful in this litigation, they would be entitled to recover the costs of preparation for and attendance at the CMH. But if the claimants were ultimately successful, they could not claim their costs for preparation and attendance, but neither would they be liable for the defendants’ costs.
  2. The defendants’ rationale for proposing this order is not particularly easy to discern. The defendants suggest that the claimants ought to have done much better this time round in producing realistic budgets but, nevertheless, accept that there was always going to be a substantial second CMH. It might be thought that the variation to the costs order should therefore relate to the preparation of the budgets themselves in the first place rather than attendance at the inevitable hearing.
  3. The sequential provision of submissions on the order for costs meant that the defendants set out their arguments first and the claimants responded to them. A good deal of the defendants’ submissions relate to what is described as the claimants’ failure to learn their lessons from the court’s criticism at the first CMH. In particular, the budgets for T3 and the Second General budget were claimed in larger sums than those allowed for T2 and the First General budget, notwithstanding that the length and difficulty of the T2 hearing appeared to exceed that of T3 and the period applicable for the First General budget was longer than that for the Second General budget. The claimants’ response to those arguments relies upon the claimants’ attempts to set out in more detail why the figures were claimed as they were and, where possible, to incorporate their experience of conducting the litigation since the first CMH. The claimants also relied upon the learning curve of dealing with what is accepted by all to be novel, complex and difficult litigation.
  4. It is plainly appropriate for the parties to adjust their expectations in respect of recoverable costs in the light of their experience of running the litigation. But that does require the parties to take heed of the nature of the court’s criticisms made previously. The shorthand phrase of “over lawyering” applied to various aspects including the number of people involved in the fortnightly management meetings, the Quantum Trial (T3) and the general running of the cases between the lead and non-lead lawyers. The claimants’ budget sought to counter the court’s trenchant criticisms of over lawyering at the first CMH by providing further information, rather than seeking to curb the extent of the involvement of innumerable lawyers in running the cases.
  5. For example, the intention of the fortnightly management meetings was for brief informal hearings to occur regularly to ensure the litigation remained on track. The increasing number of people and time claimed in the budgets together with the multilayered structure described bore little resemblance to the intended approach and consequently the claim for work involved in preparation and attendance at those meetings increased significantly. None of this suggested that regard had been taken of the general criticisms of over lawyering in the first CMH judgment. The number of attendees at the quantum trial said to be required regrettably took the same approach, to put it mildly.
  6. Further the extent of agreement of numerous phases between both sides in respect of the budgeting indicates to us that in fact a rather less substantial CMH might have been required if the claimants’ approach to the budgets had been more realistic. But the activity which, to our minds, demonstrates the resolute approach deprecated in previous decisions in maintaining an overly ambitious budget, is the preparation of the original budgets themselves. The claimants plainly took the view that further explanation was the correct step, rather than any attempt to cut their cloth. We explained in the main judgment that the explanation was inadequate – and that leaves the claimants essentially repeating their approach to the first CMH in respect of significant elements of their budget with the same consequence in terms of the marked reductions.
  7. In contrast, we accept the defendants had largely taken on board criticisms made in the first CMH judgment and which therefore limited the extent of reductions. We do not think that the fact that the odd defendant was an outlier to this trend in certain phases has any impact on the order that should be made.
  8. Taking all of this into consideration, we consider that we should depart from the usual costs order to some extent. The order should reflect:
  9. i) The claimants having been on the wrong side of the line in terms of the original claims in the budgets in the light of previous guidance;
  10. ii) The fact that a CMH of considerable size was going to occur and that the costs of preparation for and attending that hearing should be in the case. We take the view that while the hearing would have been shorter had a more reasonable approach been taken by the claimants, the amount by which it could have been contracted is hard to ascertain, and a reduction across both elements would probably result in double counting.
  11. We do not think that criticisms of the claimants’ conduct in this novel litigation should result in an entire disallowance of the costs of preparing the budgets, et cetera. Given the need to provide further information as a consequence of the court’s earlier criticisms, this was always going to be a time-consuming process. We have decided that the appropriate order should involve a 20% deduction in respect of any recoverable claimants’ costs of these activities.
  12. The parties have produced draft orders which, save for paragraph 4 are agreed. We consider that paragraph 4 should read as follows:

“4. In relation to the costs of the costs management process:

  1. The parties’ costs of and incidental to the costs budgets, budget discussion reports and Precedents R shall be allowed as follows:

(i) if the claimants are awarded costs at the end of the proceedings, the claimants shall be entitled to 80% of their costs;

(ii) if the defendants are awarded costs at the end of the proceedings the defendants shall be entitled to 100% of their costs

  1. The parties’ costs of preparing for and attending the Costs Management Hearing shall be costs in the case.”

 

PREVIOUS POSTS OF RELEVANCE

COST (MEGA) BITES 286: AND YOU SAID THAT WITH AN “ADMIRABLY STRAIGHT FACE”: “OVERLAWYERING” CONSIDERED IN AN EXHAUSTING CASE

COST (MEGA) BITES 167: AN EXHAUSTING CASE (IV): “BUT YOURS IS NEARLY AS BIG AS MINE” IS NOT A GOOD ARGUMENT: COSTS BUDGETS COULD NOT BE COMPARED

COST (MEGA) BITES 167: AN EXHAUSTING CASE (IV): “BUT YOURS IS NEARLY AS BIG AS MINE” IS NOT A GOOD ARGUMENT: COSTS BUDGETS COULD NOT BE COMPARED

COST (MEGA) BITES 165: AN EXHAUSTING CASE (ii): PROPORTIONALITY WHERE THE CLAIMANTS CLAIM THE CASE IS WORTH £6 BILLION: THE PARTIES ARE NOT HANDED A BLANK CHEQUE FOR THE PURPOSE OF RECOVERABLE COSTS

COST (MEGA) BITES 164: AN EXHAUSTING CASE:COSTS BUDGETING WHEN THE BUDGETS TOTAL £650 MILLION (1): GENERAL PRINCIPLES

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