Key Questions Answered
Introduction
Costs budgeting has long been a contentious issue in UK litigation, with roots tracing back to the Jackson Reforms of 2013. These reforms introduced costs management rules that mandated parties to prepare detailed budgets for anticipated costs in multi-track cases. While the reforms aimed to promote transparency and proportionality, the complexity of the budgeting process often resulted in inefficiencies, increased costs, and frustration among practitioners.
The introduction of the Costs Budgeting Pilot Scheme 2025 is a response to these ongoing challenges. By simplifying the process and focusing on claims with lower monetary values, the scheme seeks to build upon the lessons learned from the Jackson Reforms while addressing their shortcomings.
Whether you’re a seasoned practitioner or new to costs budgeting, here’s everything you need to know about how the pilot will work, what cases it applies to, and key procedural requirements.
What Is the Pilot Scheme and Why Is It Being Introduced?
From 6 April 2025, a Costs Budgeting Pilot Scheme will be introduced to streamline costs management in certain civil litigation cases. This three-year pilot will focus on making costs budgeting more proportionate and less administratively burdensome, while still ensuring transparency and control over legal costs.
As part of the 179th Practice Direction (PD) update, two new pilot PDs (PD51ZG1 and PD51ZG2) have been introduced along with three new Precedent costs forms, which are explained in more detail below.
The pilot is designed to simplify the current costs budgeting process, which has often been viewed as complex and time-consuming. The goal is to strike a balance between case management efficiency and costs control, ensuring that costs budgeting remains proportionate to the dispute.
Key Aims of the Pilot Scheme
- Reducing the administrative burdens by introducing simplified forms.
- Making budgeting more proportionate to the claim value and complexity
- Speeding up litigation processes without sacrificing control over costs
- Testing practical improvements before wider implementation.
This pilot builds on feedback from practitioners, aiming to make costs budgeting less of a procedural headache while still delivering necessary oversight.
Which Claims Will the Pilot Apply To?
The pilot scheme applies to certain cases issued on or after 1 April 2025 and before 1 April 2028 in the Business & Property Courts (BPC) and related Business & Property work in the Manchester, Leeds, and Central London County Courts.
Included Cases:
- Business & Property disputes falling within the Court jurisdictions named above (PD51 ZG1) with a value below £1 million.
- Non-BPC claims, i.e. proceeding in Manchester, Leeds, and Central London County Courts with a value below £1 million (PD51 ZG2).
* There is also a proposed pilot Practice Direction intended to apply to Part 7 multi-track proceeding in the High Court District Registries at Manchester and Birmingham to which QOCS applies. Whilst the other pilots are for claims with a value of less than £1 million, this proposed pilot does not currently have a limit on the value of the applicable claim. However, at the time of writing (PD51 ZG3) has yet to be published.
Excluded Cases:
- Claims valued at £10 million or more
- Cases brought on behalf of children
- Litigants in person
Further, in situations where a relevant claim contains either no statement of value, seeks only non-monetary relief or the parties cannot agree on whether the claim is worth more than £1 million, the claim will be treated as if it had a value of £1 million or more. Therefore, in these circumstances the claim would be excluded from the pilot scheme, although the Court has the discretion to order otherwise.
What Happens If A Relevant Claim Has A Value Of £1 million Or More?
In this scenario, the Court will not look to manage the costs of the parties and make a Costs Management Order (CMO), save for instances where the Court considers that the litigation can only be conducted ‘justly and at proportionate cost’ if a CMO is made.
If a CMO is made, the Court may give directions at the first CMC and then give directions in respect of costs management thereafter. The costs management directions could include a for a party to file either a costs budget or a budget discussion report in either the current format or new format.
Practitioners handling cases within the above limits should prepare for changes in how costs budgeting operates.
How Will the Pilot Scheme Work?
1. Simplified Costs Budgeting Forms
Under the pilot, practitioners will no longer use the detailed Precedent H. Instead, the scheme introduces new and simpler forms:
- Precedent Z or “simplified costs budget” – A streamlined two-page costs budgeting form
- Precedent ZR or “simplified budget discussion report” – A Budget Discussion Report for parties to compare and discuss costs budgets
- Precedent ZT or “the form for variation of a simplified costs budget” – A form for seeking variations to approved/agreed budgets
These forms aim to reduce the burden on practitioners while ensuring costs remain controlled and proportionate.
All of the forms are annexed to the Practice Direction 51ZG1.
What are the main differences between the Precedent Z and the current Precedent H?
The Simplified Costs Budget is now only 2 pages in total.
Page one, or tab one, is the budget front sheet and page two/tab two is for the budget assumptions (as shown below).
Given that the Precedent Z is now only two pages, the obvious difference between the Precedent H and Precedent Z is that the Simplified Costs Budget removes details as to how the profit costs and disbursements break down, including any reference to hourly rates and experts’ fees.
Consequently, a greater emphasis is likely to be placed on providing key details and explanations for the costs within the assumptions tab.
What are the main differences between the Precedent ZR and the current Budget Discussion Report (Precedent R)?
The Precedent ZR (see below) whilst very similar to the Precedent R, has one key difference.
In keeping with the format of the Precedent Z, there is now an additional column to split the costs claimed and costs offered by Counsel, as opposed to just time and disbursements.
What are the main differences between the Precedent TZ and the current Precedent T?
The Precedent TZ has two tabs, which mirror the existing Precedent T.
However, on the second tab of the Precedent TZ, the Variation particulars, the is now an additional column for Counsel’s fees (as shown below).
2. Key Filing Deadlines
- Costs Budget Submission – Must be filed and served 21 days before the first Case Management Conference
- Budget Discussion Report – Where a party has been served with a Precedent Z, a Precedent ZR must be filed and served 7 days before the first Case Management Conference
Practitioners must strictly adhere to these deadlines—failure to comply may result in cost limitations imposed by the court.
3. Court Approval & Costs Management Orders
The Court will review the budgets and may issue a Costs Management Order (CMO) where necessary. The emphasis will be on proportionality, ensuring that costs remain reasonable in relation to case complexity.
4. Variation of Costs Budgets
If a CMO is made, parties can apply to vary their budget using Precedent ZT.
5. Budgeting before Trial
Where no CMO has been made by the Court, the parties must file and serve an updated Precedent Z no later than 28 days before the earliest of the following:
- The start of the trial
- The start of the trial window; or
- 7 days before any PTR
However, the Court has the discretion to order that a party must file an updated Precedent Z at any time during the proceedings.
6. Assessment Considerations
If there is no CMO, at assessment, the receiving party must provide a Statement of Reasons if there is a 20% or more difference between the Precedent Z and the Bill of Costs.
In the event that the receiving party is not able to provide a satisfactory explanation as to the difference exceeding 20% and/or a paying party is able to sufficiently evidence that it reasonably relied upon a Precedent Z, the Court can restrict the amount of recoverable costs.
Where the Court is satisfied a paying party reasonable relied on the Precedent Z, it has the power to reduce the recoverable costs to what it considers to be a more reasonable amount for the paying party to pay in light of that reliance.
In circumstances where the receiving party does not provide a satisfactory explanation for 20% or greater difference between the Precedent Z and the bill, the Court can regard this as evidence that the costs claimed by the receiving party are unreasonable or disproportionate.
7. Sanctions for Non-Compliance
Courts have discretion over sanctions, including restricting recoverable costs to Court fees only in cases on non-compliance.
What Practitioners Need to Be Aware Of
Administrative and Procedural Considerations
- The new forms replace Precedent H, making budgeting simpler but requiring adjustments in practice.
- Filing deadlines are critical – missing key dates may impact recoverable costs.
- Court oversight remains, but aims to be less rigid than before, focusing on proportionality.
Impact on Case Strategy
- Less time spent on budgeting paperwork, allowing practitioners to focus on case merits.
- Greater flexibility with the Precedent ZT form, allowing adjustments where necessary.
- Potential challenges – while the scheme simplifies costs budgeting, practitioners must adapt quickly to new requirements.
Final Thoughts
The Costs Budgeting Pilot Scheme represents a significant change for Business & Property Court cases, aiming to reduce complexity while maintaining costs control.
Practitioners should familiarize themselves with the new forms, adhere to filing deadlines, and monitor how courts interpret the proportionality requirement. While the pilot is designed to ease burdens, its success will depend on how effectively legal teams adapt over the next three years.Our firm is at the forefront of adapting to these changes and if you need any assistance with any aspects of this new regime, please get in touch.
