Costs Budgets and the Battle over ADR
Two recent costs judgments — Pontis Finance LLP v Karam, Missick & Traube LLP [2025] (Deputy Master Henderson) and the PAN NOx Emissions Litigation [2025] (Mrs Justice Cockerill DBE and Senior Costs Judge Rowley) — highlight how the courts are grappling with costs management, proportionality, and the vexed question of ADR budgeting.
Pontis Finance: Proportionality and Missed Opportunities
In Pontis Finance, the Claimant sought nearly £490,000 in costs in a £1.2m professional negligence claim. The court found the overall figure disproportionate, noting that while the case was factually involved, it was not “heavy commercial litigation.”
Notably, Deputy Master Henderson declined to set budgets for the witness statement and ADR phases because of uncertainty over what costs had already been incurred. This reflected a structural difficulty: delays meant phases were already part-complete, making it impossible to separate incurred from future costs. The irony is clear: while judges increasingly “badger” parties towards mediation, the system still struggles to budget sensibly for ADR costs.
PAN NOx: £11 Million for ADR
By contrast, in the PAN NOx group litigation, the claimants pitched an extraordinary £11m for ADR in their Tranche 3 budgets. The defendants, having been chastised in an earlier hearing for ignoring ADR, now allowed only £1.8m between them.
Faced with such a gulf, the court refused to budget ADR at all. Cockerill J and Rowley SCJ observed that if ADR really was to take place at that level, the costs would inevitably fall into the “incurred” column later; if it wasn’t, there was no point in pretending otherwise. The judges reserved the issue for a future hearing.
The decision illustrates the tension:
- One side risks judicial criticism (or costs sanctions) if they fail to budget for ADR at all.
- The other risks judicial pruning if they load ADR phases with “eye-watering” figures.
Lessons
Taken together, these cases highlight three practical lessons:
- ADR is mainstream, not optional. Courts expect it, and failing to budget for it risks censure.
- But excess will be cut. Claiming millions for ADR preparation will be seen as disproportionate, even in mega-litigation.
- Budget realistically. A well-calibrated ADR phase should reflect the actual likely steps — mediator’s fees, preparation, perhaps some counsel involvement — not a blank cheque.
The Bigger Picture
Since Churchill v Merthyr Tydfil and the Civil Justice Council’s recommendations, ADR has shifted from a voluntary extra to an integrated stage of case management. Costs budgeting is the mechanism that will force parties to treat mediation seriously — but proportionately.
As these cases show, courts are alert both to the danger of parties skimping on ADR and to the risk of ADR budgets being weaponised as another front in costs wars.
The real challenge for practitioners is to get ADR budgets “just right”: enough to allow genuine settlement efforts, but lean enough to survive judicial scrutiny. Because if costs budgeting itself becomes a barrier to settlement, we’ve all missed the point.