Costs estimates and costs capping are both set to play an increasing role in the courts' control of cases after the Court of Appeal backed their greater use, despite fearing an increase in satellite litigation.

Giving judgment in Leigh v Michelin Tyre, the court laid down a non-exhaustive three-stage test of whether estimates - until now a largely ignored part of the assessment process - should be taken into account when determining the reasonableness of the costs claimed.

The Master of the Rolls, Lord Phillips of Worth Matravers, was one of the judges.

The case was a personal injury claim against an employer.

The claimant's solicitors, Stoke firm Tinsdills, had estimated costs of 6,000 in the allocation questionnaire.

For a variety of reasons - such as an unforeseen need for experts - it finally sought almost 22,000 after the case settled for 48,000 shortly before trial.

The district judge awarded costs of almost 20,500.

The Court of Appeal said the estimate could be taken into account first as a yardstick of reasonableness - if a difference with the final bill cannot be explained - then if the other party can show it relied on the estimate, and finally if the court would have given different case management directions had a realistic estimate been given.

However, it said it would be wrong to hold a party to an estimate

simply to penalise it for being inadequate.

This was the basis of the appeal in Leigh and so it was dismissed.

Although it feared that its ruling could lead to satellite litigation, the court said estimates would otherwise have no value.

But the court said this was not the most effective way of controlling costs.

Noting the use of a costs cap in the nationwide organ group litigation (see [2003] Gazette, 22 May, 1), it said: 'It seems to us that the prospective fixing of costs budgets is likely to achieve that objective far more effectively.'

It called on the rules committee to take forward stalled work on costs budgets, and also to look at how to make estimates more effective.

Simon Denyer, the partner at Preston firm Ricksons who acted for the defendant insurer, said: 'The signs are that both estimates and caps are to become increasingly important weapons available to the court and to the parties.'

Tinsdills partner Tim Cogan said the ruling emphasised the need for solicitors to file updated costs estimates at court, and also to serve them on clients unless they have waived that right.

By Neil Rose