A judgment on costs today by the Court of Appeal will have significant ramifications for litigators preparing for the Jackson reforms. The court found there was ‘good reason’ for a claimant’s original costs estimate to go over budget by more than £268,000.

The appeal, in Henry v News Group Newspapers, followed a ruling last May in which the successful claimant lost out on significant costs because they had not amended their budget.

In its judgment, the appeal court accepted there could be a reason why the proper conduct of proceedings is more expensive than originally expected.

From April, parties will have to prepare a detailed costs budget setting out the anticipated costs of proceedings in time for the case management conference. Any departure from that budget will have to be approved by a court.

Rod Evans, president of the Forum of Insurance Lawyers, said today’s judgment was ‘extremely disappointing’ and will undermine the implementation of the Jackson reforms.

He said: ‘We now have major concerns over adherence to the new cost budgeting rules from 1 April and what sanctions will be available to apply against those who don’t adhere.’

Rani Mina, partner at Mayer Brown, said this first decision on costs had not sent the strong message that had been widely expected.

She added: ‘One of Lord Justice Jackson’s concerns was that his reforms should not increase the level of satellite litigation over costs.

‘This decision must surely increase the likelihood of appeals in relation to tough cost-budgeting decisions at first instance.’

Reacting to the judgment, Iain Stark, chairman of the Association of Costs Lawyers, said: 'A budget is there for good reason. Ignoring it just begs the question of what is the point of having one in the first place?

'This ruling gives litigants carte blanche to ignore the new rules – and satellite litigation is certain to follow. Post April, it looks like we will be waiting, as in the bad old days of the "costs war", for cases to reach the Court of Appeal, thus paralysing the courts underneath and the everyday administration of justice.

'This will produce greater uncertainty, exactly what these reforms were supposed to stop.'