Costs budget and relief from sanctions update.
Costs Aware | July 2020
The Rules regarding costs management are very clear and well understood, but there are still numerous incidents of budgets being filed or served late. In cases with a pleaded value of £50,000 or less the budgets are to be filed and exchanged with the directions questionnaires. For all other cases they are to be filed and exchanged 21 days (and that is ‘clear’ days, see CPR 2.8(2)) before the first CMC, unless the court orders otherwise.
Recent reported cases, and my own experience, show that practitioners are still falling foul of the Rules and that there can be serious consequences, especially where the breach is not fixed immediately.
Filing a costs budget late
When a party files their budget late, all is not necessarily lost. Remedying the breach and a prompt application for relief may circumvent the disastrous budget restricted to court fees only. Relief will be granted in the right circumstances and Denton remains good law. In order to be granted relief the court will consider the three stage test of:
- Identifying and assessing the seriousness or significance of the breach?
- Considering why the failure/default occurred?
- Considering all the circumstances of the case.
The most recent case of Manchester Shipping Ltd v Balfour Shipping Ltd & Anor  EWHC 164 (Comm) dealt with an instance where a defendant was late in filing their budget. The defendant had complied with all other aspects of the preparation for the hearing but missed the budget. An application for relief was made and whilst the breach was serious and the reason for the breach occurring was not acceptable, relief was granted when the third strand of the Denton test was considered to take into account all of the circumstances. The court found that the breach did not delay the litigation nor did it inconvenience any of the parties, relief was granted.
Whilst relief from sanctions may be given where there is a serious breach, as in the case above, this could still come with a serious penalty as a recent case in which I was involved in Nottingham County Court shows. In this unreported case the claimant had failed to file and serve a costs budget prior to the first CMC as required. At the CMC hearing the claimant was restricted to court fees and invited to make an application for relief from sanctions. While an application for relief from sanctions was subsequently made, this was not made promptly and a budget was not filed before the hearing of the application.
The application for relief from sanctions was opposed, by the defendant, due to the claimant’s failure to comply with the Rules and failure to make an application for relief promptly. The court found that their actions unfortunately did affect the litigation and the parties by failing to file a budget before the CMC or seek any relief sooner.
While relief from sanctions was granted, the claimant received a huge penalty and was restricted to recovering only 25% of the budgeted costs on assessment. In addition the claimant was ordered to pay over £3,500 of the defendant’s costs of the application.
Filing a budget on time, but serving the budget late
The Rules are clear that failing to file a budget on time carries the sanction of being restricted to budgeted costs of court fees only, but the Rules are silent on the failure to exchange or serve a budget.
I had an interesting matter recently where my opponent had filed their budget with the court, but had failed to serve it to the defendant. The claimant’s failure became apparent when the claimant served a budget discussion report on the defendant’s budget. A phone call and email exchange confirmed that the budget was filed, but inadvertently not served by the claimant. An application for relief was not required as the automatic sanction contained in CPR 3.14 relates to failure to file a budget and not failure to serve.
Despite the budget containing incurred and estimated costs of almost £1 million, I was able to consider the budget, prepare the defendant’s budget discussion report, and attend the hearing to deal with the budget. As mentioned above, the claimant had filed but not served the budget and, therefore, they did not require relief from sanctions. The sanction to be restricted to court fees only applies only to the late filing of the budget and not late service on the opposing party. The court recently confirmed that a party who is in breach does not need to apply for relief from sanctions where there is not an automatic sanction, Djurberg v London Borough of Richmond & Others  EWHC 3342 (Ch).
At the subsequent hearing before the Master approving the budget figures, I made representations that whilst there was no automatic sanction the Master should exercise their discretion on costs due to the claimant’s failure and extra pressure that the defendant was placed under. I could have easily sought to adjourn the costs management part of the CMC, seeking the claimant pay the costs of that extra hearing – a decision I am confident I would have achieved. Instead, a reduction was sought to the costs of the CMC to reflect those costs that the claimant would have had to pay if the defendant had sought the adjournment of costs management. Due to this approach being taken, the case was costs managed as soon as it could be and avoided the need for the parties attending court again and using up more of the court’s valuable time.
I suggested that the claimant’s costs of the CMC be reduced by 50% which the Master agreed to. A fair outcome to penalise a claimant for their failure and shortened timeframe that my client and I had in which to deal with their budget.
The moral to both of these stories is to be sure that you have filed and served your budget on time and where a mistake has been made seek to rectify that mistake immediately, whether that is an application for relief for failure to file a budget or serving the budget where the budget has not been served on time.