Defective costs budgets
The decision of Mr Justice Walker in Page v RGC Restaurants Ltd  EWHC 2688 (QB) provides further important guidance on the costs budgeting process and is essential reading for those involved in costs budgeting.
The underlying case was subject to costs budgeting. The parties decided between themselves, without consulting the Court, that the budgets could be prepared on the basis that it was too soon to budget for trial preparation and trial costs. The Claimant’s budget therefore included nothing for these phases.
The main rule in issue was CPR 3.14:
“Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.”
At the CCMC, the master concluded that the failure to serve a budget that included trial preparation and trial estimates amounted to a failure to file a budget that complied with the rules. He decided that the consequence of this was that the CPR 3.14 sanction applied and made a costs management order limiting the Claimant’s budget accordingly (ie court fees only).
On appeal, the master’s decision that there had been a failure to file a compliant budget was upheld. However, the appeal judge ruled that the master should have gone on to consider whether to disapply the sanction (even in the absence of an application for relief from sanctions) as CPR 3.14 specially provides that the sanction applies “unless the court otherwise orders”. The judge then applied the Denton principles to the issue of whether the court should have otherwise ordered and did so to the extent that the sanction would not be applied to those phases of the budget that had been properly completed and agreed by the Defendant. However, the sanction would continue to apply in relation to the trial preparation and trial phases. Given the matter had been listed for a five day trial, this represents a very serious sanction and is likely to cause a major loss to the Claimant’s solicitors (or possibly professional indemnity insurers) if the matter proceeds to trial.
The obvious lesson from this decision is that it is not for parties to decide not to file complete budgets taking the matter up to trial. PD 3E para.6(a) provides that: “In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings”. Any party wishing to budget for only part of the case therefore needs to make an application to the court in advance of the deadline for filing budgets.
The judgment itself is lengthy and deals with a large number of different grounds of appeal, not making it entirely easy to extract the key points. Nevertheless, a number of important principles are dealt with.
The moment at which the sanction bites was dealt with as follows:
“It was submitted on behalf of [the Claimant] that the operation of CPR 3.14 was not automatic. I disagree. CPR 3.8 makes it plain that the operation of a sanction such as that in CPR 3.14 is not dependent upon there being any further order by the court. On the contrary, the sanction applies unless the court otherwise orders. The natural meaning of this provision is that once there has been a relevant failure, then in the absence of any contemporaneous or earlier order to the contrary, CPR 3.14 bites. From that time on, unless and until there is an order by the court to the contrary, the party in question is deemed to have filed a budget comprising only the applicable court fees. Whether that continues to be the case for the purposes of costs budgeting is a matter for the court.”
At the original hearing, the Claimant had not made an application (even if only oral) for relief from sanctions. Nevertheless, as mentioned above, it was recognised that the wording of CPR 3.14 required the master to consider whether to disapply the sanction:
“in circumstances where CPR 3.14 expressly states that the sanction is to apply unless ‘the court otherwise orders’ it would be entirely appropriate for the court to pause, and canvas with the parties whether there is any reason for the court to make a different order.”
It was recognised that there is a distinction between an application for relief from sanctions and consideration of whether to disapply CPR 3.14:
“The vital difference is that on an application under CPR 3.9 the starting point is that the sanction has been properly imposed and complies with the overriding objective … . By contrast, while the factors calling for consideration when deciding on disapplication under CPR 3.14 are similar to those which arise on an application for relief under CPR 3.9, the context is very different. When considering disapplication there has been no prior judicial decision that the sanction was appropriate and in accordance with the overriding objective. Thus a significant fetter on the court’s ability to grant relief does not apply to consideration by the court of whether the sanction under CPR 3.14 should be disapplied using the express power to do so in CPR 3.14.”
Nevertheless, it was common ground that the Denton approach would apply to consideration of whether to exercise the discretion to disapply the sanction, in the same way as it would in relation to an application for relief from sanctions. This follows the Court of Appeal’s decision in Mitchell v News Group Newspapers Ltd:
“We should add that in our view the considerations to which the court should have regard when deciding whether it should ‘otherwise order’ are likely to be the same as those which are relevant to a decision whether to grant relief under CPR 3.9.”
From these various passages, I take the following:
- The CPR 3.14 sanction bites at the point of the breach.
- At a subsequent costs management hearing, the judge must consider whether to disapply the sanction even in the absence of an application for relief from sanctions.
- The court will adopt the Denton approach to whether to disapply the sanction but will not take as a starting point a presumption that the sanction was properly applied.
The distinction between whether the sanction bites automatically, but may then be disapplied by the judge at the costs management hearing, or whether it only bites if the judge so orders (as a result of deciding not to “otherwise order”) may seem academic. However, the distinction may prove crucial. It is not uncommon for budgets to be filed and exchanged but then, often because of extraordinary delay in the matter coming before the Court for a costs management hearing (because the courts often adjourn this issue until a date after the original CMC), for the matter to settle before a judge would have been in a position to “otherwise order”. If the filed budget was defective, it would be a brave party who sought to rely on a judge on detailed assessment deciding he had the power, or inclination, to “otherwise order”.
A further issue that was explored was how significant the defect in the budget needed to be before it would be treated as a failure to file any budget.
PD 3E para.6 states:
“(a) Unless the court otherwise orders, a budget must be in the form of Precedent H [emphasis added] annexed to this Practice Direction. It must be in landscape format with an easily legible typeface. In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings. A budget must be dated and verified by a statement of truth signed by a senior legal representative of the party.
(b) Parties must follow the Precedent H Guidance Note in all respects [emphasis added]”
Here, the budget filed by the Claimant was held to be clearly defective:
“there can be no doubt that the obligation under CPR 3.13 as amplified in PD 3E is, unless the court otherwise orders, to file a budget ‘in the form of Precedent H’, and which follows the Precedent H Guidance Note in all respects. Paragraph 6 of PD 3E says so …. In the present case it is clear that Mr Page’s interim budget did not meet important requirements of Precedent H. Precedent H required Mr Page to set out his budgeted costs for trial preparation and for trial. Mr Page’s interim budget did not do this.”
This appears to imply that the budget must virtually mirror Precedent H and the Guidance Notes.
On the other hand:
“CPR 3.14 will only apply to [the Claimant] if he ‘failed to file a budget’. [The Claimant’s] first contention is that, on an ordinary use of language, he had filed a ‘budget’. In this context, [the Defendant] accepted that a mere irregularity would not nullify what would otherwise be a costs budget. I agree. It seems to me that [the Defendant’s] approach in this regard is consistent with the decision of Stuart-Smith J in Americhem Europe Ltd v Rakem Ltd  EWHC 1881 (TCC). There a solicitor had served and filed a costs budget in the form of Precedent H in time, but it was signed by a costs draftsman and not by a senior legal representative within the meaning of PD 3E. Stuart-Smith J found that while this was contrary to PD 3E, there was nothing to impede the normal constructive discussions on figures. In those circumstances what went wrong in that case was entirely different in nature from the present case, where what was filed omitted important sections of Precedent H.”
Naturally, it will be fact sensitive as to whether a breach is “a mere irregularity” or a failure to “meet important requirements”.
Expect more litigation on this issue.