Court of Appeal upholds order limiting recoverable costs to court fees where party failed to file costs budget

Lord Justice Jackson has delivered the leading judgment dismissing an appeal against imposition of the so-called "Mitchell" sanction where a party failed to file a costs budget when required to do so, so that he was treated as having filed a budget limited to court fees: Jamadar v Bradford Teaching Hospitals NHS Foundation Trust [2016] EWCA Civ 1001.

Over the past couple of years the court's approach to procedural failings has eased off from the overly draconian approach taken in the aftermath of the high-profile Mitchell decision in November 2013, in particular in light of the Court of Appeal's "clarification" of the Mitchell guidance in its Denton decision in July 2014 (see post). There are fewer cases these days in which parties even attempt to take their opponents to task for minor breaches - in part because heavy costs sanctions may be imposed on those who seek to take unreasonable advantage of an opponent’s breach.

However, it is by no means plain sailing for those who fail to comply with court rules and orders. The present decision highlights the continued scope for tough decisions, and the appeal courts' reluctance to interfere with a lower court's decision in this area; here, Jackson LJ commented that other judges might have taken a more lenient view, but the judge made no error of principle and it was a decision he was entitled to reach within the ambit of his discretion.

The decision also acts as a reminder that costs budgets must be filed in time or a party risks facing serious restrictions on its recoverable costs. If in doubt as to whether a budget is required, the safe course is to assume that it is.

Background

In Denton, the Court of Appeal established a three-stage test for the court to apply in determining an application for relief from sanctions under CPR 3.9. In summary, the court must consider: 

1. the “seriousness and significance” of the breach;
2. why the breach occurred, and whether there was good reason for it; and 
3. all the circumstances of the case, giving particular weight to the two factors set out in CPR 3.9(1), namely: (a) the need for litigation to be conducted efficiently and at proportionate cost; and (b) the need to enforce compliance with rules, practice directions and orders.

Under CPR 3.14, any party which fails to file a costs budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees. That is significant because, when assessing costs on the standard basis, the court will not depart from a party's last approved or agreed budget unless there is good reason to do so. Being treated as having filed a budget limited only to court fees may therefore have a dramatic impact on the costs a party can recover from its opponent if it is successful in the litigation.

The present claim was for some £3 million for clinical negligence. The defendant initially denied liability, but then admitted liability shortly after receiving the court's notice of proposed allocation (form N149C) stating that the case appeared suitable for allocation to the multi-track. The court revoked the form N149C, ordered judgment to be entered on the admission for an amount to be decided, and scheduled a case management conference (CMC).

The defendant filed and served various documents in advance of the CMC, including a costs budget which (under the then current rules) had to be filed at least 7 days before the CMC. The claimant's solicitors decided not to file a budget before the CMC despite repeated urging by the defendant's solicitors. At the CMC, the district judge made an order pursuant to CPR 3.14 that the claimant's recoverable costs should be confined to court fees. The claimant applied to the same district judge to vary the order or alternatively for relief from sanctions, but that was dismissed. An appeal to the circuit judge was also dismissed, so the claimant appealed to the Court of Appeal.

Decision

The Court of Appeal dismissed the appeal (Jackson LJ giving the lead judgment, with which Lindblom LJ agreed).

The first ground of appeal was that a costs budget was not required as the case had ceased to be a multi-track case when the form N149C was revoked. The court rejected this argument. The revocation had been made because the case was no longer defended on liability, but as a multi-million pound personal injury action it was self-evidently a multi-track case. The parties were therefore required to serve their budgets seven days before the first CMC. The fact that the case had become quantum only litigation did not take the case out of the costs management regime.

The second ground of appeal was that the judges below erred in failing to grant relief from sanctions under CPR 3.9. It was accepted that the district judge's approach was wrong in that he said the present case was so close to Mitchell that he was bound to refuse relief. The claimant submitted that the circuit judge made the same error in re-exercising the court's discretion as to whether to grant relief, in that he treated himself as constrained by Mitchell to refuse relief. The Court of Appeal disagreed. Reading the judgment as a whole, he had properly applied the Denton three-stage test. This was clearly a serious or significant breach, as the failure meant that if relief were granted there would have to be a second costs management hearing at a later date. There was no good reason for the breach; the judge had rejected the submission that the claimant's approach was reasonable though a mis-interpretation of the rules, and he was entitled to do so. The judge had also applied the third stage correctly and reached a decision which was open to him. Although other judges might have been more lenient, there was no error of principle and it was a decision within the ambit of his discretion.

The Court of Appeal noted that any harshness of the order had been mitigated by the fact that the action subsequently settled.

(Although this judgment was given in July, it has only recently become available on Lawtel.)