The dangers of filing an incomplete costs budget

The High Court has imposed severe sanctions on a claimant who "genuinely but mistakenly" thought it was acceptable to file a costs budget excluding the phases of trial preparation and trial: Page v RGC Restaurants Ltd [2018] EWHC 2688 (QB).

The decision illustrates the risks of filing a "materially incomplete" costs budget, even where a party considers it premature to budget for the later stages of the action. In these circumstances it seems the only safe course is to budget for the entire action, unless the court has made an order directing that budgets be limited to only part of the proceedings. 

Background

CPR 3.14 provides: "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."

Paragraph 6(a) of Practice Direction (PD) 3E provides that, unless the court otherwise orders, a budget must be in the form of Precedent H annexed to the PD. In goes on to say 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.

The present action is a claim for personal injuries arising out of the claimant's severe allergic reaction to a milkshake containing nuts which he was served at a cafe run by the defendant.

On the due date for filing and exchanging costs budgets in the case, the claimant's solicitors filed and served a document headed "Interim Costs Budget". This set out figures for costs and disbursements incurred to date and for future costs and disbursements up to a second case management conference (CMC) that the claimant proposed should take place. It did not include any costs for trial preparation and trial, explaining:

"A second CMC will take place in approx six months when directions for further experts and trial will be given. It is too soon to budget to trial."

The defendant's budget did not refer to a second CMC but included estimated costs for a pre-trial review as well as trial preparation and trial.

The parties exchanged budget discussion reports and reached agreement for the budgeted costs relating to most phases, apart from trial preparation and trial.

The budgets were considered by Master Thornett at a CMC. He did not agree that the case warranted a second CMC. He found that the claimant had not filed a budget that complied with the rules, as it had not included all phases up to trial. In the master's view, it was only if the court had dispensed with the requirement to file budgets covering the whole proceedings that solicitors could assume they were entitled to file a partial budget. Here no such dispensation order had been made.

The master therefore took the view that CPR 3.14 applied, and ordered that the claimant should be treated as having filed a budget limited to applicable court fees, subject to the claimant's right to seek relief from sanctions under CPR 3.9. The claimant appealed.

Decision

The High Court (Mr Justice Walker) allowed the appeal, finding that the phases of the claimant's budget which had been agreed should stand as agreed, but that the claimant should be treated as having limited to court fees in respect of the unbudgeted phases, ie trial preparation and trial.

Walker J agreed with the master that the claimant had "failed to file a budget" and therefore CPR 3.14 was engaged. He accepted that a mere irregularity, such as failing to have a budget signed by a senior legal representative, would not nullify what would otherwise be a costs budget. However, that was entirely different from the present case, where what was filed omitted important sections of Precedent H. In the judge's view, CPR 3.14 was engaged where a party filed a materially incomplete budget.

The judge was not persuaded that the parties' agreement as to the budget phases trumped CPR 3.14. Even if the parties' negotiations had resulted in a contract, which he did not accept, a contract made for costs management purposes must give way to overriding provisions in relevant rules, practice directions and orders. He said it might be arguable that an agreement took precedence if it was reached knowing that the sanction in CPR 3.14 had taken effect and intending to supersede that sanction, but the judge said that argument was not straightforward and, as it did not arise, he said nothing more about it.

However, the judge found that the master had erred in failing to consider whether to disapply the sanction under CPR 3.14 using the express power to do so under that rule. There is a vital difference between disapplying the sanction under CPR 3.14 itself, where the court "otherwise orders", and seeking relief from sanctions under CPR 3.9. On an application under CPR 3.9, the court's starting point is that the sanction has been properly imposed and complies with the overriding objective. That is a significant fetter on the court's ability to grant relief. That fetter does not apply where the court considers whether to disapply the sanction under CPR 3.14.

The judge therefore had to consider whether to make an order disapplying the sanction under CPR 3.14 in whole or in part. Both sides agreed that for this purpose the court must adopt the structured approach set out in Denton v TH White Ltd [2014] EWCA Civ 906 (considered here), ie: (1) to identify the seriousness and significance of the breach; (2) to consider why the breach occurred; and (3) to evaluate all the circumstances so as to deal justly with the matter, taking in account the need for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with rules, practice directions and orders.

Applying this test, the judge concluded that:

1. The breach was moderately serious and moderately significant.
2. The claimant's advisors genuinely but mistakenly thought it was acceptable to file a budget which left over the trial preparation and trial phases to be considered later. That amounted to "negligence", but not "gross negligence".
3. There was a clear distinction between what happened in relation to the phases of trial preparation and trial and what happened in relation to the earlier phases. It would be unjust to apply the CPR 3.14 sanction to the earlier phases. Applying the sanction to the trial preparation and trial phases would have severe consequences for the claimant and would fully serve the important considerations of encouraging efficiency, proportionality and compliance.

The judge considered but rejected the claimant's application for relief from sanctions in respect of this more limited sanction.