Costs budgeting: both sides must play by the rules or else

Running an action in the multi-track worth less than £10 million but £50,000 or more and you are not a litigant in person? Your case will be subject to costs management under Part II of CPR 3 unless the claimant is a minor, fixed costs apply or “the court otherwise orders”. That means that not later than 21 days before the first case management conference (CMC), budgets must be filed and exchanged, and an agreed budget discussion report filed no later than seven days before the first CMC (see CPR 3.12-13).

Make a mess of it by missing the time limit for filing your budget? Unless the court orders otherwise, you will be treated as having filed a budget comprising only the applicable court fees (see CPR 3.14).

Get out of jail card? None, unless you can persuade the court on an application made under CPR 3.9 specifically for that purpose, that relief from the CPR 3.14 sanction should be granted, having regard to the three stages set out in Denton v TH White Ltd:

  • The breach was not serious.
  • A good reason exists why the breach happened.
  • Following an evaluation of all the circumstances of the case, it is just to grant relief.

Tough stuff, but clear enough, and all stemming from Sir Rupert Jackson’s Review of Civil Litigation Costs: Final Report December 2009 (see Executive Summary at paragraphs 6.8 and 6.10):

“Costs management is an adjunct to case management, whereby the court, with input from the parties, actively attempts to control the costs of cases before it. The primary means by which costs management is effected is for the parties to provide budgets of their own costs, with those costs being updated from time to time and submitted for approval to the court. The court then formulates the directions and orders which it makes with a view to ensuring that cost do not become disproportionate… Judges should take a more robust approach to case management to ensure that (realistic) timetables are observed and that costs are proportionate…”

That robust approach was illustrated in Lakhani v Mahmud in which Daniel Alexander QC refused to grant relief where an updated budget had been served and filed one day late. Accordingly, for all work going forward the hapless Mr Mahmud would only be able to recover applicable court fees in the event that his defence proved successful.

What happens if the failure to comply is less dramatic than in Lakhani, where, for example, the parties have engaged fully in the budgeting process, have agreed most of the budget and have worked out a modus operandi for the costs going forward where agreement has not been possible?

That was the situation which faced Walker J in Page v RGC Restaurants Ltd, on appeal from Master Thornett’s judgment in which Mr Page’s budgeted costs had been limited to applicable court fees because his solicitors had filed a “partial” budget: by that was meant a budget that was agreed for all phases of work save for trial preparation and trial, with the claimant having used the figures £0.00 for each of those phases. Such a budget was not, accordingly, a complete budget, compliant with CPR 3.12, and as such, the automatic sanction under CPR 3.14 applied.

Before addressing what Walker J did in his 175 paragraph judgment, it is necessary to say more about the facts. Mr Page had suffered an acute reaction following the consumption of a milkshake containing nuts, which had been sold to him by RGC Restaurants. Liability was not in issue at the time of the CMC, which had been fixed for 19 December 2017 before Master Thornett.

Earlier, the parties had agreed figures for their budgets. For Mr Page, the amounts within what was termed “an interim budget” included incurred costs of £71,154.60 and for costs going forward, £91,706, totalling £162,860.60, save for trial preparation and the trial which had no agreed figures, indeed no figures at all. The reason for that was that both sides agreed that there would need to be a further CMC to address the costs for those phases when the work to be required of the experts was known.

RGC’s agreed figure was £18,320.90 for incurred costs, £40,485 for budgeted costs: total £58,805.90. However, the budget had one striking difference. For trial preparation, it sought solicitor’s costs of £1,636 and £100 disbursements: for trial, solicitor’s costs of £0.00, disbursements of £15,050. Thus within the agreed figure of £40,485, the solicitor’s charges for trial preparation and trial were just £1,636, an astonishingly small amount, it might be thought, for a case proceeding in the High Court!

When the parties’ legal representatives went into court on 19 December 2017, they were able to inform the Master that:

  • Recoverable incurred costs to date were agreed.
  • Budgeting costs down to and including a second CMC were agreed.
  • Directions should be given which included a second CMC.
  • No directions beyond the proposed second CMC had been agreed.

Unfortunately, Master Thornett was not impressed. He considered that there was no reason why a further CMC would be needed; the case was already amenable for listing through to trial, albeit that the trial estimate needed to be increased from two to five days, there was no need for a pre-trial-review, and the budget filed by Mr Page hade been “very inadequate”, such that the teeth of CPR 3.14 were to bite. His costs going forward would be limited to applicable court fees.

Unhappily for Mr Page, Walker J agreed. A budget entitled “interim costs budget” was something that was not yet a budget. A partial budget dealing with all phases save two was one that did not comply with the CPR and, unless and until the court ordered otherwise, the only allowable budgeted costs were the applicable court fees. The fact that so much had been agreed and that, to all intents and purposes, the parties had come to the CMC with a consent order, availed Mr Page not a bit. On the contrary, any contractual agreement such that the parties had reached could not displace CPR 3.14:

“The sanction in CPR 3.14 is so important that disapplication of the sanction should not automatically result from the mere fact that figures are agreed” [paragraph 127].

There was, however, one glimmer of hope for Mr Page. The breach of the rules had been “moderately serious and moderately significant” and the culpability had “amounted to negligence but it was not gross negligence”. The case could not be compared with Lakhani: RGC had agreed with the course proposed by Mr Page. To allow Master Thornett’s order to stand would be to deprive him of almost everything. Only the phases for trial and trial preparation would be subject to the CPR 3.14 sanction.

Back to Sir Rupert. Although the appeal was allowed, it is hard to see how the decision in Page sits comfortably with the sentiments he expressed in his executive summary. Far from being proportionate, the outcome appears to give rise to delays and costs which are, themselves, disproportionate.

First, the judgment took seven months to be delivered, meaning that the case will effectively have been stalled since Master Thornett’s decision 10 months ago. Second, the result is a temptation to solicitors to insert any old figures into their budgets on the basis that it is safer to include meaningless amounts rather than run the risk of infringing the rules. Had Mr Page put £10 million for trial instead of £00.00, he would not have been allowed it, but at least the budget would have been complete and compliant. Third, the finding of negligence will have placed the blameless Mr Page and his solicitors in an invidious position: should the solicitors continue with the case working for nothing, or should Mr Page go elsewhere, in which case there will be costs involved for reading in by his new solicitors and for taking the case to trial? The payment of those fees would be for their predecessors to meet, with any dispute relating thereto being the subject matter of a claim in tort, thereby clogging up the courts still further. Lastly, RGC has been handed a very useful weapon from the CPR armoury. Any offer will reflect the fact that if the case is lost, there will be no costs of trial or trial preparation to pay; in those circumstances, RGC could approach any settlement discussions secure in the knowledge that Mr Page will not receive any costs of the five-day trial, nor anything for preparing for it. Nothing of this has much proportionality about it.

How would this have been dealt with pre-Jackson and CPR 3, assuming that costs budgeting then existed? On any sensible view, the most draconian order would have been that Mr Page file and serve an updated budget to include the figures for trial preparation and trial, with any costs thrown away to be paid personally by his solicitor. No court time wasted. Justice done and seen to be done. If there is a lesson for the future, it is to play strictly by the rules, even if that means putting nonsensical figures into the budget in order to do so. Litigants who fail to do that will do so at their peril as to costs, however just or unjust that is.

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