COSTS BUDGET SERVED LATE: RELIEF FROM SANCTIONS ALLOWED ON APPEAL

In a judgment given today His Honour Judge Peter Gregory allowed an appeal against a decision to confine a claimant’s costs budget to court fees following late service of the costs budget. The case indicates that a more nuanced approach should be taken to applications for relief from sanctions; it also highlights the significance of an application for relief being made extremely promptly.

THE CASE

Murray -v-BAE Systems PLC (Liverpool County Court, 1st April 2016) (The judgment is available here MURRAY V BAE FINAL)

• The claimant’s costs budget was due to be served on the 19th August 2015.
• The defendant sent out reminders to the claimant that the budget was due.
• The costs budget was served late. It was e-mailed to the defendant on 21st August 2015 (a Friday) but not until after 6.24 am.
• The budget was sent to the court on Monday 24th August 2015, but not until 4.45 pm.
• On the 24th August 2015 the claimant also made an application for relief from sanctions.

THE HEARING BEFORE THE DISTRICT JUDGE

The District Judge refused the application for relief from sanctions. The delay was 7 days which was, the judge considered, “serious and significant”. She accepted the explanation given and was a genuine mistake and not a disregard of court rules.  However relief from sanctions was refused.

THE APPEAL TO THE CIRCUIT JUDGE

The Circuit Judge considered the high burden on a party seeking to appeal the exercise of a discretion.

THE ARGUMENTS ON APPEAL: WAS THIS A “MATERIAL BREACH”

The Judge reviewed the case law in Mitchell, Denton and many of the subsequent cases, in detail. (The links to the cases referred to have been added for ease of reference).

19. “It is convenient here to note the other reported cases upon which Mr Exall relies in support of his submission that the failure by the Claimant’s solicitor to serve, within the requisite timescale, a costs budget should not have, in the context of this particular case, been deemed to be a “serious and significant” breach.

20. Azure East Midlands Limited v Manchester Airport Group Property Developments Limited [2014] EWHC 1644 (TCC) is another case involving a failure to serve a costs budget on time – in that case by two days. Decided before the Court of Appeal case of Denton, His Honour Judge David Grant found that the Claimant’s initial failure in missing, by two days, the requirement to file and serve a costs budget 7 clear days before a case management conference was, or had become – in the context of the facts of that particular case – no more than an insignificant failure given that the court was considering a party’s costs budget not at the first, but at the second hearing of the case management conference with the additional passage of time having diluted any impact or effect of the initial delay. The learned judge commented on the relevance of the interrelation between the breach, i.e., the non-compliance on the one hand, and its consequences on the other hand and found that the non-compliance or breach in that particular case was trivial and/or insignificant and/or inconsequential.

21. Long v Value Properties Limited (2014) EWHC 2981 (Ch) involved the late (by some 5 weeks) service of further information required by CPR PD47.32.7 (the Costs Practice Direction) of information to supplement a detailed bill of costs served in detailed assessment proceedings. The judge, Barling J, in allowing the Claimant to appeal against sanction, noted that the Master had found that there was no significant prejudice to the Defendant’s, or to the efficient conduct of the assessment proceedings at proportionate costs, or to the court or to other litigants as a result of the breach.  He went on to state, at paragraph 71 of his judgment :-

“In my view when looked at in its context as discussed above, the breach here is properly regarded as “insignificant” and therefore “trivial” as those expressions are understood in the light of the guidance in Mitchell (see in particular paragraph 40 of the Judgment of the Court of Appeal in that case).  For the same reasons I consider the breach to be neither serious nor significant in the terms of the Denton guidance.  It is clear that in view of the concession the judge did not receive the assistance he should have received in regard to the meaning of “triviality”.  His instinct was to hold that the breach was trivial but he appears to have fallen into the error by attaching insufficient weight to the circumstances surrounding the breach as well as to the absence of any significant prejudice of any kind to anyone.  “

22. The issue was considered by the Court of Appeal again in Altomart Limited v Salford Estates (No. 2) Limited [2014] EWCA Civ 1408, a case concerning a delay of approximately 5 weeks in the filing of a Respondent’s Notice of Appeal. The Notice should have been filed by 24 March 2014.  Although Altomart’s case was fully set out in a skeleton argument filed on time on 22 April 2014 the Respondent’s Notice was not in fact filed until 29 April 2014, the relevant appeal having been set down for hearing on 10 or 11 November 2014.

23. Moore-Bick, LJ delivering the judgment of the court reviewed the Mitchell principles, as qualified and explained by Denton stated (at paragraph 19):-

“More recently the rigour of the decision in Mitchell has been tempered by the decision in Denton.  In that case the court recognised that Mitchell had been the subject of criticism and, while holding that the guidance it provided remain substantially sound, sought to explain in rather more detail how it should be interpreted and applied.  In doing so it identified three stages of enquiry: (i) Identifying and assessing the seriousness and significance of the default which engages Rules 3.9; (ii) Identifying its cause; and (iii) Evaluating all the circumstances of the case, including those specifically mentioned, so as to enable the court to deal with the application justly.  The court clearly contemplated that if the default is not serious and significant, relief is likely to be granted.  For these purposes a default which does not disrupt the progress of the litigation or the business of the court more generally may well not be regarded as serious or significant.  The court did not consider it appropriate to elaborate on the second stage, given the range of circumstances likely to arise.  One of the most significant aspects of the decision, however, is to be found in paragraph 31, in which the Master of the Rolls makes it clear when dealing with the third stage that, even if there is a serious and significant default for which no good reason can be given, the application will not automatically fail.  Although the factors mentioned in Rule 3.9 are of particular importance, they are not of overriding significance”.

24. Moore-Bick LJ went on (at paragraph 22 of his judgment) as follows:-

“Applying the Mitchell principles as expanded in Denton, the first question for consideration was the seriousness and significance of the breach of the Rules which had given rise to the need for the application.  In terms of the lapse of time the delay was considerable, but it was clear that it was likely to have had little, if any, effect on the course of the proceedings.  Neither party suggested, for example, that it would lead to an adjournment of the hearing and there was no reason to think that the need to allow additional time for argument would be likely to interfere with the court’s other business.  In those circumstances I did not think that the delay could properly be regarded as serious or significant in the sense in which those expressions were used in Denton.  That suggested that relief should probably be granted: see Denton, paragraph 28”.

The learned Lord Justice went on to observe that :

“since the delay itself had had no real effect on proceedings and had caused to substantive prejudice to Salford, (he) did not consider that to be of great significance ….there was nothing else in its conduct of the proceedings or in the circumstances more generally that militated against granting relief and it would not have been appropriate to refuse relief simply as a punitive measure ……”.

25. Finally Mr Exall draws the court’s attention to the case of Joshi and Welch Limited v Tay Foods, a decision of Green J of 2 December [2015] EWHC 3905 (QB) a case in which the Claimant/Appellant successfully appealed an order for judgment entered upon a counterclaim to proceedings, the Claimant having failed to serve a formal defence to counterclaim, although its detailed position in relation to the counterclaim advanced by the Defendant had been comprehensively dealt with in a witness statement already served. Green J, in quoting extensively from paragraph 26 of the Denton case, observed (at paragraph 27 of his own judgment):-

“in my judgment, the Court of Appeal was, at least in some degree, endorsing a test of materiality as a useful guide in determining the seriousness and significance of a violation.  Of course, the other side of the coin has to be acknowledged.  Rules exist for a good reason.  Non-observers can create adverse ripple effects in the administration of the court service which litigants are rarely cognisant of ……..However whilst in no way under-playing the importance of observance of the rules in Denton, the Master of the Rolls and Vos, LJ were, at the end of the day, anxious to emphasise the CPR was not to be used as a tripwire …..”

26. He continued (at paragraph 29):-

“….the Master of the Rolls and Denton in paragraph 38 reminded judges that ultimately proportionality and justice need to be borne in mind.  In my view, it was neither proportionate nor just to order default judgment in circumstances such as these.  The judge should have held that the violation was wholly technical and exerted no impact at all upon the proceedings and caused no prejudice or harm to the Counterlaimant.  He should then have drawn the inference from these findings of fact that the test for refusing relief in Denton limb 1 was not met.  I therefore conclude in relation to Denton limb 1 the judge erred …..”

27.Mr Exall distinguishes the Mitchell case – where the sanction prescribed at CPR 3.14 for the failure to serve a costs budget on time was upheld by the Court of Appeal – on the basis that in that case the late filing of the budget was such that the court was not in position to proceed with the costs and case management conference.  Neither had the Claimant made an application for relief from sanction.  This necessitated an adjournment and the Master, in order to facilitate the application for relief within a reasonable time, was obliged to vacate a half day appointment which had already been allocated to Claimants pursuing asbestos-related industrial disease claims.

            Mr Exall observes that there was no comparable “knock on” effect to the court timetable in this case.

28. Mr Exall submits that, against the background of the line of authority referred to above, the failure by the learned District Judge to address properly the materiality and significance of the breach in failing to serve the costs budget within the prescribed time period led her to err in her approach.  He is particularly critical of the learned District Judge’s observation at paragraph 5 of her judgment where she states:-

“It is my view that a 7 day delay in filing a costs budget, bearing in mind the provisions of CPR 3.14, is serious and significant and the consequences, in my view, do not alter that characterisation of the nature of the breach”.

            Mr Exall submits that what the learned District Judge should have said in terms is “is this a material breach?”, and not to do so amounted to an error in approach on her part.

29. Finally, Mr Exall listed all those other features of the claim which a more nuanced evaluation of “all the circumstances of the case” as advocated at paragraph 38 in Denton would have pointed towards relief from sanction: namely that the litigation could be conducted efficiently, at proportionate cost and without being adversely affected by the Claimant’s failure to serve a costs budget on time; that the application for relief had been made promptly; that there had been no previous breach in the proceedings; that the District Judge could have proceeded to assess the costs budget in any event; and that the Claimant’s solicitor’s mistake was an isolated one and due to a genuine breakdown of communication.

30. Ms Shah, for the respondent, emphasised the points made in the skeleton argument drafted by Mr Hogan of counsel: notably at paragraphs 23-29 of the skeleton; the significant hurdle faced by the appellant in any attempt to challenge the exercise of judicial discretion set out at paragraphs 34 and 35; and what is said in relation to the alleged misdirection in law (38-47), and the relevance of, and weight to be attached to specific factors (48-54).

31. She submitted that there was no error of law demonstrated by the learned District Judge’s approach to the evaluation of what amounted to, in the circumstances, a breach which was properly described as “serious and significant”.  The characterisation or classification of a breach in these terms does not, submitted Ms Shah, require consideration of the consequences of the breach under consideration.

32. It was, she submitted, a question of degree – the margin of default in serving the costs budget, in this case 7 days, should be contrasted unfavourably with those reported cases involving a failure to serve a costs budget on time  in which relief from sanction was granted –  45 minutes in the Utilise case (reported within the Denton decision), and 2 days in the Azure East Midlands case. The margin of default in this case, submits Ms Shah, entitled the learned District Judge to classify the breach as “serious and significant”.

33.In these circumstances, she submits, the emphasis at CPR 3.9 (1) (b) – the need to enforce compliance with rules, practice directions and orders – weighs heavily against the Claimant.

34. When pressed she could not identify any other factor beyond the breach itself and the period of default to weigh in the scales against the claimant, save perhaps the “chasing” communications from the Defendant solicitors on 29 July and 13 August 2015 – although this point  is of limited weight in my view, given the learned District Judge’s acceptance that there had been a genuine breakdown in communication between the two fee earners at the Claimant   solicitors whereby each of the fee earners genuinely believed the other was attending to the filing and service of the costs budget.

35.  Certainly there was no suggestion advanced by the Defendant, either before the District Judge, or on appeal, that the failure to file and serve the costs budget on time had caused, or would occasion any prejudice to the Defendant. Indeed the District Judge, at paragraph 4 of her judgment referred to the Defendant’s neutrality in relation to the relief from sanction application.”

THE JUDGE’S CONCLUSION: THE ABSENCE OF A “MATERIAL BREACH” WAS A SIGNIFICANT FACTOR

 “36. In my judgment, there is considerable force in Mr Exall’s submission that the learned District Judge erred in her approach in rejecting, (at paragraph 5 of her judgment), the suggestion that a consideration of the consequences of the Claimant’s breach, (or, more accurately, the absence of any consequences in the sense of an adverse impact on the further conduct of the index litigation, efficiently and at proportionate cost and without any “knock on” disruption to litigation generally), should be a factor to take into account in categorising the nature of the breach.

37It appears that, in relation to the First Stage in the three stage test propounded by Denton, the learned District Judge failed to consider materiality at all, alternatively whether it would be the most appropriate measure of defining or classifying the breach as “serious or significant” – this despite the guidance of the Court of Appeal both in Denton and Altomart.

38. Having had the opportunity to review at length all the various authorities put forward for consideration – an opportunity which the learned District Judge clearly did not have – and applying the test of materiality, I do not consider on the facts of this particular case that the Claimant’s breach can fairly be categorised as “serious and significant” in the sense in which that term is used in the reported case law.

39 Neither, again, on the facts of this particular case, can I identify any more appropriate basis upon which to evaluate the test of “serious and significant”, other than by reference to materiality. In those circumstances, and having regard to paragraph 28 of the Court of Appeal’s decision in Denton, relief from sanction should be granted.

39. If I am wrong about that, and it is adjudged that the learned District Judge was entitled to treat the breach in this case as “serious and significant” in the sense in which the term is used in Denton, then she should have  given consideration to whereabouts, upon the scale of seriousness and significance ,this case properly lies. This exercise is clearly contemplated by paragraph 26 of Denton which states that the “…the concepts of seriousness and significance are not hard-edged and that there are degrees of seriousness and significance…”.

40. If the breach in this case is properly classified as “serious and significant”, then in my judgment, it must fall towards the bottom of any applicable scale or range. 

40. As for her consideration of “all the circumstances of the case”: the only factors which could sensibly count against the Claimant are those identified by the learned District Judge at paragraph 8 of her Judgment , where she refuses to grant relief  “…given the clear rule and the 7 day delay involved, the need to enforce compliance with rules, practice directions and orders…”.

41. In my view , such considerations are heavily outweighed by the various factors already identified in paragraph 29 above and which point  in favour of relief being granted: that the litigation could be conducted efficiently, at proportionate cost and without being adversely affected by the Claimant’s failure to serve a costs budget on time; that the application for relief had been made promptly; that there had been no previous breach in the proceedings; that the District Judge could have proceeded to assess the costs budget in any event; and that the Claimant’s solicitor’s mistake was an isolated one and due to a genuine breakdown of communication.

42. In these circumstances – whilst I am conscious of the scope of the learned District Judge’s discretion, and mindful that I cannot simply substitute my own decision for hers, I nonetheless consider that the threshold identified by Lord Woolf MR in Phonographic Performance Limited has been crossed, and a fair and proper balancing of the relevant factors clearly points in favour of the appeal being allowed.

43. For the reasons set out above, I would allow the appeal and set aside paragraphs 1 and 2 of the order of District Judge Harrison. I would also allow the Claimant the costs of and incidental to the appeal, but would leave paragraph 10 of the learned District Judge’s order undisturbed.”