THE JUDGMENT IN ALI -v- CHANNEL 5 3: WHY A DEFENDANT SHOULD ALWAYS FILE A COSTS BUDGET: A REMINDER OF THE RULES
The final part of this trilogy on the judgment today in Ali & Anor v Channel 5 Broadcast Ltd  EWHC 840 (Ch) shows why the defendant will be kicking themselves for not filing a costs budget. Some defendants are fairly relaxed on this issue, particularly in QOCS cases, however this failure means the Defendant would only recover half its costs, even those costs incurred before costs budgeting took place.
The claimants had failed to beat a Part 36 offer. The defendant, however, had never filed a costs budget. The question was whether the defendant’s costs should be confined to court fees. The Part 36 offer was made on the 27th September 2017. The case was not budgeted until the 19th December 2017.
The consequences of Channel 5’s failure to file or serve any costs budget
As noted above, Channel 5 failed to file or serve any costs budget. In those circumstances, the Claimants contend that Channel 5 should be treated as having filed a budget comprising only the applicable court fees pursuant to rule 3.14, with the consequences specified in rule 36.23(2)(a), namely that Channel 5 can only recover 50% of its assessed costs. Counsel for Channel 5 somewhat tentatively suggested that the Court should make a different order pursuant to rule 3.14. As counsel for the Claimants pointed out, however, Channel 5 neither made any application for relief from sanction nor filed evidence of the kind which would be required to address the relevant factors so as to enable the Court to consider them under rule 3.14 (see Mitchell v News Group Newspapers Ltd  EWCA Civ 1537,  1 WLR 795 at ). In those circumstances I consider that there is no basis for an order disapplying rule 3.14, and therefore rule 36.23(2)(a) applies.
Channel 5 contends that, even if it is subject to the sanction in rule 3.14, and hence the restriction to 50% of its assessed costs in rule 36.23(2)(a), the sanction and restriction do not apply to the period prior to 19 December 2017 when the costs management hearing before took place before Master Shuman. In support of this submission, counsel for Channel 5 submitted that the costs subject to the restriction in rule 36.23(2)(a) were not incurred costs (which were not subject to costs management), but only budgeted costs (which were).
I do not accept this contention for the following reasons. The Court of Appeal held in Mitchell v News Group at  that the sanction in rule 3.14 applied not only where a party failed to file a costs budget at all, but also where a party filed a cost budget after the time prescribed in rule 3.13. In the present case, the parties were directed to file costs budgets by 2 December 2016. The Claimants did so, but Channel 5 did not. Accordingly, at that point in time Channel 5 became subject to the sanction in rule 3.14 unless it obtained relief from that sanction (whether by way of an application under rule 3.9 or an application under rule 3.14 itself). It is immaterial that the costs management hearing did not take place until 19 December 2017. It is true that, at the costs management hearing, Master Shuman could only approve budgets for prospective costs, and not costs which had already been incurred by then. But it would undermine the purpose of rule 3.14 to treat it as having no effect with regard to costs incurred between the date on which costs budgets should have been filed and the date on which the court approved such budgets. This is particularly so given that Channel 5 could have applied for relief from the sanction at that hearing, but did not do so.
A REMINDER OF THE RULES
I think this is the first reported case that deals with the provisions that were put in place on the 6th April 2015.
THE ISSUE THE NEW RULE ADDRSSED
When a party has failed to file a costs budget in time and its costs are limited to court fees only there is little incentive on the opposing part to settle in the face of a Part 36 offer.
THE “NEW” RULE
“Cases in which the offeror’s costs have been limited to court fees
36.23.—(1) This rule applies in any case where the offeror is treated as having filed a
costs budget limited to applicable court fees, or is otherwise limited in their recovery of
costs to such fees.
(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court
fees for failure to file a budget.)
(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—
(a) in respect of those costs subject to any such limitation, 50% of the costs assessed
without reference to the limitation; together with
(b) any other recoverable costs.”
CROSS-REFERENCING AND WHAT IT MEANS
This requires a lot of cross referencing.
(1) 36.13(5)(b) is a reference to where the parties cannot agree the liability for costs and where the court, unless it is unjust to do so, order “the offeree do pay the offeror’s costs for the period from the date of expiry of therelevant period to the date of acceptance”
(2) 36.17(3)(a) is a reference to the costs being ordered to be paid by a claimant to a defendant where a claimant fails to beat a defendant’s offer.
(3) 36.17(4)(b) is a reference to costs ordered to be paid by the defendant to a claimant when the defendant fails to beat the claimant’s offer.
It means, in essence, that a party subject to a nil costs budget can still recover 50% of their fees for the period after a Part 36 offer if the offer is not beaten.
A GOOD PART 36 OFFER MEANS YOU COULD STILL GET HALF YOUR COSTS
This is a clever rule. A party, on a nil budget, can still get half their costs if they make a realistic Part 36 offer and their opponent fails to beat it.This does not undermine the purpose of the sanction (only half the costs can be recovered). It still gives both parties an incentive to settle.
However it highlights the fact that if the defendant had, in fact, filed a budget they would have recovered their costs in full. It is difficult to see a reason for not doing so, even when you suspect teh claimant is impecunious and a defendant will not recover costs even if the action is successfully defended.