“THIS IS AN ARCHETYPAL CASE WHERE IT WOULD NOT BE APPROPRIATE TO GRANT RELIEF FROM SANCTIONS”: ANOTHER LATE COSTS BUDGET CASE

The judgment OF Mr Justice Bryan  in BMCE Bank International Plc v Phoenix Commodities PVT Ltd & Anor [2018] EWHC 3380 (Comm) provides, as the judge noted, an archetypal example of the way not to go about cost budgeting, coupled with an example of how not to make an application for relief from sanctions.  The real lessons here are: (i) If you make a mistake own up, admit it and rectify it at once; (ii) don’t attempt to blame the other side; (iii) make an application for relief promptly.  I strongly suspect that the lateness of the application in this case (coupled with the manner in which the defendant’s solicitor attempted to “argue” the case in a witness statement) played a large part in relief from sanctions being refused.  The overreaching lesson, however, is not to ignore a breach and make the application promptly.

“This is an archetypal case where it would not be appropriate to grant relief from sanctions. There was a serious breach without good reason, followed by a very late application to seek relief, and a consideration of all the circumstances demonstrates that it is not an appropriate case for relief. The failure to comply with the rules has prevented the litigation being conducted efficiently and at proportionate cost, there is a need to enforce compliance with the rules of the CPR in relation to costs budgeting, and on a consideration of all the circumstances relied upon it is not appropriate to grant relief from sanctions.”

THE CASE

The claim is a contractual dispute proceeding in the Commercial Court.  It was listed for its first costs and case management hearing on the 19th October 2018.

• Costs budgets were served on the 27th September 2018,
• The claimant served its budget on the 26th Septemebr 2018.
• The defendant served its budget on the 11th October 2018 (att 4.32 pm),
• When the budget was served the claimant pointed out it was served late and reserved their position.

Pausing here we have a budget served late. The first and immediate response should have been to make an application for relief from sanctions. The defendant’s response was to admit the breach and state to the claimant – “your budget was served late too”.  The defendant continued to assert the claimant’s budget was served late. The defendant was wrong.

The defendant further compounded its position. The claimant asked for an explanation of how the defendant asserted the budget was served late.  The defendant promised to revert to the claimant on their assertion, they never did.

• The defendant’s budget was served at a time when the budget discussion report should have been filed.
• The effect of late service by the defendant meant that no budget discussion reports were served. There was insufficient time at the CCMC to deal with the defendant’s budget.

THE DEFENDANT DOESN’T APPEAR VERY CONTRITE…

In accordance with the Commercial Court Guide both parties filed skeleton arguments on the 18th October 2018. However, at no time prior to the 18th October, was any application made by the defendant for relief from sanctions.

• The claimant’s skeleton noted that budgets were served late and stated that any application for the defendant to have its costs budgeted would be opposed.
• The defendant’s skeleton  made no reference to any application by the defendant for relief from sanctions.

THAT EARLY MORNING APPLICATION FOR RELIEF FROM SANCTIONS

At 9.05 am on the morning of the CCMC the court received an application by the defendant from relief from sanctions.  The first the judge knew about that application was when the matter was called on.   The judge then had to read the defendant’s supplemental skeleton argument and the witness evidence in support of the application.

THE EXPLANATION

• The defendant’s explanation for the delay was oversight by the solicitor.   There was no deliberate intention to flout the rules
• The defendant’s solicitors offered to pay, personally, all the costs of any additional applications.
• The defendant admitted there was an error in their assertion that the claimant’s budget was late.

THE JUDGMENT

1. Turning now to the application of the thre stages in Denton v White, and bearing in mind how matters were developed and argued before me orally, Mr Dye, in the course of his oral submission, confirmed to me that he could not submit that the breach was anything other than serious. The failure was, on any view, a serious breach. This was not a case of a near miss. It was not a case of the budget being filed a day late, or indeed, seven days late. It was filed two weeks late, in the context of a time period of 21 days, during which actions are to be taken by the parties, as contemplated by the CPR. I have already drawn attention to CPR 3.13(2) and the fact that where a party files a costs budget then all the other parties, not being litigants in person, must file an agreed budget discussion report, either in Precedent R form or otherwise, not later than the seven days before the first case management conference.

2. So, essentially, all the time that would normally have been taken up prior to the filing of an agreed budget discussion report was taken up by the non-provision of the costs budget. As Mr Walsh has put forward on behalf of the claimant and as Mr Dye does not gainsay on behalf of the defendants, the reality is that even today the claimant is not in a position to deal with the defendants’ costs budget, and so the entirety of the time period for agreeing costs budgets in advance of this CMC has been wasted.

3. It does seem to me, as well, that not only is the breach serious, but it is also significant. The effects of the late service of a costs budget have been such as to cause considerable inconvenience to this court and to other court users. The consequence of the application only being made this morning and at a time when the court day was either about to commence or had already commenced, was that there was no opportunity for this court to consider that matter in advance. It also meant that this court had to rise to consider the witness statement and the supporting supplemental skeleton argument and in addition, it meant that approaching the entirety of the time allocated to the CMC has been spent addressing and giving judgment in relation to the application for relief from sanctions.

4. In this regard, not only has it resulted in the wasting of time today before this court, but the inevitable consequence if relief was granted, would be that there would have to be another CCMC unless matters, of course, were agreed. That causes inconvenience to the court and to other court users. I will return in due course when I get to stage three to the undertakings which are proffered by the defendants, but on any view it cannot be seriously suggested that this was anything other than a serious breach of the relevant rules, and one which I consider to be significant. It was not at the low end of the scale. It was a serious breach.

5. Secondly, in terms of why the failure happened, as Mr Dye has realistically and candidly accepted in his oral submissions before me today, there is no good reason. All that can be said, at most, is that the breach was not deliberate, which would of course have been an aggravating factor, but there is no excuse for what has happened. It is quite clear that what happened was that the solicitor involved in this case, who would have been aware of the need for costs budgeting, not least because a costs draughtsman had already been instructed, took his eye off the ball. That regrettably does happen in life, but it does not amount to a good reason. It is clear that Mr Buchmann was away on business and I refer back to the passages that I have already quoted from both Mitchell and from Denton v White, that however hard pressed solicitors are, there must be compliance with the rules. It seems to me that there was no good reason.

6. Therefore, when one comes onto the third stage, one is already in a position whereby there is a serious and significant breach and the reason why the failure occurred does not amount to a good reason. This is not one of those cases where there has been, for example, illness or other reasons which are a good reason for the delay that occurred. The reason is now known, but that reason is not a good one.

7. Against that background, I turn to the third stage where I must consider all the circumstances of the case, including the factors in CPR 3.9(1) subparagraphs (a) and (b). I also bear well in mind the guidance and approach in Denton.

8. In relation to (a) it is an important consideration that litigation should be conducted efficiently and at proportionate cost. The effects of the failure to file the costs budget in this case have meant that this litigation has not been conducted efficiently. The long and short of it is that only through the goodwill of this court will it be possible to have the CMC this afternoon, which will involve by the time of that CMC being concluded, a very considerable amount of court time in addition to the time that would otherwise have been expended. The consequences of this have an effect not only on the parties in this case, but on this court and other court users. So, that is a factor which weighs in the balance.

9. In relation to subparagraph (b), as I have already identified, and as was not seriously disputed before me, this was a serious breach of a rule and this is a rule which is an important rule, which carries with it its own regime. By that, I mean the default position under CPR 3.14 that 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. No litigant, and certainly no city firm of solicitors, can be in any doubt about the consequences of a failure to comply with the rules as to costs budgeting under CPR 3.14.

10. That brings me onto all the circumstances of the case. One relevant consideration is the circumstances in which the application for relief from sanctions was made. It is clear from the correspondence identified above that, almost immediately after they served their costs budget on the 11^th October 2018, it was pointed out to the defendants’ solicitors that their costs budget was late. The appropriate and proper course at that point would have been to make a prompt application for relief from sanctions. Indeed, one of the points identified in Denton v White as a relevant circumstance to be weighed in the balance is the promptness of the application. In this case, there was not a prompt application for relief from sanctions. As I have identified, in fact what happened was initially a counter attack, which was misconceived, saying that the claimants had not served their costs budget in time, when they had done so.

11. From 11 October onwards the claimants reserved their position. It will be recalled that Mr Colman in his letter on 11 October said at this stage: “I simply reserve my client’s position with regard to late service/filing” and that on 12 October in a further email at 9.06am, he said: “I continue to reserve my client’s rights in respect of late service/filing.” I consider that from 11 October onwards, Mr Buchmann must have been aware that the defendants’ costs budget was served late. It is suggested that the claimants could, it may even go so far as to be suggested the claimants should, have actually spelt out that at the CMC they would take the stance that the defendants’ costs budget should be limited applicable court fees.

12. Whilst a party in the position of the claimant might have drawn attention to that, there is limited force, it seems to me, in the defendants’ submission in that regard, in circumstances where, as Mr Dye accepts, the defendants and their solicitors must be taken to be aware of the rules, the default position as set out at CPR 3.14 and the consequences that follow should no application for an otherwise order be made. It is not a particularly persuasive factor, therefore, that the stance that was taken, and strongly taken, in the claimant’s counsel’s skeleton was not foreshadowed prior to that. I do, however, bear in mind that the first time they gave express notice that the point would indeed be taken, was in the skeleton argument.

13. I have to say though, that I am far from persuaded that following receipt of the claimant’s skeleton argument yesterday, the defendants acted promptly in relation to what then followed. I appreciate that it would have taken time for Mr Buchmann to assimilate and take instructions in relation to the defendants’ response and whether or not to apply for relief from sanctions (which I would have thought was an obvious thing that would have to be done). However, since that decision was taken, and I cannot believe that it would not have properly been taken by sometime yesterday, even if late yesterday, then I do consider in relation to promptness, that the court could at least have been forewarned about the fact that an application was being made and that evidence was being served or about to be served.

14. I say that because at that stage it might still have been possible, for example, to reorganise the court day, so that there was an opportunity to consider the material in advance of the hearing. The hearing could, for example, have been pushed back to the afternoon, instead of which, the fait accompli that has occurred is that the morning, and in reality the entirety of the afternoon, will have been spent on this matter. I consider that this is a further factor going to the lack of promptness of the application.

15. I turn then to the question of the undertaking which was offered by the defendants at paragraph 34 of Mr Buchmann’s witness statement. What is said as part of all the circumstances is that, as a consequence of the undertaking, the claimant will not suffer prejudice (or will at least not suffer as much prejudice as might otherwise have been the case) because the position can be remedied in costs. It is right, as Mr Walsh acknowledged before me, that, to an extent, that goes to mitigate or reduce the prejudice that his clients will suffer, but that is not to say that there is no prejudice that will be suffered by his clients. In addition, as I am going to come onto, there is also the position of the court and other litigants to be taken into consideration.

16. So far as the position of the claimants is concerned, even if the undertaking were to be an indemnification on an indemnity basis in relation to today and any further hearing, that does not mean that no prejudice has been suffered by the claimant. Firstly, and this may not be a very significant point, there is, conceptually at least, a distinction between indemnity costs and solicitor and own client costs. Perhaps more importantly, I am told that the clients within the claimant have attended throughout today and no doubt that they would also wish to attend throughout any subsequent cost management hearing. That does result in prejudice to the claimant in terms of loss of business time which they could spend doing other things for their employer.

17. That is just one aspect of it. Another aspect, and an important one which ties in and chimes with CPR 3.9(1)(a) and (b) is the position of the court and other court users. I have already identified the consequences which occurred as a result of the late application which has inevitably meant, if not derailing this CMC, that the CMC will have to take place later this afternoon and at a time when the court would otherwise have been engaged on other judicial matters. The consequence of that is not only to prejudice today in terms of court time and court resources, but also that scarce court resources would be used in relation to a subsequent cost management hearing, unless all matters were agreed. I consider that that is an important consideration.

18. It is also said, by Mr Walsh on behalf of the Claimant, that if a party seeking relief from sanctions could, as it were, pay costs thrown away with the result that no prejudice is found to be suffered and, in all the circumstances of the case, it would then be just to grant relief, then that would denude the principle that underlies CPR 3.9 of all real effect. It is an important consideration that there should be compliance with rules, practice directions and orders, and although every case is to be considered on its own merits, and with regard to all the circumstances, as I have done in this case, it is important to send a clear and consistent message that there should be compliance with rules, practice directions and orders of this court. That is necessary so that litigation can be conducted efficiently and so that court resources can be used and deployed most efficiently.

19. I reject any suggestion, that the mere giving of the undertaking offered is some form of trump card or weighs so heavily in the weight of the balance of all the circumstances so as to outweigh all other factors. It is a matter that regard is to be had to, as I have done, as part of a consideration of all the circumstances.

When I come to stand back, as I do, having looked at all the circumstances, and having given full weight and account to everything that was said by Mr Buchmann in his witness statement, and by Mr Dye in his supplemental skeleton and orally, and ask myself whether it is an appropriate case for relief from sanctions in all the circumstances of the case so as to enable me to deal justly with the application, I consider that this is a case where there has been a serious and significant breach of the order. Costs budgeting is an important part of case management. It is made clear by CPR 3.14 itself what the sanction is for failure to comply. Failing to comply with the provisions hinders agreement of costs budgets and cost management by the court, it causes delays, it causes inconvenience to the court and it causes inconvenience to the other party and other court users – it is also contrary to the need for litigation to be conducted efficiently and at proportionate cost. This was a case where the deadline was not just missed. It was missed by a very substantial period of time. The breach was serious and significant. There is no good reason in terms of explanation for it, the application for relief was itself not made promptly, and when one considers all the circumstances of the case as part of the third stage, so as to deal justly with the application, I consider that it would be quite inappropriate to give relief from sanctions on the facts of this case.

1. This is an archetypal case where it would not be appropriate to grant relief from sanctions. There was a serious breach without good reason, followed by a very late application to seek relief, and a consideration of all the circumstances demonstrates that it is not an appropriate case for relief. The failure to comply with the rules has prevented the litigation being conducted efficiently and at proportionate cost, there is a need to enforce compliance with the rules of the CPR in relation to costs budgeting, and on a consideration of all the circumstances relied upon it is not appropriate to grant relief from sanctions. Accordingly, and for all the reasons that I have given, I refuse to give relief from sanctions and direct that, pursuant to CPR 3.14, the defendants will be treated as having filed a budget comprising only the applicable court fees.

2. I would only add this. It is important in all divisions of the High Court, not least the Business and Property Courts, that the parties comply with rules, practice directions and orders so that litigation can be conducted efficiently and at proportionate cost. It is also important that parties in commercial litigation before this court cooperate with each other in furtherance of the overriding objective. This means that whilst there may be cases where relief would obviously be granted, and no point is rightly taken, the rules, directions and orders of the court are there to be observed and for good reason. If there is a failure to comply, then an application for relief from sanctions should be made promptly, supported with evidence, after which it will be considered in accordance with CPR 3.9 and the established principles I have identified.