DEFENDANTS FAIL TO HAVE DEFAULT COSTS CERTIFICATE OF US$3 MILLION SET ASIDE: DRAFT POINTS OF DISPUTE NOT AVAILABLE AT THE APPLICATION

In  National Bank of Kazakhstan & Anor v The Bank of New York Mellon SA/NV, London Branch & Ors [2021] EWHC B7 (Costs) Costs Judge Rowley refused an application by the defendants to set aside a default costs certificate.  This judgment shows the need for speed when a party is served with a Notice of Commencement.  Further it shows the total lack of wisdom in seeking to have a certificate set aside without having points of dispute to hand at the application itself.

” the absence of any points of dispute, or even some outline of the points to be taken, leaves me with no indication of what purpose the detailed assessment hearing will serve save for the trite point that at any detailed assessment some costs are likely to be reduced. That point cannot be an answer to a failure to serve points of dispute originally as otherwise these applications would indeed be a rubberstamping exercise.”

THE CASE

The claimants served Notice of Commencement of detailed assessment proceedings on the 15th December 2021.  No points of dispute were served and the claimants entered a default costs certificate for US$3 million. The defendants’ solicitor wrote “in robust terms” stating that the claimants should agree to the certificate being set aside. The claimants declined and the defendants made an application to set it aside.

THE LAW RELATING TO SETTING ASIDE A DEFAULT COSTS CERTIFICATE

The judge considered the law relating to entering, and setting aside, a default costs certificate.

1. 1. According to CPR 47.9, the claimants were entitled to file a request for a default costs certificate in the absence of being served with any points of dispute by the end of 21 days after the date of service of the notice of commencement. That period ran out on 5 January 2021 and consequently a request for a default costs certificate was made in accordance with CPR 47.11.

1. 1. It is not disputed that the claimants were entitled to obtain a default costs certificate. As such, the relevant rule regarding applications to set aside such a certificate is CPR 47.12(2):

(2) …the court may set aside or vary a default costs certificate if it appears to the court that there is some good reason why the detailed assessment proceedings should continue.

1. 1. Paragraph 11 of the Practice Direction to Part 47 (“PD47”) provides further information in respect of applications to set aside default costs certificates. In particular, paragraph 11.2 says:

(1) An application for an order under rule 47.12(2) to set aside or vary a default costs certificate must be supported by evidence.

(2) In deciding whether to set aside or vary a certificate under rule 47.12(2) the matters to which the court must have regard include whether the party seeking the order made the application promptly.

(3) As a general rule a default costs certificate will be set aside under rule 47.12 only if the applicant shows a good reason for the court to do so and if the applicant files with the application a copy of the bill, a copy of the default costs certificate and a draft of the points of dispute the applicant proposes to serve if the application is granted.

1. 1. If a default costs certificate is set aside, paragraph 11.3 of PD47 draws attention to the entitlement of the costs judge to exercise the power of the court to make an order under rule 44.2(8) to order a party to pay an amount on account of costs before they are assessed even though the costs judge did not make the original order for costs.

Does Denton apply?

1. 1. The test in CPR 47.12 clearly requires the applicant to demonstrate a good reason for the detailed assessment proceedings to continue rather than to be curtailed by the summary effect of a default costs certificate. The all-pervading influence of the overriding objective and the need for a defaulting party to seek relief from the sanction of an adverse judgment has led to the question of whether the Court of Appeal’s guidance in Denton v TH White Ltd [2014] EWCA Civ 906 adds to the test in CPR 47.12. There has not been, to my knowledge, an authoritative decision on this point but it appears to be generally accepted that, at the very least, the three stage Denton test provides some structure in coming to a conclusion as to whether a good reason has been demonstrated.

1. 1. In this case, as with many, there is in fact very little difference between simply considering whether there has been a good reason and considering whether it would be just in all the circumstances to allow the detailed assessment proceedings to continue i.e. applying the third stage “all the circumstances” test from Denton. I say this because:

i) There is no doubt in my mind that the failure to comply with the time limit for serving points of dispute is a serious breach of the rules and it clearly has a significant consequence on the paying party who is, absent relief, prevented from taking any further steps to challenge the receiving party’s bill (Denton stage 1).

ii) There is no good explanation for the breach. There was simply an oversight which cannot be a good reason (Denton stage 2).

1. It was said by Jamie Carpenter QC, counsel for the Stati parties, that the oversight was not a deliberate act of refusing to deal with the proceedings that had been received but was simply accidental. Roger Mallalieu QC, counsel for the claimants’ challenged that description, but it seems to me that it is of limited, if any, relevance. It is obviously not a good reason for a professional person to overlook something required by the rules to be completed in a specific period of time. Consequently, all hangs on the third stage of the Denton test namely, whether it is just in all the circumstances to exercise the court’s discretion in the applicants’ favour?

THE EXERCISE OF THE DISCRETION IN THE CURRENT CASE

The judge refused the defendants’ application.  The application to set aside may have been made promptly but points of dispute were not available at the hearing itself.   The Practice Direction indicates that points of dispute should be served and the judge was not over-sympathetic to an argument that this was only a recommendation rather than a requirement.

Discussion and decision

1. 1. The onus of the application is on the defaulting paying party to demonstrate a good reason why the detailed assessment proceedings should continue. Amongst other things, the overriding objective requires the court to enforce compliance with rules and practice directions as well as to allocate an appropriate share of the court’s resources to any particular case. Given those objectives, it cannot be the case that applications to set aside default judgments will be granted as little more than a rubberstamping exercise. Engagement with the court process is required to demonstrate that further court resources should be available in the future, if required, for a full detailed assessment hearing. A bill of this size would require probably two or three weeks of court time to assess.

1. 1. The delay in dealing with the notice of commencement by Mr Dzhazoyan between 15 December and 6 January is not a matter for me to take into account in my deliberations since that is the cause of the default costs certificate in the first place. Having been alerted to the existence of the certificate, promptness is then required, as with all applications for relief from sanctions, and as is specifically mentioned in the practice direction directly relevant to this application. I accept that Mr Dzhazoyan acted promptly in writing to Ms Gillett in the hope of setting aside the certificate by consent. I also accept that, having received a rejection of that request, Mr Dzhazoyan’s application was filed with the court promptly, given the detailed witness statement produced to support the application. Some of that detail has proved, upon reflection, to be unnecessary but that ought not to attract any serious criticism.

1. 1. Regrettably, the same promptness cannot be glimpsed in Mr Dzhazoyan’s efforts to produce draft points of dispute. I agree with Mr Mallalieu’s comment that in the absence of any in-house expertise, it ought to have been apparent that external assistance would be required. Strictly speaking, that ought to have been apparent in the middle of December when Mr Dzhazoyan was becoming familiar with the documents. But, for the purposes of this decision, I take that realisation to be expected on 6 January 2021 following receipt of the default costs certificate. I have set out earlier in this judgment the relevant paragraphs of Mr Dzhazoyan’s witness statement concerning the instruction of Overtons. It does not make good reading.

1. 1. In the ordinary course of detailed assessment proceedings, a paying party has 21 days in which to prepare points of dispute. That period of time (taken as starting on 6 January 2021) would have elapsed before the costs lawyers had received the full papers at the speed with which the paying parties acted in this case. Having received a default costs certificate, I would have expected the speed of instruction of costs lawyers to have increased rather than decreased.

1. 1. Moreover, I would have expected any litigation firm to have links with external costs lawyers so that instructions could be sent immediately. In these days of costs budgets and Costs and Case Management Hearings, the interplay between cost lawyers and instructing solicitors goes far beyond the traditional instruction of a cost draftsman to prepare a bill (or points of dispute) at the end of a case when the substantive proceedings have concluded. It may be that the “several days” required to instruct Overtons was a result of the clients taking time to provide instructions to KSI but, whatever is the case, a period of nearly a fortnight just to instruct a costs lawyer in these circumstances does not suggest any urgency.

1. 1. Matters, if anything, deteriorate in the events recorded at paragraphs 23 and 24 of Mr Dzhazoyan’s statement. Taking a (further) fortnight to produce a data file in what is a common format for emails in Outlook is surprising. Describing it as a “slight delay” is euphemistic and the reason given for the delay of there being an internal governance issue is both surprising and unconvincing. In circumstances where some criticism of KSI might be levied – since that is always a possibility where a default judgement has been entered – it might be thought that priority would be given to any necessary internal approvals being obtained. But in any event, as I have indicated above, the use of external costs lawyers to produce costs budgets et cetera is commonplace and the idea that “this type of data” was somehow particularly sensitive in terms of the firm’s policies and procedures so that it could not be shared with external costs lawyers is not an impressive explanation at all.

1. 1. The absence of points of dispute have inevitably hampered the arguments which Mr Carpenter could deploy. He pointed out that the requirement for draft points of dispute to be attached to the application notice was only a general rule and not a requirement. Furthermore, it was only a general rule referred to in the practice direction and not in the rule itself. As I have recorded above, he also submitted that if it was reasonable for an applicant to issue an application without appending draft points of dispute, there was no requirement for draft points to be produced in time for the hearing.

1. 1. Mr Carpenter is obviously correct regarding his description of the need for draft points of dispute as being only a general rule, but I do not accept that compliance with paragraph 11 is somehow time limited in the way that he submitted.

1. 1. Where there are large bills of costs, it will often be the case that points of dispute cannot be produced quickly enough to be exhibited to an application notice that is issued promptly. If Mr Carpenter’s submission is correct, it would mean that the court would regularly expect to see draft points of dispute in smaller cases and not the larger ones. That does not seem attractive to me and I do not see that paragraph 11.2 should be construed in that way. The wording of the paragraph to my mind is very largely aimed at the court hearing the application. That is particularly so in respect of 11.2(2) and also in 11.2(3) for the need to consider the good reason being put forward. That consideration is expected to take place with the benefit of the evidence, the bill and the draft points of dispute to hand. In the normal way, the evidence and documents will be appended to the application notice, but where that cannot happen, it should be provided in time for the hearing.

1. 1. Whilst it is true that a general rule may not apply in a particular case, the assumption is that it will do so absent a case specific reason. In the light of the views I have expressed when looking at the speed of instructing Overtons, I do not consider any case specific reasons to have been made out.

1. 1. In my view, the need for points of dispute, in some shape or form, is fundamental to the prospects of setting aside the default costs certificate in most cases. Unlike setting aside a default judgment, the paying party in detailed assessment proceedings has already been found to be liable to the receiving party by virtue of the order for costs on which the bill is based. The detailed assessment proceedings are essentially a matter of quantifying that liability. Some of the challenges to the bill of costs may be fundamental to whether any costs are payable, but mostly the challenges will be about the extent of the costs claimed. In the absence of points of dispute setting out either fundamental or quantum challenges, the court has no precise information about what a detailed assessment hearing, if the proceedings were allowed to continue, would involve.

1. 1. As was demonstrated here, the lack of any points of dispute left only the general submission that upon a detailed assessment bills of costs are usually reduced and the most general of comments from the costs draftsman that the costs claimed appeared to be excessive given the nature of the case and the limited documents disclosed. Mr Mallalieu was entirely right to be dismissive of the first point since there would be no benefit in the default costs certificate procedure if the certificate could always be set aside by a party simply saying that they expected to reduce the costs on assessment.

1. 1. As far as the second point is concerned, if meaningful points of dispute could not be drafted in time, there could undoubtedly have been a witness statement from Mr Vickery, or even some other document produced by him, to give an indication of the nature of the points he was expecting to take. Mr Dzhazoyan’s seventh statement was produced on 10 February 2021, six days after receipt of Ms Gillett’s witness statement and the full file of papers having been received by Overtons. They had had some papers since 19 January and the comments given to Mr Dzhazoyan and recited at paragraph 17 above on a significant bill of costs shed no light on any matters of substance to be raised at a detailed assessment. This is not meant to be a criticism of Overtons specifically as I am in no position to ascertain whose decision it was simply to put forward the broadest of comments in Mr Dzhazoyan’s witness statement. The result however was that Mr Carpenter was left with no ammunition when Mr Mallalieu made the inevitable point that there was nothing of any substance before me as to why detailed assessment proceedings should continue.

1. 1. As I have said, the absence of any points of dispute, or even some outline of the points to be taken, leaves me with no indication of what purpose the detailed assessment hearing will serve save for the trite point that at any detailed assessment some costs are likely to be reduced. That point cannot be an answer to a failure to serve points of dispute originally as otherwise these applications would indeed be a rubberstamping exercise. The court’s duty to enforce compliance with rules and practice directions requires a defaulting party to act promptly when seeking relief from sanctions and to provide material on which the court’s discretion may be based. In my judgment, the Stati parties have failed to act with sufficient promptness so as to be able to set out any putative case in the detail expected at the hearing of such applications and, upon analysis, such actions as have been taken do not weigh sufficiently in the balance to grant relief in the circumstances. Consequently, I dismiss the Stati parties’ application to set aside the default costs certificate.