DEFENDANT WHO DID NOT FILE A REVISED COSTS BUDGET COULD NOT (NECESSARILY) RECOVER THE COSTS OF A COUNTERCLAIM

In  Bhat & Anor v Patel & Anor [2021] EWHC 2960 (Ch) Mrs Justice Fancourt held that defendants, who had not filed a revised costs budget, were not entitled to recover the costs of that counterclaim unless a relief from sanctions application was successful.  The issue of whether there had been an agreement to waive budgeting was remitted to the County Court.

 

THE CASE

The judge was determining an appeal in relation to a relief from forfeiture action in relation to a doctor’s surgery. The action had been costs budgeted. The trial judge awarded the defendant of their counterclaim. On appeal it was held that, prima facie, the defendants’ had not complied with an order to file a revised costs budget to deal with the counterclaim. They therefore required relief from sanctions if those costs were to be recovered. The judge remitted the issue of whether there was an agreement to waive non-compliance of the order to the County Court, should the defendants seek to recover the costs of the counterclaim.

THE JUDGMENT ON THIS ISSUE

The judge allowed an appeal in relation to the costs of the counterclaim.  To recover those costs the defendants needed to obtain relief from sanctions in relation to non-service of a revised budget, or a determination of their case that the parties had agreed to waive budgeting.

Costs appeal
    1. The final ground of appeal was that the Recorder had erred in awarding the Patels their costs of the counterclaim, to be assessed. The reason given was that the Patels were in default of a case management order dated 25 September 2020 (“the Order”) requiring them to submit any budget for the costs of the counterclaim by 12 October 2020, and accordingly, subject to any later court order, they are to be taken as having filed a budget comprising only the applicable court fees of the counterclaim: CPR rule 3.14. No such costs budget was submitted and relief against sanctions was not sought.
    1. The Recorder held that the Patels were not in default of a mandatory order to file a costs budget, so that relief against sanctions was not required. In the exercise of his discretion, he allowed the Patels to recover their costs of the counterclaim.
    1. The Bhats appeal on the basis that the Recorder was wrong to interpret the Order as not requiring a costs budget to be filed; that he should have required the Patels to seek relief against sanctions, not merely exercise a broad discretion on whether to award the Patels their costs of successfully defending the counterclaim; and that in any event he was wrong to exercise his discretion to allow the costs of the counterclaim to be recovered.
    1. By the Order, the possession claim and the separate beneficial ownership claim were consolidated, with the possession claim ordered to be the lead claim. The Order was made before the first CMC on the beneficial ownership claim. Directions were given in the Order up to and including listing the trial of the consolidated claim in a trial window. The Court had previously approved costs budgets for the possession claim. Paragraph 9 of the Order states:
“The parties have permission to file and serve updated costs budgets by 12 October 2020 if so advised, to reflect the consolidation of the proceedings. The parties will endeavour to agree their updated budgets and any points of disagreement will be dealt with by the Trial judge.”
    1. In context, that is clearly an order giving the parties the opportunity to file an amended costs budget, to add additional budgeted costs of the beneficial ownership claim, and requiring them to file one by 12 October 2020 if they wished to do so. Otherwise, the parties would be limited to the costs budgets already filed on the possession claim. That is clearly so because, by virtue of the consolidation order, there was to be a costs budget for the consolidated action – an “updated budget”. If no updated budget was filed, the existing budget would be the only applicable budget. To interpret the order in the way contended for by the Patels would have given the parties an option whether to file updated budgets or not, and, if not, the ability to seek to recover costs of the counterclaim without a budget. That is not what the Order means, though I accept that it could have been better expressed.
    1. Since updated costs budgets were not filed within the specified time, the attempt to recover additional costs of the counterclaim should in principle have been held to require the Patels to seek relief against sanctions. There was, regrettably, disagreement between the parties’ solicitors as to whether on 7 June 2021, the day before the start of the trial, they had reached oral agreement to dispense with costs budgets for the counterclaim. That issue was not resolved by the Recorder and, given the terms of the witness statements provided by each side shortly before and even during the consequentials hearing, it could not easily have been resolved on that occasion.
    1. The issues that needed to be addressed were therefore:
a. Did the parties through their respective solicitors agree mutually to waive default in filing costs budgets that included costs of the counterclaim, so that the quantum of any costs of the counterclaim awarded following the trial would be dealt with on an unbudgeted basis?
b. If not, should relief against sanctions be granted to the Patels to allow them to seek to recover costs in excess of the applicable court fees.
If issue (a) were to be decided in favour of the Patels, the Recorder’s decision to award them their costs of the counterclaim cannot be criticised and an award of costs should follow. If Issue (b) were decided in favour of the Patels, the court will have to consider in those circumstances what award of costs should be made.
    1. The Recorder was in my judgment in error in exercising a broader discretion, as if the parties had waived non-compliance with the Order, without making a finding that they had done so. It is not possible for this Court to resolve the issues set out in paragraph 55 above. I will therefore allow the appeal on Ground 4 and substitute an order that the Defendants must pay the Claimants’ costs of the possession claim. An interim payment of £35,568 will be paid within 28 days. The issues in paragraph 55 will be heard by the County Court if the Patels notify that court within 14 days of the order following this appeal that they wish to pursue the costs of the counterclaim.