COST BITES 96: A “REPLACEMENT” BUDGET WAS SERVED LATE: RELIEF FROM SANCTIONS GRANTED

In Henderson and Jones Ltd v Stargunter Ltd & Anor [2023] EWHC 1849 (TCC) Neil Moody KC (sitting as a High Court Judge) considered whether a formal application for relief from sanctions was needed in a case where a party served an inadequate costs budget and a “replacement budget” out of time. On the facts of this case relief from sanctions was granted. The claimant argued that seeking relief, without making a formal application was “cavalier”, it was held that a formal application was not necessary, evidence in support having been filed.

“… it was not argued before me that there had been a history of default in this case and, on the material I have seen, this was an isolated breach. Standing back and looking more broadly at all the circumstances, I accept that Stargunter made clear its intention to seek relief reasonably promptly, and that the mistake was an isolated and unintentional one, due in large part to IT difficulties rather than any deliberate non-compliance with the rules.”

THE CASE

A Case and Costs Management Conference was heard on the 7th July.  The first defendant filed a costs budget in time, but it was materially incomplete. The first defendant then served a “replacement” budget but this was served five days late.  The first defendant filed a witness statement in support of an application for relief from sanctions but did not make a formal application.  The judge considered, and allowed, the first defendant’s application for relief from sanctions.

THE ABSENCE OF A FORMAL APPLICATION FOR RELIEF FROM SANCTIONS

The judge held that a formal application was not necessary and he could hear the application.

1. 1. As I have indicated, no formal application for relief from sanctions has been served, but Henderson relies on the witness statement from Mr Gwillim. I accept his evidence.

Is a formal application for relief required?

1. 1. Mr Monro Morrison, who appeared for Henderson, submitted that a formal application was not required. He relied upon the notes to the White Book at 3.14.2 and which state:

“A party in default of r.3.14 need not make a separate application for relief from sanctions under r.3.9. Instead, it may seek to invoke the saving provision in r.3.14 itself (‘unless the court otherwise orders’) by seeking to persuade the court to adopt that course at the hearing convened for cost management purposes. This saving provision gives the court an express power to disapply the sanction which is additional to the power it has under r.3.9. Whichever application is made, the court should apply the three stage test set out in Denton v. TH White [2014] EWCA Civ 906… There is an important difference between these two applications: on an application for relief from sanctions under r3.9, the starting point should be that the sanction has been properly imposed and complies with the overriding objective (Denton at [45]); however, on an application under r.3.14, the court is not required to take that starting point unless there has been a prior judicial decision to that effect (Page v RGC Restaurants Ltd [2018] EWHC 2688…)”

1. 1. In Page Walker J held at [136]-[138] where a party had failed to serve a budget in accordance with the rules, the court was required to consider whether the sanction in rule 3.14 should be disapplied.

1. 1. Mr Churcher, who appeared for Stargunter, relied on Park v Hadi [2022] EWCA Civ 581 to the effect that the application should be made by application notice. In that case the Court of Appeal held (at [49]):

“An application for relief from sanctions should be made (and usually is made) by a Part 23 application notice supported by a witness statement. It is, however, clear that the court has the discretion to grant relief from sanctions in two situations: where (as in the present case) no formal application notice has been issued, but an application is made informally at a hearing; or where no application is made, even informally, but the court acts of its own initiative. The discretion must of course be exercised consistently with the overriding objective. The court, therefore, should initially consider why there has been no formal application notice, or no application at all; whether the ability of another party to oppose the granting of relief (including, if appropriate, by the inducing of evidence in response) has been impaired by the absence of notice; and whether it has sufficient evidence to justify the granting of relief from sanctions (though the general rule in CPR rule 32.6 does not impose an inflexible requirement that the evidence be in the form of a witness statement). It follows, from the need for those initial considerations, that the discretion will be exercised sparingly… If, however, the initial considerations lead to the conclusion that relief might justly be granted, the court will then go on to follow the Denton three stage approach…”

1. 1. Mr Churcher did not oppose Stargunter seeking relief without having first made a formal application, but he submitted that Stargunter’s approach was “somewhat cavalier”.

1. 1. In my judgment the White Book notes are correct and a separate application for relief is not necessarily required where the defaulting party seeks to invoke the saving provision under CPR 3.14. This is clear from a plain reading of the words of the rule and is supported by the decision in Page at [136]-[138]. However, I would in any event hold that, pursuant to the discretion explained at paragraph 49 of Park, I may consider Stargunter’s application without a formal application notice having been issued. I reach that conclusion because (a) Stargunter reasonably relied upon the notes in the White Book; (b) evidence in the form of a statement from Mr Gwillim was served in support of Stargunter’s position; (c) that statement discloses material which would arguably justify relief from sanctions; (d) Henderson have not been prejudiced by the absence of a formal application notice in that they have been able to respond to the application by written submissions served in advance and oral argument before me; and (e) Henderson did not oppose Stargunter adopting that approach.

THE DENTON TEST CONSIDERED

The Denton factors were then considered.

1. It was common ground that, if I allowed the application to proceed, I should apply the three-stage test in Denton, and I turn to this next.

The Denton test

1. 1. The test in Denton v. TH White Ltd [2014] EWCA Civ 906 is too well known to require extensive citation here. Suffice to say that the guidance (see Denton at [24]) requires me to consider whether to grant relief in three stages. First, I must identify and assess the seriousness and significance of the default. Secondly, I must consider why the default occurred. The third stage is to evaluate all the circumstances of the case so as to enable the court to deal justly with the application including the two factors specifically identified in CPR 3.9 and which should be given particular weight: see Denton at [32].

The Parties’ Submissions

1. 1. For Stargunter, Mr Monro Morrison referred me to the notes in the White Book at 3.14.1 which state:

“In Mitchell [2013] EWCA Civ 1537… the failure to file a costs budget in time had caused the cancellation of a hearing in another case and the master’s decision to refuse to grant relief from sanctions was upheld. In other cases, where the consequences of breach were not so material, the late service of a costs budget was held to be neither serious nor significant and relief from sanctions was granted: see for example Utilise TDS Ltd v Cranstoun Davies [2014] EWHC 834 (Ch) (45 minute delay), Azure East Midlands Ltd v Manchester Airport Group Property Developments Ltd [2014] EWHC 1644 (TCC) (two day delay) and Murray v BAE Systems Plc, 22 December 2015 [2016] WLUK 422, unrep HH Judge Peter Gregory, (seven day delay).”

1. 1. As is well known, in Mitchell v News Group Newspapers [2013] EWCA Civ 1537, the claimant failed to serve a costs budget in time and the Court of Appeal upheld the sanction confining the claimant to a budget comprising only the applicable court fees. The guidance in Mitchell was explained and amplified in Denton. It is not necessary for me to set out the Mitchell guidance here.

1. 1. Mr Monro Morrison submitted that the key issue when addressing seriousness and significance was the materiality of the breach; in other words, the effect it had on the litigation. He drew my attention to Azure (supra) and Wain v Gloucestershire County Council and Others [2014] EWHC 1274. These were both decisions of HHJ David Grant sitting as a judge of this court. Both cases pre-dated Denton, and so the judge applied the Mitchell guidance. He held that delays of two days and one day respectively in serving costs budgets were “trivial and/or insignificant and/or inconsequential” in the context of seven-day compliance periods and where there was no material disruption to the Court timetable or prejudice to the innocent party.

1. 1. Mr Monro Morrison also relied on Mott v Long [2017] EWHC 2130 (TCC), a further decision of HHJ David Grant in this court where he decided that a delay of 10 days was serious and significant, but relief was granted because the parties would have been in precisely the same procedural position had the breach not occurred.

1. 1. In BMCE Bank International Plc v Phoenix Commodities Pvt Ltd [2018] EWHC 3380 Bryan J refused to grant relief from sanctions where a costs budget had been filed 14 days late. Mr Monro Morrison sought to distinguish this case on the footing that the delay prevented budget discussion reports from being served in time for costs budgeting to be dealt with at the CCMC thereby necessitating an additional hearing.

1. 1. He also sought to distinguish Lakhani v Mahmud [2017] EWHC 1713 where the Deputy Judge upheld the decision of the County Court to refuse relief despite the fact that the delay was just one day. The point relied upon by Mr Monro Morrison was that, although the delay was short in that case, it had a significant impact on the effective amount of time that was available to the parties because it had already been reduced as a result of Christmas office closures.

1. 1. He therefore submitted that this was not a serious or significant breach because it had had no material impact on the proceedings and caused only minimal prejudice to Henderson (in that they had to serve two budget discussion reports). In particular, the second costs budget was still filed 16 clear days before the CCMC in the context of a 21-day period; the overall cost budgeting process was not delayed; both parties filed and served their Precedent R budget discussion reports more than seven days before the CCMC; and costs management could still take place at that hearing.

1. 1. On the question as to why the default occurred, he referred to the witness evidence of Mr Gwillim and frankly accepted that he could not establish a good reason for the default.

1. 1. When turning to all the circumstances of the case, he submitted that the litigation could still be conducted efficiently, and at proportionate cost. He said the application for relief had been made promptly and in accordance with the procedure contemplated by the notes to the White Book; and that the mistake was an isolated one due in large part to an IT error rather than any deliberate non-compliance with the rules.

1. 1. Finally, he submitted that Henderson’s opposition to the application was opportunistic and should be deprecated by the Court pursuant to the guidance in Denton at [41]-[43].

1. For Henderson, Mr Churcher submitted that the impression given by the first budget was of an unfinished document served in haste to meet a deadline. He pointed out that no explanation was given in correspondence as to why the first budget was incomplete or why a revised budget was served five days later with an “enormous increase” in incurred and estimated costs. He submitted that the default was significant and serious because Stargunter never intended to rely on the first budget which misrepresented their costs; because Mr Gwillim tried to sign a statement of truth which he knew to be inaccurate; and because there was no explanation from Henderson in correspondence as to what had happened. He submits that it was tantamount to an abuse of process. He further says there was no good reason for the breach. On the question of all the circumstances of the case, he submits that Stargunter should be held to their first budget and that this would achieve a “balanced outcome”.

RELIEF FROM SANCTIONS GRANTED

Relief from sanctions was granted. On the facts of this case the first defendant’s defaults were neither serious nor significant, there was no good reason for the breach, however all of the circumstances of the case militated in favour relief being granted.

1. 1. At the first stage, I consider that the breach in this case was neither serious nor significant. I accept Mr Churcher’s points that Henderson seemingly sought to rely upon a defective and incomplete budget and no proper explanation was offered at the time. The (unsuccessful) attempt to sign a statement of truth was thoroughly misguided. However, it would have been obvious to any reasonable litigation solicitor that something had gone seriously wrong with the preparation of Stargunter’s first budget. I consider that, on the facts of this case, a key consideration when assessing whether the breach was serious or significant is whether it had a material effect on the litigation overall in the sense of disrupting the proper progress of the proceedings: see Denton at [26]. The first budget was served on a Thursday and the second on the following Tuesday. The time lost was two clear business days. Henderson served a short Precedent R budget discussion report in response to the first budget and that was wasted work. But there were sixteen days between Stargunter’s second budget and the CCMC. Both parties were able to serve full budgets and budget discussion reports in good time before the hearing, and indeed I was able to proceed to deal with costs management at the CCMC. The only disruption to the proper progress of the case has been the need for argument on the application for relief, and for me to prepare these reasons. But such “disruption” will necessarily occur whenever there is a disputed application for relief, and so that cannot of itself demonstrate seriousness or significance.

1. 1. As to the second stage, in my judgment there was plainly no good reason for the default, and this was frankly admitted by Stargunter. The breach occurred because of inefficiency in Stargunter’s solicitors’ offices. The budget was left to the last minute, the IT systems were inoperable, and the relevant people were not available. That cannot amount to a good reason: see Mitchell at [41] and Denton at [30].

1. 1. Turning to the third stage, and all the circumstances of the case, I note specifically paragraphs (a) and (b) of CPR 3.9(1). As to paragraph (a), in my judgment, granting relief will not prevent this litigation being conducted efficiently and at proportionate cost: see Denton at [34]. I have already referred to the fact that the breach has not disrupted the progress of these proceedings. Furthermore, the costs budgeting exercise I undertook was specifically directed to proportionality having regard to the value of the claim. Nor has the breach had any knock-on effects on other proceedings by taking up additional court resources. As to paragraph (b), I bear in mind of course the need to enforce compliance with the rules and to ensure that the old lax culture is no longer tolerated (see Denton at [34]), but it was not argued before me that there had been a history of default in this case and, on the material I have seen, this was an isolated breach. Standing back and looking more broadly at all the circumstances, I accept that Stargunter made clear its intention to seek relief reasonably promptly, and that the mistake was an isolated and unintentional one, due in large part to IT difficulties rather than any deliberate non-compliance with the rules. Stargunter’s solicitors have subsequently cooperated with Henderson’s solicitors so that directions for the future conduct of this matter have been largely agreed.

1. 1. The first instance authorities cited to me are decisions on their own facts, but I consider that my decision in this case is consistent with the approach of this court in Wain, Azure and Mott. I regard the decisions in Lakhani and BMCE as distinguishable because in both those cases the efficient conduct of litigation was disrupted.

1. 1. Finally, I reject Mr Monro Morrison’s characterisation of Henderson’s opposition to this application as “opportunistic”. Stargunter were clearly in breach of the rules, and they failed to communicate timeously and openly with Henderson as to what had gone wrong. I note that Henderson’s solicitors acted reasonably and co-operatively both when drawing Mr Gwillim’s attention to the date of the CCMC, and also when serving a budget discussion report responding to Stargunter’s second budget. In my judgment, Henderson were entitled to oppose the application for relief.

1. For those reasons, Stargunter’s application for relief from the sanction in rule 3.14 succeeds, and I give permission for Stargunter to rely upon its cost budget dated 20^th June 2023. As I have already explained, the costs management process has been undertaken, and I have ordered the parties to serve revised budgets in light of the adjustments I made.