RELIEF FROM SANCTIONS REFUSED WHEN THE COSTS BUDGET WAS SERVED LATE: BUDGETING AT TRIAL IS A FAIRLY HOPELESS TASK

There is much to learn from the decision of Mr Justice Ritchie in Tan v Idlbi & Anor [2023] EWHC 2840 (KB). The claimant was unsuccessful in an application for relief from sanctions following late service of the costs budget. In summary: (i) serve the budget on time; (ii) serve the budget properly, at the address given in any court order; (iii) make any application for relief promptly; (iv) make sure that an application for relief is heard well before the trial date.

“the default by the Claimant in failing to serve the budget on time led to an application for relief and should have led to an interlocutory hearing before the trial at which that was decided. In the event, it did not. Instead, it led to no costs budgeting in advance at all. It defeated the object of costs budgeting. This is a weighty factor in my judgment. It was compounded by the Claimant’s failure to get the application listed before trial. It was a waste of time and fruitless for the Court to hear the relief application at trial and, if granted, to budget the costs in arrears for the very trial at which the budget was being considered.”

THE CASE

The claimant brought an action against the defendants for possession  and rent arrears of a rented property. The defendants counterclaimed for alleged losses.  The case was allocated to the Fast Track, but there were multiple hearings and directions.  The defendants were originally represented by solicitors, those solicitors came off the record.   There was an order for a CCMC and for costs budgets to be filed 14 days before the CCMC.

Shortly before the CCMC the defendants solicitors came off record.    The order allowing the solicitors to come off record gave the address for service as the property, the subject matter of the dispute.

The claimants served the costs budget on the defendants, by email, less than 14 days before the CCMC.

The defendants were now litigants in person and not required to file a budget.  The defendants did not attend the CCMC on the 15th December 2022, however the judge noticed that the budget had been served late and made an order that the claimant make an application for relief from sanctions.  The claimants made the application on the 29th December 2022.   The hearing for relief from sanctions was not listed before the trial.  The application was served on the defendants by email.

The claimant was successful at trial in relation to the substantive claim.

However the trial judge did not grant the claimant retrospective permission to serve the defendants by email.  The claimant’s application for relief was also dismissed.

THE HISTORY IN MORE DETAIL

1. 1. On the 31st of October 2022 the Judge heard an application by Messrs Attwells, the Defendants’ solicitors, to come off the record. He granted that application and ordered the Defendants to pay Attwells’ costs of £875. The Order also set out that the Defendants’ new address for service was the property.

1. 1. The Claimant’s costs budget was drawn up and emailed to the Defendants at the e-mail address which the Defendants had used to communicate both with the Court and with the Claimant’s solicitors on the 5th of December 2022 at 16.38 hours. It is a fact that in doing so they had breached the Order of the Judge, dated 22nd August 2022, which required them to serve the costs budget by the 1st of December 2022 (a Thursday). The attempt at service on the 5th was on the following Monday. In addition, they used the wrong method of service. Email was not an agreed method. On the same day the Claimant’s solicitors emailed the Defendants with proposed directions, a case summary and a bundle. E-mail communication took place between the Claimant’s solicitors and the Defendants about difficulties in opening the link to the bundle. No objection was made by the Defendants to the method of service. The costs budget, which had been sent to the Defendants was for £49,982.

1. 1. On the 14th of December 2022 the Defendants applied (by email) to the Court for another adjournment without informing the Claimant’s solicitors.

1. 1. On the 15th of December 2022 the Judge held the costs and case management hearing. The Claimant attended, but the Defendants failed to appear. The Defendants’ application to adjourn was dismissed. As for the Claimant’s cost budget, the Judge adjourned the costs budgeting and required the Claimant to apply for relief from sanctions because the Claimant had failed to file and serve it 14 days before the hearing. This was not because the Defendants had taken the point. It was because the Judge noticed the late service. The trial was to be listed on the first open date after the 1st of February 2023. At that time no one spotted that service by email was not permitted under the Rules.

1. 1. On the 29th of December 2022 the Claimant issued a notice of application for relief from sanctions. Despite a half-hearted attempt by the Defendants, at the appeal before me, to submit evidence that they denied receiving that notice of application, the attempt was withdrawn. The Defendants accepted that the grounds for admission of new evidence on this appeal could not be made out. Therefore, it was not in dispute that the notice of application had been sent by the Claimant to the Defendants by e-mail soon after it was issued and was received by the Defendants.

1. I note that on the 31st of December 2022 the Defendants requested the Court to communicate and send documents by e-mail (not post) to the Defendants.

THE DECISION AT TRIAL

The trial judge held that the application for relief had never been properly served. On that ground, but also after consideration of the Denton criteria, the claimant’s application for relief from sanctions in relation to late service of the costs budget was refused.

1. 1. Without any mention of the long factual matrix background the Judge, at paragraph 15, held that the application for relief from sanction had not been served. The Judge stated that the purported service by e-mail was ineffective under PD6A and that the unsealed copy of the notice of application in the physical trial bundle delivered to the Defendants on the 21st of April 2023, three working days before the trial, could not constitute good service of the application either. The Judge considered this to be “another failure of the case preparation undertaken by the Claimant solicitors.“

1. 1. At paragraph 17 the Judge refused the Claimant’s application for substituted or alternative service on the grounds that no supporting evidence had been provided either in a witness statement or from the witness box. Looking at the chronology I have set out above, the Defendants had not objected to e-mail service at any stage during the proceedings until the trial. The Defendants had asked the Court to communicate by email. The Claimant was unaware of any dispute in relation to service by e-mail before trial. There was no issue raised by the Defendants until the point was taken at trial. The Judge did not take into account or make any mention of the Defendants’ failure to raise this point at an earlier stage or at all until trial and therefore the conclusion that the Claimant’s application for service to be regularised was not supported by evidence was stating the obvious. Until the Claimant was informed that the point had been raised she did not know that she needed to put in a witness statement explaining why her solicitors had served by e-mail, for she did not know that the service point was being taken.

1. 1. The Judge went on to consider the substance of the application for relief from sanctions in case he was wrong about the issue of service. Dealing with the three-stage test applied to CPR rule 3.9 by the Court of Appeal in Denton v White [2014] EWCA Civ 906; [2014] 1 WLR 3926, the Judge ruled that the Claimant’s breach, in failing to serve the costs budget on time, was serious and significant (this was admitted by the Claimant). The Judge next found that there was no good reason for non-compliance because the reasons put forward: (1) human error of the Claimant’s solicitors on dates and (2) delay in counsel’s clerk providing an estimated brief fee, were not good reasons. In particular, the second reason given was not a good reason because the Claimant’s solicitors had only contacted counsel’s clerk at the very last moment. The Judge described the Claimant’s solicitors’ witness statement on the reasons for their breach as “disingenuous”.

1. 1. The Judge then went on to consider the third stage of the test in Denton, which requires the Court to have regard to all of the circumstances in the case and specifically the two factors set out in CPR rule 3.9. At paragraph 23 the Judge specifically rejected the Claimant’s assertion that a relevant factor was that the short period of delay in serving the costs budget (two or three working days). The reason why the Judge rejected that was that he had found that the costs budget had not been served in accordance with the Rules, so he found that it had never been served. The Judge went on to consider the conduct of the parties and in particular the Defendants’ conduct, which he described as “not properly playing the game”, multiple applications to vacate trials and hearings, withdrawing their substantive defences at trial and getting close to behaving in a way which suggested their asserted defences were totally without merit.

1. 1. At paragraph 26 the Judge provided the ratio of his decision on relief from sanctions stating:

“I am not satisfied there is any good reason in the circumstances of this case for granting relief from sanctions.”

In relation to prejudice the Judge provided a postscript in paragraph 27 finding that there was no windfall to the Defendants and that there was unlikely to be a prejudice to the Claimant because:

“I would be very surprised if the Claimant solicitors would seek to recover anything more from her than disbursements.”

THE DECISION ON APPEAL: SERVICE BY EMAIL

On appeal, the trial judge’s decision not to retrospectively allow service of the application by email, was overturned.

1. 1. I take into account that there is a substantial difference between communicating during litigation and service of documents and I take into account that the Rules must be followed by solicitors and parties.

1. 1. The CPR permit an application for regularisation of service to be made ex-parte and/or orally, see Park v Hadi [2022] EWCA Civ 581, a joint Court of Appeal judgment, at para. 49.

1. 1. CPR r.6.15 lays down the requirement that the application must be supported by evidence. The format of the evidence is not prescribed. The Claimant relied upon the fact that the issue was only raised at trial, and relied on the evidence in court file, the trial bundle and the witness statement of Lin Hou. I do not accept in the circumstances that the Judge was right to find that the application was unsupported by any evidence at the hearing.

1. 1. When considering whether the Judge approached the exercise of the discretion to validate the mis-service, I will look at the relevant factors identified from the case law above.

(i) Whether the sender took reasonable steps to bring the documents to the attention of the receiver.

(ii) Whether the documents were actually received by the receiver.

(iii) Whether the receiver thought that the documents were being “served” or not.

(iv) The nature of the documents: were they a claim (perhaps with particulars of claim) which are “bright line documents” or another type of “dimmer line” document?

(v) Whether any prejudice will be suffered by the receiver if retrospective validation is granted.

1. 1. In my judgment the the factors set out above in Serbian weigh overwhelmingly in favour of granting retrospective validation in the circumstances of this case. The steps taken by the Claimant’s solicitors were in breach of the CPR but in my judgment were objectively reasonable. Considering factor (i): the first Defendant had asked the Court to communicate with and hence to serve him by email. He had communicated with the Claimant’s solicitors wholly by email since his solicitors had come off record. He had not objected to service by email of the costs budget. He had taken no procedural point.

1. 1. Considering factor (ii): the application notice document came to the Defendants’ attention in January 2023. In relation to factor (iii): I infer that the 1st Defendant (the 2nd Defendant had gone abroad) considered that he had been served. He knew no better. Turning to factor (iv): the documents were not a claim form, they were not bright line documents, and the Defendants knew that they were in the middle of litigation. I infer that the notice was sealed by the Court because no evidence was put before the Judge to the effect that it was not. In relation to factor (v): the Defendants suffered no prejudice because the notice was received months before trial. They did nothing in relation to the application. This is to be added to the fact that the Defendants did nothing in relation to the costs budget which they likewise received 9 days before the CCMC and to which they did not object. I take into account that balanced against the lack of any prejudice to the Defendants is the substantial prejudice to the Claimant in failing to have regularisation of the faulty method of service.

1. 1. In my judgment, the test in retrospective validation applications is different from the test for granting prospective authorisation by an alternative method. The latter needs good reason which often involves difficulties finding or serving an evasive party. The former involves different matters, for instance: issues about who knows what; justice and proportionality; Court efficiency; litigation efficiency; issues of conduct and prejudice. The Claimant’s solicitors’ failure to serve on the Defendants at the Property, as was required by the CPR, and their mis-service by email, was approached by the Judge through the test of “good reason” but was carried out in my judgment in error. He focussed too much on the Claimant’s witness statement and their poor explanation for the late service of the costs budget and the emailing mis-service of the substantive relief application. The Judge did not set out or consider the relevant factors for the granting of retrospective validation.

1. 1. As for the lack of evidence in support. The Claimant was responding to a procedural point taken at trial which should have been taken straight after the alleged bad service of both the costs budget and the notice of application. The lack of evidence was because the Defendants failed to take the point when they should have done in December 2022 and in January 2023. I accept the submission of Mr Cohen to the effect that the Judge had before him all that was needed to determine whether the efforts to serve should be regularised and a lack of further evidence was not a bar. The witness statement of Lin Hou gave the Claimant’s explanation for the error of late service of the costs budget, albeit poorly, but it did not cover email mis-service because at that time the issue had not been raised. The Judge concentrated on that witness statement ignoring other relevant factors. I consider that the Judge fell into error in relation to the “lack” of evidence in support of the Claimant’s oral application for regularisation and the factors to be considered on retrospective validation.

1. 1. I set aside the Judge’s decision on regularising service.

1. 1. Turning to this Court’s power, on appeal, in relation to post event regularisation of service of the notice of application, I consider it would not be proportionate to remit the issue to the Judge. It can be determined on appeal. I consider that an order should be made declaring that the efforts made by the Claimant to serve the application constituted good service.

1. The service failure in relation to the costs budget was really part of the relief from sanctions application, so I will consider it below.

RELIEF FROM SANCTIONS

However the fact that the application had been properly served did not lead to relief from sanctions being granted. The trial judge had properly taken all matters into account.  In particular the failure to ensure that the application for relief was heard before the trial meant tha the matter proceeded to trial without being budgeted. This undermined the very purpose of costs budgeting.

1. 1. Taking the first factor under CPR r. 3.9: the efficient running of the litigation and proportionality, the default by the Claimant in failing to serve the budget on time led to an application for relief and should have led to an interlocutory hearing before the trial at which that was decided. In the event, it did not. Instead, it led to no costs budgeting in advance at all. It defeated the object of costs budgeting. This is a weighty factor in my judgment. It was compounded by the Claimant’s failure to get the application listed before trial. It was a waste of time and fruitless for the Court to hear the relief application at trial and, if granted, to budget the costs in arrears for the very trial at which the budget was being considered.

1. 1. Had the rules been complied with by the Claimant the Judge would have considered the costs budget at the December hearing (it having been served on time and by the correct method) with no submissions from the Defendants (because they chose not to attend or make any in writing). This would then have been a budgeted case.

1. 1. As for the importance of the Rules being observed, the Claimant’s solicitors’ “disingenuous” witness statement, as the Judge held it to be, was an aggravating factor which weighs against granting relief from sanctions.

Conduct

1. 1. The Defendants’ conduct was wholly inappropriate in communicating directly with the Court, whilst refusing to copy the Claimant in, or their own solicitors, despite two clear Court orders to do so. Repeatedly seeking to delay the action by applying to adjourn was also inappropriate. Running multiple substantive defences and then failing to evidence any of them was inappropriate. Refusing to comply with the costs Order made against them was direct disobedience of a Court Order. Finally, failing to attend the CCMC was inappropriate. All of this inappropriate conduct was serious and did not merit any windfall gain from avoiding paying the Claimant’s budgeted costs. However, that was taken into account by the Judge, who had conduct of the case from the start at Central London County Court. The Judge balanced that conduct against the Claimant’s lawyers’ rule breaching in relation not only to late service of the costs budget but by ignoring the Order of October 2022 which set out the Defendants’ address for service at the Property. The Judge also, rightly, put weight on the Claimant’s solicitors disingenuous conduct, as set out above. In addition, I put some weight on the Claimant’s poor conduct in failing to invite the Court to have the relief application listed in good time before trial. No such efforts were made.

Prejudice

1. 1. As for prejudice, the budget was served by email, received and never responded to. The lack of response was not because the Defendants took any procedural point. They simply ignored the budget. They did not attend the CCMC. They did not even write to the Court to ask for the budget to be reduced. I do not see any grounds on those facts for finding any prejudice to the Defendants. I consider it is clear that communication by the Defendants with the Claimant’s solicitors and the Court and vice versa by email was their preferred method.

1. 1. The sums involved were not small. The costs budget totalled over £49,000 for incurred costs and forward estimated costs. The effect of the sanction was in relation to £24,500 of forward estimated costs at most and at the least it was perhaps £18,500, taking into account that £6,000 was for contingencies A and B.

1. 1. The Judge took into account that after his decision the Claimant’s solicitors would probably have a difficult time trying to persuade the Claimant to pay them for the costs disallowed due to their own conduct in breaching the CPR. No doubt in any solicitor-own client assessment, if the Claimant’s solicitors did seek to enforce, those fees would have been the subject of a serious challenge. The notes to the White Book at 3.14.3 recognise the difficulties which the solicitors will face seeking to charge their clients for their own mis-conduct which has caused loss of the clients’ right to recover those costs in the claim. I reject the ground of appeal based on this factor being wrongly taken into account by the Judge. I consider it was rightly taken into account.

Overall

1. 1. So where did the justice of the relief decision lie? Should the Claimant or perhaps more likely the Claimant’s solicitors suffer the costs sanction? Or should relief have been granted? Following the clear guidance of the appellate courts I conclude that the decision is not mine, nor should I substitute my judgment for the Judge’s decision. The role of this Court is to determine whether the decision was wrong in law, outside the reasonable boundaries of judicial decision making on the facts or irregular procedurally. The facts in this case were finely balanced. There was fault on both sides.

1. 1. Whilst the Judge’s reasoning was not set out as fully as it might have been and was expressed so that it looked like he focussed too much on a narrow interpretation of “good reason”, I consider that the decision was well within the generous ambit of his discretion on such relief applications. I do not consider that he overlooked either conduct or prejudice. I do not consider that the Judge took into account an irrelevant matter, namely the likelihood or possibility that the Claimant’s solicitor would bear the financial loss. Quite the opposite, in my judgment the Judge followed the sanctions set out clearly in the Rules for failing to serve a costs budget on time.

Conclusions

1. For the reasons set out above I dismiss the appeal.