Costs Budgets: the fatal torpedo of delay

The recently reported authority of Lakhani & Another v. Mahud & Others [2017] EWHC1713 is salutary indeed.

In this case the Court refused to overturn a decision at first instance which had refused an extension of time for the filing of a Costs Budget (filed with the Court one day later than it should).

1.            Draconian consequences: the consequences attendant on the late filing of a Costs Budget can be draconian.  The relevant provisions are those of Civil Procedure Rule [CPR] 3.14.  These provisions state that any party failing to file a Costs Budget in time “will be treated as having filed a budget comprising only the applicable Court fees”.  In other words the party in default is debarred from claiming any part of their legal costs from their opponent, even if they are successful.  Claims for recovery of any professional fees are torpedoed.

2.            Escape hatches: should such a situation unhappily occur, the door is not necessarily locked.  The hapless solicitor can look to the following escape hatches to be found in the provisions of CPR 1.1(2)(a): the Court’s ability to ensure that parties are placed on an equal footing and those of CPR 3.9 which empower the Court to grant relief from sanctions.

3.            Mitchell: the leading case in this area is still that of Mitchell [2013] EWCA Civ 1537.  In that case the Costs Budget was filed substantially out of time and on the cusp of the Court Hearing appointed inter alia to consider and approve it.  The Claimant Mr. Mitchell’s application for relief from sanctions was refused and he was restricted to recovery of the Court fee alone (that is the fee paid to the Court on the issue of his legal action).

4.            The Three Stage Test: there followed Denton v. T.H. White Limited [2014] EWCA Civ 906.  In Denton the Court of Appeal decided that a three stage approach should be adopted:

Stage 1: there should be an assessment of the gravity or significance of the failure to comply.

Stage 2: if grave or significant, the reasons for breach should be considered and

Stage 3: the Court should then look to all the circumstances of the case and in particular those factors contained within CPR 3.9(1)(a) and (b) so as to deal with the application justly.

5.            CPR 3.9(1)(a) : this emphasises the need “for litigation to be conducted efficiently and at proportionate cost”

6.            CPR 3.9(1)(b): this obliges the Court “to enforce compliance with rules, practice directions and orders”.

7.            Mitchell and reasoning: in Mitchell Lord Justice Dyson the Master of the Rolls stated that “the Claimant’s non-compliance caused substantial extra work and extra costs to be incurred by the Defendant.  It also disrupted the work of the Court”.  (The Court had been obliged to vacate half a day which had earlier been allocated for asbestosis claims.)

In relation to factors (a) and (b) Lord Justice Dyson said “these considerations should now be regarded as of paramount importance and be given great weight.  It is significant that they are the only considerations which have been singled out for specific mention in the Rule”.

8.            Trivial Breach: the principle de minimis non curat lex (the law is not concerned with trivial things) applies.  The Court will normally be sympathetic if the failure to comply was insignificant (e.g. where a party has narrowly missed the deadline imposed by the Order but has otherwise fully complied with its terms).

9.            In contrast if the breach is serious or significant, the burden rests with the party in default to persuade the Court to grant relief.  The Court will want to consider why the default has occurred, thus bringing into play Stage 2.

10.          Good reason: if a good reason can be shown it is more likely than not that the Court will grant relief.  (For example where a party or their solicitor was suffering from a debilitating illness or involved in an accident such might well constitute good reason; late and unforeseeable developments in the litigation might also constitute good reasons.  Mere oversight is unlikely to suffice.)

Lakhani:

The facts of Lakhani were these: on 18 November 2016 a Order had been made which required the parties to litigation to file and serve updated Costs Budgets 21 days before the hearing at which they would be considered, that is at a Costs and Case Management Conference [CCMC].

The CCMC was appointed for 10 January 2017.

The Claimant served his Costs Budget in time on 19 December 2016.  The Defendant’s solicitor did not do so until the following day, 20 December 2016.  The Defendant’s Costs Budget was one day late.  The Claimant contended that this triggered the automatic sanctions of CPR 3.14 and that the Defendant was therefore limited to the Court fee should it be successful in obtaining a Costs Order.

The Defendant failed to make a prompt Application for Relief: no attempt was made until the actual day of the CCMC.  The consequence was that a hearing originally listed for 45 minutes to approve Costs Budgets ran to half a day and was wholly dominated by the Defendant’s Application for relief from sanctions.  The Defendant’s Application was refused.

Lakhani: Appeal:

The Defendant Appealed; its Application came before Mr. Daniel Alexander QC sitting as a Deputy Judge of the Chancery Division.  The Learned Judge had regard to the provisions of CPR 3.9, Denton and Clearway Drainage Systems Limited v. Miles Smith Limited EWCA Civ 20161258.

Clearway: The First Stage:

Clearway related to an Appeal from an Order dated 21 June 2016 of Her Honour Judge Moulder, sitting as a Judge of the Queen’s Bench Division in the Manchester District Registry, which dismissed the Application of the Claimant Clearway from relief from sanctions in respect of its failure to serve Witness Statements in time with an allied failure to serve a Witness Summary.

On the facts the Judge said that the failure for over two months to serve Witness Statements (and to serve them less than a month before trial) had affected the efficient progress of the litigation (even if no particular prejudice was identified) and that such a prolonged failure over a period of months had to be viewed by the Court as serious or significant.

Clearway: the Second Stage:

Turning to the Second Stage identified in Denton, the Judge said that it seemed to her that there had been no good reason for the failure to serve the witness evidence in time.

(Clearway had contended that there were issues of disclosure which prevented their filing their witness evidence earlier in the day.  The Judge stated that it had been open to Clearway’s solicitors to make an Application to the Court well before the deadline for exchange of witness evidence and for Specific Disclosure of any documents believed to have been outstanding or required in order for them to deal with witness evidence competently).

Clearway had effectively disregarded the Court Order.

Lakhani: Court of Appeal review:

In Lakhani the Court proceeded to review the Three Stage Test adopted by the Deputy Judge in the Court below.  On Appeal the Court below had found that the breach had not been trivial but was serious.   The Court of Appeal took the view that the breach was borderline but of sufficient seriousness as would warrant the refusal to grant relief from sanctions.  There was no basis on which the Appeal Court could properly interfere with the decision or reasoning of the Court below in relation to the gravity of the breach.

The Court of Appeal proceeded to the Stage Two that is, an examination of whether the failure could be reasonably excused.  The Deputy Judge on Appeal concluded that it could not: there had been no reasonable misunderstanding of the requisite rules.  The Defendant’s solicitors had only commenced their preparations on the Costs Budget following receipt of the Claimant’s Costs Budget.  The work had been done at the last minute.  Apparently the Defendant’s solicitor had misread the rules: this could not be described as an understandable mistake.

Proceeding to Stage Three the Court was heavily influenced by the lateness of the Application.  Put another way, the Defendant’s solicitors’ delay in seeking to remedy the original default was of itself open to criticism.

Accordingly taking into account all of the circumstances of the case meant that there was no persuasive basis upon which to alter the decision of the Court below.

Summary:

In relation to the filing of Costs Budgets the following lessons may properly be drawn; these are in many ways of general application in relation to the conduct of Civil Litigation in England and Wales.

(1)          All Court Orders are to be obeyed and every effort should be made to ensure timeous compliance therewith.

(2)          Breaches which might properly be classed or viewed as trivial or negligible will ordinarily justify relief from sanction.

(3)          Those which are serious or substantial will not.

(4)          If serious or substantial, then good reasons will need to be shown.

(5)          Even if good reasons are shown any Application for Relief must be made promptly and without delay.

Harrison & Merrix : the Death-Knell for Detailed Assessment?

There has been recent, not inconsiderable and expensive debate as to the relationship between the Court’s powers to control costs during the currency of litigation and the Court’s consequential rights to decide the level of those costs once the proceedings themselves have been done and dusted.

The recently reported authority of Merrix v. Heart of England NHS Foundation Trust (Judgment of the Queen’s Bench Division of the High Court, Birmingham District Registry) considered this relationship.  Judgment was handed down on 24 February 2017.

The question for the Court was this:

“to what extent, if at all, does the costs budgeting regime under CPR Part 3 fetter the powers and discretion of the Costs Judge at a detailed assessment of costs under CPR Part 47?”

The Judgment in Merrix has now been upheld by a decision of the Court of Appeal in Harrison v. University Hospital Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792.

Before turning to a summary of the relevant case law and the Courts’ stated approach, the following Glossary may well prove helpful.

Glossary

Multi-Track:

Legal proceedings involving claims of complexity or substantial sums of money or both.

Costs Management:

The power of the Court to control litigation costs by inter alia the imposition of Costs Budgets [Section II, Part 3 CPR].

Costs Management Order:

An Order made by the Court at a Costs Management Hearing in legal proceedings which approves the amount of each party’s Costs Budget in relation to future costs [CPR 3.15 (2)] (wholly exclusive of those costs which have been incurred prior to the hearing itself).

Exceptions to Costs Management:

Various types of claim are exempt from the Costs Management regime; these are:

1.            claims issued post-22 April 2014 for sums either quantified at or viewed as likely to be in excess of £10,000,000.

2.            claims issued post-6 April 2016 on behalf of infants (that is persons under 18).

3.            claims which are subject to a fixed or scale costs regime or

4.            where the Court orders otherwise.

Costs Budget: meaning:

Each party’s Costs Budget is considered at a Costs Management Hearing.  In plain terms a Costs Budget is:

1.            that amount which the Court decides is necessary to be spent upon each phase or category of litigation work (e.g. taking proofs of evidence).

2.            put another way, the notional available fund allocated by the Court to each phase of litigation work.

3.            in contrast, it is not a cap nor a fixed amount (that is, no floor, nor ceiling).

4.            in context a Costs Budget has been described as a “landscape” [per Mrs. Justice Carr: Merrix].  Whereas a detailed assessment is more akin to the “exploration of the terrain” of that costs landscape.

Costs Budget & other factors:

When giving its approval to any party’s Costs Budget the Court has a discretion to amend or reduce items in it.  In doing so the Court will take account of the following in particular:

1.            the need to observe proportionality (that is to ensure that the legal costs of any dispute bear a reasonable and proportionate relationship to the questions or amounts involved); and

2.            the overriding objective (that is, the central purpose upon which English legal procedure is now founded: to ensure that all claims are dealt with justly).

Detailed assessment of costs:

The procedure whereby the Court determines the level of costs payable to the Winning Party (the Receiving Party) by the Losing Party (the Paying Party) either under the terms of a Settlement or under a Court Order.

Standard Basis Costs:

A bias in favour of the Paying Party: if on detailed assessment there is any doubt over the reasonableness of any item of work claimed or the time spent upon it, that doubt is always resolved in favour of the Paying Party.

Indemnity Costs:

A bias in favour of the Receiving Party: on detailed assessment such if any doubt is always resolved in favour of the Receiving Party.

Costs curtains:

Whether standard basis or indemnity, any costs claims viewed as unreasonable in amount or unreasonably incurred will always be disallowed on a detailed assessment [CPR 44.3 (2)].

Additional Costs curtain: Proportionality:

As emphasised earlier, costs must bear a reasonable relationship to the amounts at stake.

Detailed Assessment of Costs: relevant factors:

On a detailed assessment the Court may take into account any or all of the following factors; these in turn may well inform the Court’s ultimate Costs Award:

·         the party’s conduct

·         any attempts to settle

·         the amount of the sums in dispute

·         importance

·         complexity, difficulty or novelty

·         the level of skill involved

·         the time spent thereon

·         the place at which the work was done; and

·         the contents of last Approved Costs Budget.

Merrix: synopsis:

Mrs. Merrix [M] was a successful Claimant against the Respondent Health Authority [HE].   She was awarded compensation for their clinical negligence.  During the case the Court made a Costs Management Order.  It approved Mrs. M’s Costs Budget in the total sum of circa £128,000.

£74,780 of that amount related to her estimated future costs.

Mrs. M’s claims settled before trial.  An appreciable portion of her estimated future costs were thereby avoided.  This meant that there was an underspend on her Approved Costs Budget.  Accordingly Mrs. M argued that her reduced costs should be allowed as she was under budget unless HE could show that there was a good reason to the contrary.

HE disagreed.  They wanted a full detailed assessment of Mrs. M’s costs.  They argued that simply because the Court had chosen to approve Mrs. M’s Costs Budget this was only one factor.  HE contended that detailed assessment should be at large; the earlier Approved Costs Budget should not be determinative nor bind the Court’s hands on a detailed assessment.

Mrs. M’s argument succeeded.

The Judge decided that where a Costs Management Order had been made, when assessing Mrs. M’s costs on the standard basis, the Costs Judge should not depart from the Receiving Party’s last approved or agreed Costs Budget unless satisfied that there was good reason to do so.

This approach applies as much as where the Receiving Party claims a sum equal to or less than their Approved Costs Budget as where they may seek to recover more than the amount of that Budget itself.

Harrison v. University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792:

This was a decision of three Lord Justices of Appeal sitting in the Court of Appeal, Civil Division.  Their Lordships’ Judgment was handed down on 21 June 2017.

The questions for the Court of Appeal covered the same broad territory as Merrix and were these:

[Issue 1]: where a Costs Management Order [CMO] approving a Costs Budget has been made in litigation is a Costs Judge on a subsequent detailed assessment precluded from making an Award below the budgeted amount, unless satisfied that there is good reason to do so?  (The very same point as in Merrix); and

[Issue 2]: in relation to those costs incurred prior to the Budget (“incurred costs”) is the Court similarly constrained on a detailed assessment (that is, is it effectively bound by the amount of those incurred costs as notified to the Court, absent of good reason?)

Harrison: synopsis

The Respondent Mrs. Harrison [H] had undergone a caesarean section at a hospital operated by the Appellant [UCH].  Mrs. H’s compensation claims were limited to £50,000.  Eventually they settled before trial for £20,000.  Settlement was upon terms which provided for Mrs. H’s costs to be subject to detailed assessment and paid upon the standard basis.

During the currency of her claims there had been a Costs Management Order.  Mrs. H’s incurred costs were exempt from the Costs Management regime and had totalled some £108,000.

Mrs. H’ budgeted costs (that is future costs) had been approved by the Court at £89,000.

Following settlement of her compensation claims, Mrs. H’s solicitors submitted a Bill of Costs for detailed assessment.  This came to over £467,000. (The Bill included a Success Fee and a claim for the refund of a premium paid for insurance protection against the risk of Mrs. H having to meet her opponent’s costs).

CPR 3.17:

The Court of Appeal considered the following provisions of CPR 3.17:

“in any case where a Costs Management Order has been made, when assessing costs on the standard basis, the Court will –

(a)  have regard to the Receiving Party’s last approved or agreed budget for each phase of the proceedings;

(b)  not depart from such approved or agreed budget unless satisfied that there is good reason to do so”

Issue 1: Approved Costs Budgets

In relation to Issue 1 the Court of Appeal upheld Merrix and in full.

An Approved Costs Budget was viewed as effectively determinative; the Court stated that no departure from it should be made without good reason.

Issue 2 : incurred costs

On Issue 2 the Court of Appeal’s decision provided equal clarity and certitude: all costs which had been incurred prior to the date of the Costs Budget (that is, incurred costs) fell outside the Costs Management regime.

This meant that if a party has been ordered to pay incurred costs but later requests those incurred costs to be subject to detailed assessment, that detailed assessment will be conducted in the usual way.

There is therefore no added requirement for the Receiving Party to show good reason if their Bill of Costs submitted for detailed assessment differs markedly from the quantum of incurred costs notified to the Court on a Costs Management Hearing (albeit undoubtedly the Receiving Party will be required to justify any marked increases).

On detailed assessment the Court will continue to apply the tests of reasonableness and proportionality when deciding the level of costs that the Receiving Party can recover.

Good reason:

What might be a good reason as would justify the Receiving Party’s ability to depart from their Approved Costs Budget?

The view respectfully taken is that such would constitute an item of work either novel, untoward and entirely unforeseen or unforeseeable at the point of the making of the Costs Management Order (that is the Court’s approval to the Costs Budget).

Support for this view may be gleaned from the following Authorities:

1.            Elvanite Full Circle Limited v. AMEC Earth & Environmental (UK) Limited [2013] EWHC 1643 [TCC].  In this case the Court was of the view that where expert evidence had not been anticipated nor provided for in the budget but was subsequently required this was a sufficient good reason to support departure.

2.            Churchill v. Boot [2016] EWHC 1322 [QB] is a case in contrast.  The Court refused the Claimant’s Appeal (against a decision of the Court below) rejecting an Application to amend his Costs Budget.  In Churchill the costs claim had doubled, there had been a delay in getting to trial by between 6 to 9 months, additional disclosure had been necessary and this in turn had led to the need to make and serve updated evidence.  The Court took the view that the case “had gone out of control” and that there had been “no regard nor respect for” the budget and the amount that the Court had earlier allowed to be spent.  This, it is submitted, is an instance at the somewhat extreme end of the costs spectrum.

Summary:

1.            The purpose of a Costs Budget is effectively to curtail the need for detailed assessment.  At the end of the dispute when seeking to agree costs all parties should be guided by the Approved Costs Budget.  Only if there is a good reason should there be any appreciable departure therefrom.

2.            Should a Receiving Party’s actual costs fall below those which were contained within their Approved Costs Budget this is not a departure from it.

3.            A departure only occurs where a Receiving Party attempts to recover sums going appreciably beyond their Approved Costs Budget: in that event good reason needs to be shown.

4.            Incurred costs (that is those incurred prior to the date of the Costs Management Order) fall outside the scope of the Costs Management regime.  Nonetheless on a detailed assessment there must, it is respectfully submitted, be a reasonable nexus between:

(i)       the amount of incurred costs notified to the Court on a Case Management Hearing and

(ii)      those ultimately claimed within the Bill of Costs upon a detailed assessment.

5.            On detailed assessment, when the Court comes to consider both the quantum of:

(i)         budgeted costs (no departure therefrom without good reason) and

(ii)        incurred costs

the Costs Judge is still obliged to take the resulting aggregate figure of both categories and decide whether the costs overall subscribe to the proportionate.

6.            The purpose of the Costs Budget regime and its implementation ought to limit the scope or need for a detailed assessment of budgeted costs at the end of the day and considerably so.

7.            A good reason for departure from a Costs Budget is likely to be founded upon matters which were not foreseen at the point of the Costs Management Order but which if allowed still subscribe to the proportionate and reasonable.