UK & Europe
Insurance & Reinsurance
The recently reported appeal decision of Hardy v Skeels from the County Court at Stoke has offered welcome persuasive precedent on the extent of sanctions under CPR 3.14, if a costs budget is filed late.
The issue in question was whether the sanction (being limited to Court fees only) applied to all the costs claimed in the costs Budget, or solely those which had yet to be incurred (“future/estimated costs”). His Honour Judge Rawlings held that CPR 3.14 restricted the costs of the sanctioned party to court fees in respect of their future costs only, not their incurred and future costs.
Whilst many practitioners have held their own longstanding views on this issue, there was no case reporting in which this issue was considered and adjudicated. The reporting party stated that the involvement of their Counsel in the seminal case of Mitchell was key to the decision of the finding, as both parties in Mitchell had reportedly agreed that the sanction only applied to future costs.
It was reported that a costs case management conference ("CCMC") had been listed, with costs budgets to be filed and served seven days before the Hearing. The Claimant failed to comply with the deadline, filing the budget one day late. Shortly after, the case settled, prior to the CCMC, when the Defendant accepted the Claimant’s Part 36 offer out of time.
The Claimant presented a Bill of Costs to the Defendant, who argued that, due to the default in filing the Budget late, the Claimant was only entitled to recover court fees. It was the Defendant’s position that this applied to both the incurred and estimated costs in the Budget. The Claimant disagreed and the matter proceeded to Detailed Assessment, where the parties submitted as follows:
At first instance, upon Assessment, the District Judge concluded that, whilst agreeing that the sanction covering both incurred and future costs was draconian, it was his understanding that it was intended to be so. The term ‘Budget’ had been interpreted by both the Judiciary and legal representatives as covering all elements.
CPR 3.14 does not to afford a distinction, stating that “any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.”
On appeal before HHJ Rawlings, the Claimant submitted that that the District Judge was incorrect to hold that the sanction set out in 3.14 applied to both incurred and future costs, and that it was a freestanding sanction limiting the costs of detailed assessment. This led to the incorrect conclusion that the Claimant was limited to court fees only for the entirety of her costs.
Upholding the appeal, HHJ Rawlings acknowledged the inadequate drafting of CPR 3.14, which was out of keeping with the rest of CPR 3 Part II. It was suggested that those who prepared the rules may not have appreciated such a literal interpretation of the term ‘budget’ for these purposes.
HHJ Rawlins agreed with the Claimant’s submissions that a sanction linked to future costs could be said to be more appropriate to the failure to file the budget. CPR 3.14 should be read in conjunction with CPR 3.18, and therefore incurred costs did not fall within the sanction for ‘court fees only’. The sanction applied to future costs only.
The decision may come as a surprise to many in the legal profession. Many practitioners and Judiciary considered this a straightforward point that a budget filed late was limited to only court fees and indeed, the Judge at First Instance accepted that this was his view.
This is an important area that requires further clarification from the Courts and/or an update to CPR 3.14 which, is not on all fours with CPR 3.15 or CPR 3.18 where the applicability to future costs is more clearly outlined.
This case will be of value to practitioners, certainly for advising Clients on case reserves, which for many will usually be updated around the CCMC phase when the Budgets are prepared and for a large portion, settlement is achieved either before or shortly after the CCMC Hearing. Recommending reserves or advising Clients therefore ought now to allow for the incurred costs which could be substantial if the matter was front-loaded.
The decision may also influence defaulting Parties who might well avoid the costs of making an Application for Relief if a budget is filed late and settlement looks likely, they will be on relatively sound footing that the incurred costs (i.e possibly all their costs to date) will still be recoverable in the usual way.