Costs budgeting: A risky business

Trivial, serious or significant? Francis Kendall reviews excuses for breaches and shares the consequences

If parties and their lawyers have learnt just one thing about costs budgeting by now, you would have hoped that it is the importance of getting their budget in on time.

But still parties are missing the deadline and then – facing a budget limited to the applicable court fee – have to roll the dice with the Denton test when they apply for relief from sanctions. Two recent cases have led to very different results.

In Lakhani & Anor v Mahmud & Ors [2017] EWHC 1713 (Ch), the defendants served their £50,000 budget just one day late, but only applied for relief at the case and costs management conference (CCMC).

HH Judge Lochrane in Central London County Court acknowledged that, in certain circumstances, being one day late with a costs budget “might not be regarded as terribly serious”.

However, he said there was no sensible excuse for the breach, continuing: “My conclusion is that this is not a trivial breach. It is a serious breach. It is a breach which has imperilled the proper conduct of this litigation. It has reduced the time available for these parties to conduct themselves in the way that is expected by the rules to narrow the issues on the costs budget.

“It has further created an environment in which the attention of both parties, by the default of the defendants, has been distracted onto a matter which is irrelevant to those costs budgeting issues.”

Daniel Alexander QC, sitting as a deputy judge of the High Court, upheld the decision, saying it was “on the borderline of sufficient seriousness to warrant refusal of relief from sanctions” and that the court should not interfere with the decision.

He added: “There is a risk in these cases of attempting a purist compartmentalisation of factors into the respective stages of Denton and criticising judges if that is imperfectly done in ex tempore judgments.

“Some factors may be considered at more than one stage. In this case, even had HH Judge Lochrane concluded that the breach was not serious, he would have been entitled to conclude at the third stage that the manner in which it was sought to be remedied, including the dispute over whether there was a breach and the lateness of the application, meant that relief from sanctions should not be ordered.

“That being so, it is somewhat artificial to criticise his judgment on the footing that factors which were legitimately considered at the first stage but which might better have been considered at the third stage also came in at the first.”

Mr Alexander did however suggest that, had the defendants been deprived of a trial because the decision, “the situation would have merited more detailed scrutiny than the judge gave it”.

But then in Mott & Anor v Long & Anor [2017] EWHC 2130 (TCC), defendants who filed their costs budget 10 days late because of problems with their solicitors’ IT system were granted relief from sanctions after the High Court ruled that decisions at the CMC would have required them to revise their budget anyway.

His Honour Judge Grant, sitting as a High Court judge in Birmingham, said “the fact that the parties are now in precisely the same procedural position in which they would have been so far as the process of cost budgeting is concerned, had the defendants served their cost budget in time, is a highly significant circumstance in the case”.

The delay was “serious or significant, perhaps with particular emphasis on the latter word”, while the lack of detail provided about the IT problems meant there was no good reason for the default.

He went on to find that the huge disparity between the parties’ budgets – the claimants’ was £281,000 and the defendants’ £48,000 – was down to them taking “very different approaches and stances to the case”, in particular over expert evidence and as a result the length of the trial.

It was likely that these would not have been agreed ahead of the CMC and would have been argued at the hearing. “In those circumstances, the process of cost budgeting would not have been completed today in any event.”

The lack of a budget has come up in a totally different context too: the £14bn landmark opt-out collective action against Mastercard. In Merricks v Mastercard & Ors [2017] CAT 16, the Competition Appeal Tribunal refused certification of the class, a decision which is being appealed.

One issue on which Mastercard failed was its submission that the claimant’s third-party funder had put an inadequate limit of £10m for Mastecard’s recoverable costs.

The problem, said the tribunal, was that Mastercard had not put forward any estimate for its own costs, let alone a proper costs budget: “If it wanted to challenge the adequacy of the costs cover arranged by the applicant, we consider that would be the first step in the process.”

So the message is simple and clear: get on and do your budget. It behoves me also to recommend that you use a costs lawyer to ensure this is as smooth a process as possible.

Francis Kendall is vice chairman of the Association of Costs Lawyers and a Costs Lawyer at Masters Legal Costs Services LLP

This article first appeared in New Law Journal on 17 November 2017


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23 Nov 2017

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