A circuit judge has overturned a decision that the sanction restricting a late-filed budget to court fees only applied to incurred costs as well as to future costs.
The solicitor-advocate at Partners in Costs (PIC) who worked on the case, Michelle Walton, said it showed that the position that the sanction only applied to future costs was not as well-established as may have been thought.
She said neither party in Hardy v Skeels (4 March 2021, County Court at Stoke) could find any previous decision on the issue.
“The defendant had relied on, and the district judge, accepted the defendant’s reading of the pinnacle case of Mitchell v News Group  EWCA Civ 1537, submitting that the Court of Appeal in that case clearly proceeded on the basis that the sanction applied to incurred costs as well as future costs.
“But the claimant had an ace up her sleeve in the form of Roger Mallalieu QC, who was instructed by the claimant on appeal and who also acted in Mitchell. Mr Mallalieu QC was able to produce the skeleton argument from Mitchell in which it was confirmed that, prior to the hearing, both parties had agreed that the sanction only applied to future costs, and therefore the Court of Appeal proceeded on that basis.”
According to Ms Walton, the claimant in Hardy filed her budget one day late. Five days later, the defendant accepted out of time the claimant’s part 36 offer, which had been made more than two years earlier.
In points of dispute, the defendant said the late filing of the budget automatically triggered the CPR 3.14 sanction.
The claimant submitted it was trite law that the CPR 3.14 sanction only applied to future costs, but the defendant argued that, in the 2018 case of Ali v Channel 5, the court accepted that it would undermine the purpose of CPR 3.14 to treat it as having no effect on incurred costs.
The district judge held: “It has always been my understanding that CPR 3.14 referred to the entirety of the budget. The word ‘budget’ is used as shorthand routinely by judges and advocates as the word which incorporates all costs and disbursements a party has or expects to incur.”
The judge said the sanction was intentionally draconian, and that “it seems to me that the sanction would not be seen as draconian if it only referred to the budgeted costs”.
Ms Walton reported that His Honour Judge Rawlings, on appeal, found a number of anomalies in CPR 3 part II, with there being no link on the face of it between rule 3.14 on the one hand and rules 3.15 and 3.18 on the other.
“He did, however, find a clear intention that CPR 3.14 should fit with the other rules in part II, and that this view outweighed the poor fit of CPR 3.14 and the remaining rules.
“He noted that the claimant accepted the word ‘budget’ (as used in CPR 3.14) includes both incurred and future costs, but found that CPR 3.14 is poorly worded, and the drafters of the rules may not have anticipated the effect of its literal definition.
“Looking then at the aim of the sanction, HHJ Rawlings accepted the claimant’s submissions that by only applying to future costs, the sanction has a stronger link to the default. It was also accepted that all the authorities relied upon by the parties were supportive of the claimant’s case, or at worst neutral.”
HHJ Rawlings concluded by finding that CPR 3.14 was not a standalone contingent sanction and had to be read in conjunction with CPR 3.18. As per the rules, and as confirmed by the Court of Appeal in Harrison in 2017, incurred costs were not within the ambit of CPR 3.18.
CPR 3.14 could not therefore restrict the defaulting party’s incurred costs to court fees only, and the sanction only applied to future costs.
Ms Walton added: “Many may have thought that this outcome was an established position. However, the fact the defendant party ran this argument, the fact the district judge advised he had always been of the understanding the CPR 3.14 sanction applied to incurred costs as well as future costs, and the fact that at first instance the defendant succeeded in their argument all show that this may not have been as an established position as many may have been complacent in thinking.”