Court of Appeal flexes it’s muscles in key costs budgeting case

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The Court of Appeal has dismissed the appeal against the decision of Master McLeod to allow only Court fees following the Claimant's Solicitors' failure to file a costs budget within 7 days of the first CMC in the eagerly awaited case of Mitchell v Newsgroup Newspapers.

Following the introduction of the Jackson reforms on 1 April 2013, the parties have been required to file and serve a costs budget 7 days prior to the first CMC except where the Court orders otherwise. This case did not fall under the new regime but under the pilot scheme that preceded it, and it was widely expected that the Court would allow the appeal in this case but issue strict guidance in relation to adherence to the rules outside of the pilot scheme.

However, the Court of Appeal dismissed the appeal and upheld the decision to disallow the Claimant's costs save for the applicable Court fees. The Court of Appeal also gave general guidance as to the application of the new rules in relation to relief from sanction.

Neil Sexton takes a look at the judgment and picks out some of the key points made by the Court of Appeal.

Background of the case

The Claimant's Solicitor was due to file and serve their budget by 11 June 2013 in preparation for a CMC on 18 June. The Claimant failed to do so and was prompted by Master McLeod on 17 June 2013. The Claimant's Solicitor confirmed that they were awaiting confirmation of fees from Counsel and they eventually filed their budget later that afternoon.

Master McLeod referred the Claimant to the rules contained within the pilot that a costs budget must be filed and served 7 days prior to the CMC and in default, the Claimant must be penalised.

The pilot scheme contained no sanction for the failure to file and serve a costs budget within the 7 days, so Master McLeod, at first instance, confirmed that she must be guided by the new rules and she applied the penalty provided for in the new rules as she deemed that to be a proportionate penalty.

The Claimant applied for relief from sanction on this point and the Master heard the application on 25 July.

The Master confirmed that relief was refused on the basis that the Claimant knew that costs budgeting would be required on this case and action should have been taken to prepare for that eventuality. The Master confirmed that the reasons given(pressures of work, delays by Counsel) were not sufficient to explain a failure to comply with the rules and relief would not be granted on that basis. The Master confirmed that the Claimant had not made any case that he would suffer prejudice and his claim could continue whether he had a Solicitor acting for him or not.

The Master gave permission to the Claimant to appeal given the ramifications of her judgment.

Guidance on application of CPR 3.9 and CPR 3.14

The Court of appeal gave some general guidance as to applications for relief from sanction. The Court confirmed that, if the breach could be properly regarded as trivial, then the Court will usually grant relief if the application is made promptly.

The judgment went on to confirm that:

"the Court will usually grant relief where there has been no more than an insignificant failure to comply with an order; for example where there has been a failure of form rather than substance; or where the party has narrowly missed the deadline imposed by the order, but has otherwise fully complied with it's terms".

The judgment confirmed that the Court would require the defaulting party to prove that there was good reason for the breach:

"If the non-compliance cannot be characterised as trivial, then the burden is on the defaulting party to persuade the court to grant relief. The court will want to consider why the default occurred. If there is a good reason for it, the court will be likely to decide that relief should be granted. For example, if the reason why a document was not filed with the court was that the party or his solicitor suffered from a debilitating illness or was involved in an accident, then, depending on the circumstances, that may constitute a good reason".

The Court then gave some guidance upon what would not be a good reason:

"overlooking a deadline, whether on account of overwork or otherwise, is unlikely to be a good reason. We understand that solicitors may be under pressure and have too much work. It may be that this is what occurred in the present case. But that will rarely be a good reason. Solicitors cannot take on too much work and expect to be able to persuade a court that this is a good reason for their failure to meet deadlines",

"the need to comply with rules, practice directions and court orders is essential if litigation is to be conducted in an efficient manner. If departures are tolerated, then the relaxed approach to civil litigation which the Jackson reforms were intended to change will continue. We should add that applications for an extension of time made before time has expired will be looked upon more favourably than applications for relief from sanction made after the event".

The judgment concluded by confirming that:

"the need to comply with rules, practice directions and court orders is essential if litigation is to be conducted in an efficient manner. If departures are tolerated, then the relaxed approach to civil litigation which the Jackson reforms were intended to change will continue. We should add that applications for an extension of time made before time has expired will be looked upon more favourably than applications for relief from sanction made after the event".

It is clear that the Courts will have little regard for any routine failures to comply with Orders, Rules and Directions. It is now more important than ever to ensure that you comply. Do not expect the Court to look favourably upon any default unless there is a very good reason.

Appeal in relation to the sanction

The Claimant appealed on three grounds:

  • CPR 3.14 should not be applied by analogy when it had not yet come into force.
  • if the Master was right to apply CPR 3.14 by analogy, she was wrong to consider that it should apply where a budget was filed late rather than not filed at all.
  • the decision imposed a sanction that was disproportionate and contrary to the overriding objective.

On the first ground of appeal, the Court of Appeal confirmed that they considered that the Master was entitled to use her discretion to apply the sanction under CPR 3.14. She understood that it did not apply as the case continued to be governed by the Pilot Scheme under Practice Direction 51D. The Master was entitled to use her discretion to apply any sanction that was required to satisfy the overriding objective.

The Court of Appeal also rejected the second ground of appeal. It was considered that the rules, whilst not expressly confirming that they apply to the late filing of budgets as well as a failure to file a budget, were intended to have the effect that the sanction should apply if a budget is filed late. It is not a desirable situation for a party to file a budget shortly before a CMC and it is right that sanctions should apply when budgets are filed late as well as if they are not filed at all. It was the intention of the rules committee that the sanction should apply to late filing of budgets.

On the final ground of appeal, the Court of Appeal confirmed that the Master was right to apply the decision that she did on the basis that the Claimant had provided no information that might have led the Court to a different decision. The Master was therefore unable to invoke the saving provision within CPR 3.14: "unless the Court otherwise orders". The Court of Appeal confirmed that the considerations that the judge must have when thinking about "otherwise ordering" were the same as now appear under the new CPR 3.9 relating to relief from sanctions.

Appeal in relation to application for relief

The Court then went on to consider the appeal against the Master's decision to reject the application for relief from sanction.

The Court of Appeal rejected the appeal on the basis that, if the Claimant had complied with the order, case management directions would have been given on 18 June 2013. As it was, the hearing was abortive and the case was delayed. Court time was wasted in dealing with the abortive hearing and having to relist for the application for relief from sanction.

The Court concluded with the following paragraphs:

"the Master did not misdirect herself in any material respect or reach a conclusion which was not open to her. We acknowledge that it was a robust decision. She was, however, right to focus on the essential elements of the post-Jackson regime. The defaults by the claimant’s solicitors were not minor or trivial and there was no good excuse for them. They resulted in an abortive costs budgeting hearing and an adjournment which had serious consequences for other litigants. Although it seems harsh in the individual case of Mr Mitchell’s claim, if we were to overturn the decision to refuse relief, it is inevitable that the attempt to achieve a change in culture would receive a major setback",

"we hope that our decision will send out a clear message. If it does, we are confident that, in time, legal representatives will become more efficient and will routinely comply with rules, practice directions and orders. If this happens, then we would expect that satellite litigation of this kind, which is so expensive and damaging to the civil justice system, will become a thing of the past".

A stark warning that Solicitors will do well to heed.