BMCE Bank International Plc v Phoenix Commodities:

Relief from Sanctions When a Cost Budget Deadline Has Been Missed

 

When Should a Costs Budget be Filed? 

Both the Claimant’s and Defendant’s Solicitors must file a Cost Budget at Court. The Budget should include anticipated costs for various phases, such as witness statements, expert reports and trial preparation. Costs Budgets should be filed on all Multi-Track cases and the time limit for doing so is either with the Directions Questionnaire, (for cases pleaded at less than £50,000 in value), and otherwise 21 days before the first Case Management Conference. Failure to comply to the time limit, will usually result in sanctions by the Court, restricting the defaulting party to only recovering their Court fees on success.

 

Applying for Relief from Sanctions When a Costs Budget Has Not been Filed on Time

When it comes to producing and filing a Cost Budget, Solicitors and legal representatives must comply with strict deadlines. If a party does not file a costs budget on time, an application for Relief from Sanctions can be made. This must be done promptly, on realisation of any default, or in the event any party raises an issue.  The consequences of not making any application for relief will be severe and we would always recommend that you err on the side of caution. CPR 3.9 sets out the criteria that governs applications for relief from sanctions.

 

What are the Sanctions for the Late Filing of a Costs Budget?

In the recent case of  BMCE Bank International plc v Phoenix Commodities PVT Limited& Anor [2018] EWHC 3388 (Comm), the High Court decided that the Defendant’s solicitors would not be entitled to relief from sanctions and a CPR 3.14 sanction should apply, meaning that the claim would  “be treated as having filed a budget comprising only of the applicable court fees” due to the fact that they served a Cost Budget two weeks after the time limit had expired for filing the Cost Budget. This decision meant that the Solicitors would be unable to recover costs, apart from the Court fees.

 

Relief from Sanctions and the CPR  

CPR 3.9 sets out the rules that govern applications for the relief from sanctions. It states that a Court should: 

“consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need – (a) for litigation to be conducted efficiently and at proportionate cost; and (b) to enforce compliance with rules, practice directions and orders.” 

 

The Denton Test for the Relief from Sanctions 

In many cases involving relief from sanctions, the Court of Appeal decision in the case Denton v TH White. [2014] EWCA Civ 90 is relied upon.  This sets out a three stage test for applications for relief from sanctions:

  1. How serious or significant was the breach? Have there been other minor breaches? Relief is usually granted when the breach is not significant. Serious and multiple defaults should then move on to be considered at stages two and three.  A breach will generally be considered minor if it has not caused prejudice to other parties, and has not interfered with any Court dates (such as a CMC).
  2. Why did the default occur? If a good reason can be provided, this may a basis to allow relief (for instance, such as an IT error as in Mott & Anor v Long & Anor 2017 EWHC 2130 (TCC)).  Even in cases where the default was serious and there was no good reason for the breach, it should not mean that the application will fail. The Judge should always consider stage three.
  3. The Judge should consider all the circumstances of the case. This will enable them to deal with the application fairly, taking into consideration, the two criteria set out in CPR 3.9 and the overriding objective.  Other factors, such as the promptness of the application will also be taken into account here.

Other case law of relevance as to how approach relief applications include Mitchell v News Group Newspapers Ltd , Decadent Vapours Ltd v Bevan and Others and Utilise TDS Ltd v Davies and Others.

 

What are the Benefits of Using the Three Stage Test? 

The three stage test could be described as a less draconian approach towards minor breaches of rules, orders and practice directions. Breaches are now dealt with in a proportionate manner and significant breaches are penalised properly, and using the three stage test promotes a more consensual and pragmatic approach by parties to litigation.

 

Why was the Relief from Sanctions not Granted in BMCE Bank International? 

To understand why relief from sanctions was not granted in this case, it is beneficial to know the main facts of the case which were:

  • The first CMC was arranged for 19th October 2018.
  • The Defendant’s Solicitors served a Costs Budget on 11th October 2018, after the deadline of 27 September 2018.  No request for an extension of time had been made to the Court.
  • The Defendant responded by admitting the breach and stated to the claimant – “your budget was served late too”, a statement which was incorrect.
  • As the Defendant’s budget was served late, this meant that no budget discussion reports were served and thus prevented proportionate costs being agreed pre-hearing.
  • There was insufficient time at the Costs and Case Management Conference to deal with the Defendant’s budget, causing interference with proceedings.
  • The Defendant applied for the relief from sanctions at 9:05am on the same morning of the CMCC, and not at the time of realisation of the default.
  • The Judge used the Denton approach to consider whether to grant relief.

Mr Justice Bryan held that the filing of the Costs Budget late was a significant and serious breach of the court order because the Budget was “filed two weeks late, in the context of a time period of 21 days”. The late filing cost the parties the opportunity to negotiate the Costs Budgets. The breach was also significant because there were other serious implications of the late filing, including the inconvenience caused to the Court and court users. Although the Defendant Solicitors argued that the breach was not deliberate, the Judge stated that the fact it was unintentional did not justify the breach.

 

What can we Learn from BMCE Bank International PLC v Phoenix Commodities?

This case has taught us the importance of the following in respect of granting relief from sanctions:

Always file Cost Budgets on time to avoid a CPR 3.14 sanction.  If there is a delay in filing, applications for relief from sanctions must be made as a matter of urgency, and as soon as the error has been acknowledged in the case so as to enable any prejudice to be avoided.

On the occasion that it is not possible to apply for relief from sanctions straight away, you should give notice to the Court and the other party/parties that an application will be made.

 

How Can the ARC Costs Team Help? 

The ARC Costs team are always happy to help with costs challenges, and can advise on the prospects of any application for relief, and assist with the preparation of any Cost Budget and negotiation of the same.

We can be contacted via email at info@arccosts.co.uk, or by telephone on 01204 397302. For more information on legal costs, please find out more about our speciality areas of expertise and our services on our legal costs page.

 

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