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Counting the Costs of Improper Cost Management
The Landscape as we knew it is no more. In the post Jackson/Mitchell regime in which we find ourselves non-compliance of court directions, rules, orders and practice directions will not (and in the view of the Court of Appeal’s recent decisions) cannot be tolerated. The winds of change have heralded the much touted and some may say much maligned Court of Appeal decisions of both Mitchell and Durrant (please see excellent blog items of both Miss Brookfield and Miss Watters of Chambers). It is correct of course that the decisions in both Mitchell and Durrant are far reaching and are not just limited to specific issues of relief from sanctions. The implications of the decisions for costs management, costs budgeting and the award of costs should be of significant concern to any practitioner.
The Mitchell case, which has been discussed in detail by Miss Brookfield, does set an alarming precedent when one actually considers the circumstances. Indeed, one would hate to swap positions with the unfortunate individual at the Appellant firm who failed to comply with the new guidance in relation to costs budgeting.
It is worth reminding ourselves that the Rules expressly provide for two potential automatic strikeouts pursuant to CPR 3.13 and 3.14. The aforesaid should be ingrained in the mind of any personal injury practitioners, but in case they aren’t CPR 3.13 determines that, unless the court orders otherwise, all parties except Litigants in Person must file and exchange their costs budgets at least 7 days before the Case Management Conference. However in the Mitchell case such was not complied with until at least 24 hours before the hearing. Therefore on the one hand one was left with a six day non-compliance versus a costs budget that was in excess of £500,000.00. Understandably at first blush one would perhaps point to the understandable balance of prejudice that would exist if the costs budget was not considered by the Court. However as we all know the Court of Appeal was unsympathetic with the Appellant’s submissions and upheld the decision of Master McLeod at first instance.
Of course a failure to file a budget in time will trigger the sanction of CPR 3.14 and the party will be treated as having filed the budget comprising only the applicable court fees.
Given the express wording of the Rules and their somewhat simplistic and obvious effects the fallout of the Mitchell Decision is perhaps unsurprising. Indeed, given the new approach the courts are taking to CPR 3.9 Relief from Sanctions Applications it would be difficult, unless some fairly compelling explanation can be provided, that any application under 3.9 for failure to comply with the requirements of 3.13 and 3.14 would be successful.
Indeed, it is from recent experience that the courts have been less than sympathetic when considering failures to comply with costs management directions. A recent decision from Liverpool County Court sets out the current stance. At paragraph 1 of the Practice Direction 3E express guidance is offered on the use of the precedent H form and the specific wording of the statement of truth, which is set out in Practice Direction 22. In this recent case the cost budget although signed with a statement of truth, did not contain the correct wording as stipulated by the rules. The Court struck out the costs budget and gave an order that the party’s costs be limited to the relevant court fees. It should be remembered that the Form was signed by a Partner in the firm and therefore one cannot question the intentions of the signatory.
The case of Burt v Linford Christie (Yes the Spinter!) heard in Birmingham County Court again offers a significant warning to parties. The Queens Bench Division sitting in Birmingham heard that the Defendant’s legal team had submitted their costs budget one or two days late. It was submitted that this fell within the category of a trivial breach. However the Judge did not agree. It was stated that “failure to interpret the unambiguous rules of the court correctly, in this case CPR 2.8 in relation to the calculation of 7 days, clearly cannot amount to a good reason within Mitchell.” Hence, the Defendants were treated as having filed a budget comprising of applicable court fees only. The effect of the decision cannot be underestimated. If one day is not deemed to be trivial then what is, an hour, a minute, a second, who knows?
Thankfully, although I do not know whether the Liverpool case has been appealed, it does appear that common sense has ensued in this particular area alone. On the 12th day of February 2014 the Judgment of Mr Stuart-Smith was given in the matter of Bank of Ireland v Philip Pank Partnership  EWHC 284. The case concerned a Defendant who had submitted that the Claimant was in breach of CPR 3.13 because it had filed a costs budget that did not contain a full statement of truth. The Claimant’s costs budget was in the form of Precedent H, but contrary to their normal practice it had been prepared by an external draftsman who had assured the Claimant’s solicitors that it was ready to sign. Acting on that assurance the Claimant failed to note that the document did not include the full statement of truth and was merely signed, before correctly exchanging the budget seven days before the case management conference. The Defendants contended that the budget was in breach of CPR 3.13 and that the Claimant required relief from the sanction otherwise imposed by CPR 3.14 and therefore CPR 3.9 applied. The Court held that there was nothing in the CPR or the relevant Practice Direction that rendered the budget a nullity if each and every formal requirement was not adhered to.
The Court went on to say that the consequence of the Defendants’ argument would be that every irregularity even in the form of an omitted word or spelling mistake would make the budget defunct. The importance of a statement of truth and costs budgeting was not to be underestimated, but one had to look at the context. The purpose in costs budgeting was for Solicitors to certify the reasonableness of the budget. The notion that a document to include the words “Statement of Truth” that was signed by a partner in a law firm might nevertheless be complete nullity was unsustainable. The Judgment concluded by suggesting that it would not genuinely be appropriate to categorise the absence of a statement of truth as trivial, but on the facts of the case the Defendants could have been in no doubt that the Solicitor signing the budget was intending to certify the costs as reasonable.
Unfortunately the above appears to be the exception and there has been no further guidance in relation to other material breaches. It remains to be seen whether the courts would be generous with other matters which could be perceived to be either more or less serious as the breach in the Bank of Ireland case.
For own part there is one particular issue of cost budgeting which has caused me concern and of which I have yet to find any specific answer. A Solicitor for whom I undertake significant work for was on the unfortunate end of a costs management penalty at a County Court on the South Western Circuit. The case involved a complex personal injury claim and as a result proceedings were issued almost at the cusp of limitation. Given the uncertainties which surrounded the Claimant’s recovery and the potential losses to which they would be amenable a schedule of loss was prepared naming several heads of loss as “TBC.” Now it may be that those of you lucky enough to rear this article would think that nothing had been done wrong. Indeed, it is commonplace for heads of loss to be pleaded as “TBC” to at least put the Defendants on notice as to the potential losses which the Claimant will seek.
Unfortunately this view was not shared by the Judge on the day who struck out the costs budget and limited the Claimant’s costs to the applicable court fees only. The rationale being that the court was unable to consider the proportionality of the costs sought in circumstances where the value of the claim was unknown. I am informed that this matter is to be subject to appeal but as yet I have no details as to any appeal date or decision.
Clearly, the aforesaid may set off alarm bells with many schedules, which have either been prepared or are in the process of preparation. I recently discussed this matter with a Liverpool Q.C. at a costs conference. Unfortunately, no definitive answer can be given in light of these discussions or the absence of any decision on that first instance case. However, if the rationale of the court is that there needs to be some form of guidance as the potential costing of either past or future heads of loss, then arguably a way round the decision and to alleviate any concern of the court would be to provide generic guidance, for example a claim for future care and assistance to be pleaded as in excess of £50,000.00. Although this may be open to the criticism that there is no certainty to the sums claimed, it cannot be said that the court has not been informed of a potential value i.e. a bottom line which the Claimant will be seeking. Although there may be cases where full details of losses, periods sought and costing cannot be obtained, there is always the opportunity to estimate what the Claimant expects to receive at the least.
For example one may have a severely injured Claimant who for several years has been unable to perform significant elements of their domestic life. Clearly, this in itself would be a significant sum, which one could envisage would be in excess of £50,000.00. For my own part until any further guidance can be offered from the Higher Courts this appears to be the best approach to obviate any potential draconian orders from the court for failure to provide useful guidance as to the value of the claim.
It should not be said that the new tougher approach is limited to the costs budgeting. The Court of Appeal in the case of Wheeler v Chief Constable of Gloucestershire  EWCA Civ 1791 were willing to apply the more robust approach envisaged by the Mitchell Decision when concerned with the principal of costs. The case concerned an appeal on an apportionment of liability of 50/50 between the parties at first instance following a road traffic accident. The Court of Appeal was reluctant to interfere with the apportionment of liability and the 50/50 finding was upheld. The Respondent was granted his costs of the Appeal but both parties had failed to produce a statement of costs as required under CPR Practice Direction 44. Hence, the Court could not summarily assess the costs and therefore notwithstanding the fact that they were the successful party to the appeal the Respondents were ordered to pay the costs of the detailed assessment.
The following cases will perhaps have little bearing as time continues and the pre April 2013 caseloads diminishes. However the following cases of Forstater v Python (Monty) Pictures and Others  EWHC 3759 and Harrison v Black Horse Limited Senior Courts Costs Office 20th December 2013 do make for interesting reading.
In the Forstater case the receiving party had failed to serve a Notice of Funding, but had provided the relevant information in a letter. The High Court considered this to be an example of failure of form over substance and allowed the success fee for the period after the letter had been sent. However, this has to be compared to the Harrison Decision. This case involved a claim brought due to the fallout of the Mis-sold Payment Protection Insurance scandal. In the case the Claimant had applied for relief from sanction for a failure to fulfil the requirements of informing/providing notice of the funding arrangements to the Defendants. The Claimant had entered into four Conditional Fee Agreements with their solicitors one covering the proceedings in the County Court, the remainder covering the two appeals and the Supreme Court Application. It was common ground that the Respondents had been provided with notice of the first and fourth CFAs, but no notice had been given of the second which related to the High Court Appeal. Further dispute centred on whether they had been given notice of the third which related to the Court of Appeal. The Claimant maintained that they had sent the notice via Document Exchange.
The decision of the Court is surprising. It is arguable that the Respondents should have known that the claim was being funded by a CFA, given that it had been throughout and the Court had the evidence of the Appellant that the notice had been sent by DX. However the Court held that, although it was not disputed that the Claimant’s file contained a copy letter to the Defendants purporting to enclose an updated notice for funding nor, was it disputed that a faxed copy of the notice had been sent to the Civil Appeals Office, because there was no evidence as to what had happened to the letter after it left the Claimants possession service could not be deemed under CPR Rule 6.26. The Court stated that in the pre April 2013 world a relief from sanction application would have been borderline. The Claimant had given notice of the first CFA and although the failure to give notice of the third was inadvertent, the Claimant’s failure could not be considered to be trivial as no notice had been given at all. Further, it was not felt that a good reason was in existence for the default and although it may seem harsh any application for relief could be made before the change in April 2013. The Claimant had relied upon the Forstater Decision but the Court distinguished this decision as being a trivial failure of form rather than substance.
What can be taken from the above? Well undoubtedly the Courts are seeking to enforce compliance and the strict approach of Mitchell does not appear to have been watered down. However, it should not be read that non-compliance is the death of a case. The authorities do point to some common sense being applied where prompt applications are made for what could be perceived to be trivial breaches, or breaches of form over substance. Thus, gone are the days of multiple relief from sanctions applications in cases which lumber towards a final hearing. In the sphere of costs management it is quite clear that the mandatory requirements of the rules must be followed in spirit and only minor breaches may be afforded some form of latitude.