In this briefing paper, we examine some of the key case and costs management decisions over the last year and the impact that they have had and will likely continue to have on the way that parties conduct litigation.
On April 1, 2013 the Jackson reforms brought into force sweeping changes relating to funding and costs in civil litigation.
One year on and one of the key changes introduced by the Jackson reforms – the requirement for parties to provide costs budgets for each of the 10 phases of the litigation – has been extended to all Part 7 multi-track cases issued on or after April 22, 2014 except where the claim is valued at £10 million or more. Many more claims are, therefore, set to fall within the costs budgeting regime going forward, meaning that how the courts approach costs management is going to be a key issue for practitioners and their clients.
Aside from the changes relating to funding, perhaps the most significant impact of the Jackson reforms has been on the courts’ approach to case management. There is now a much greater emphasis on compliance with the rules and court orders. This has led to the courts adopting a stricter approach to granting relief from sanctions, as demonstrated by the Court of Appeal’s decision in Mitchell v News Group Newspapers  EWCA Civ 1537.
Previously, the overriding objective of the Civil Procedure Rules was for courts to deal with cases justly. Following the Jackson reforms, this is now balanced with the additional requirement to deal with cases at proportionate cost. As to how this is to be achieved, enforcing compliance with the rules is now singled out for specific mention. CPR 3.9, which deals with when the courts will grant relief from sanctions, has also been revised. The old checklist of factors has disappeared. Instead, the courts are to 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”.
Prior to April 1, 2013 there were various judicial warnings about how these changes were supposed to mark the start of the courts adopting a stricter approach towards case management. Lord Justice Dyson MR warned that: “The tougher, more robust approach to rule-compliance and relief from sanctions is intended to ensure that justice can be done in the majority of cases. This requires an acknowledgement that the achievement of justice means something different now. Parties can no longer expect indulgence if they fail to comply with their procedural obligations”.1
In the months immediately following their implementation, it became clear that, whilst most judges recognised that the Jackson reforms had resulted in a shift of emphasis towards rule compliance, they were unsure as to precisely how strict they should be in their interpretation of the new rules and in what circumstances.
The Court of Appeal’s decision in Mitchell v News Group Newspapers  EWCA Civ 1537 was thus seen as being key to the question of whether the courts were now required in light of the Jackson reforms to adopt a stricter approach to granting relief from sanctions to defaulting parties who have failed to comply with the rules or court orders. The answer was an unequivocal ‘yes’, with the Court of Appeal providing the following guidance:
- Where the non-compliance is “trivial” or “insignificant” and an application for relief from sanctions is made promptly, the court should usually grant relief. Specific examples of what might constitute a “trivial” or “insignificant” breach include where there has been a failure in form rather than substance, or where a party has narrowly missed a deadline imposed by an order but has otherwise fully complied.
- Otherwise the defaulting party must persuade the court that there was good reason for the default. Good reasons are likely to arise from circumstances outside the control of the party in default. Simply overlooking a deadline, whether on account of overwork or otherwise, is unlikely to be a good reason.
In Mitchell, the fact that the defendant’s costs budget was filed one day before the Case Management Conference (instead of seven days before as required by CPR 3.13) was held by the Court of Appeal not to have been a trivial breach. It further held that there was no good reason for the breach. This was despite the fact that the defendant’s solicitors, a small two partner firm whose resources were already stretched by staff absences and a heavy caseload, were only given 11 days’ notice of the Case Management Conference and, therefore, only four days’ notice of the deadline for budgets (with two of these falling on a weekend). The Court of Appeal ruled that it was appropriate, therefore, to refuse the defendant’s application for relief from sanctions, with the result that he was treated as having filed a budget comprising only the applicable court fees.
In reaching this decision, the Court of Appeal echoed Lord Justice Jackson’s view that compliance with the rules and court orders is essential if litigation is to be conducted efficiently and at proportionate cost. It also endorsed the view that the Jackson reforms are, in part, about taking into account the interests of other court users, who should not face delays to their cases through no fault of their own whilst the courts deal with applications by defaulting parties who have failed to comply with the rules or court orders. This issue came up in Mitchell because the Master who dealt with the defendant’s application at first instance had to vacate a half day appointment which had been allocated to deal with claims by persons affected by asbestos related diseases in order to hear it within a reasonable time.
Since Mitchell, there have been a number of similarly strict decisions as the courts seek to apply the Court of Appeal’s guidance. For example:
- In Bianca Durrant v Chief Constable of Avon & Somerset Constabulary  EWCA Civ 1624 the Court of Appeal ruled that it was inappropriate to grant relief from sanctions to a defendant who had served a number of witness statements late, including two that were served only 21 hours late. Whilst the Court of Appeal conceded that a 21 hour delay might, taken by itself, be regard as a trivial breach, it noted in reaching its decision that the application for relief had not been made promptly (it was made some two months after the breach) and that the defendant had been specifically warned by the court that it would not be able to rely on any witness evidence other than that of witnesses whose statements were served on time. As a result, the police officers who had given the statements were unable to give evidence in response to serious allegations that had been made by the claimant against them and the police force that could, if proven, have a potential effect on their careers and reputations.
- In Associated Electrical Industries Limited v Alstom UK  EWHC 430 (Comm), Mr Justice Andrew Smith struck out the claimant’s claim on the grounds that it had served its particulars of claim 20 days after the deadline for doing so – this was despite him conceding that, if his decision depended only on what would be just and fair between the parties, he would not have done so on the grounds that it would be a disproportionate response to the claimant’s non-compliance.
- In Utilise TDS Ltd v Davies and others  EWHC 834, the claimant, by filing its costs budget 41 minutes late and updating the court as to the progress of settlement discussions between the parties 13 days late, breached not one, but two separate requirements of the same order. Viewed in isolation, the court accepted that the delay in filing the costs budget was a trivial breach. However, when viewed alongside the claimant’s other breach of the same order, the court considered it to be a non-trivial breach which required a good reason if relief were to be granted. As no good reasons were put forward, the claimant’s application for relief from sanctions was denied.
These decisions demonstrate the increased risk of parties finding their claim or defence struck out; being unable to rely on key witness or expert evidence; or being otherwise disadvantaged (such as being treated as filing a costs budget comprising only the applicable court fees) due to a procedural breach. Conversely, parties that run their cases efficiently may enjoy unexpected windfalls at the expense of the defaulting party.
Parties should, however, take some comfort from the fact that the Mitchell decision is not about no tolerance, just low tolerance. For example:
- In Adlington & others v ELS International Lawyers LLP (in administration)  EWHC B29 (QB), a case which concerned the failure of eight out of 134 claimants in a group professional negligence action to comply with an unless order to serve particulars of claim, HHJ Oliver-Jones QC concluded, having regard to the guidance in Mitchell, that the failure was insignificant, being one “of form rather than substance”. This was because the particulars of claim had been drafted by the deadline – the failure to serve was only down to the fact that the eight claimants were unable to sign their statements of case because they were abroad or otherwise unavailable.
- In Lakatamia Shipping v Nobu Su  EWHC 275 (Comm), the fact that the defendant was 45 minutes late filing a disclosure list pursuant to an unless order was found to have been a trivial breach.
- In Wain v Gloucestershire County Council and others  EWHC 1274 (TCC), a defendant who filed a costs budget one day late was granted relief from sanctions on the grounds that the breach was trivial.
Further, even when a breach is found not to be trivial and that there has been no good reason for it, the court may nevertheless grant relief from sanctions on the basis that CPR 3.9 requires the courts to consider “all the circumstances of the case, so as to enable it to deal justly with the application” (although the Court of Appeal made clear in Mitchell that other circumstances should be given less weight than the two considerations that are specifically mentioned in the rule). In Chartwell Estate Agents Ltd v Fergies Properties SA and another EWHC 438, for example, the court granted the claimant relief from sanctions for failure to serve its witness statements on time. It did so on the basis that refusing relief would have effectively ended the claimant’s claim and that was too severe a consequence and an unjust result when considered against the history of the case and the fact that neither would the trial date be affected by the decision and nor would there be any additional cost implications for the parties. It is not, therefore, the case that any application for relief from sanction is now doomed to fail.
Going forward, we are likely to see an increasing amount of satellite litigation over whether a default is trivial as there is no hard and fast rule that defines this – it will depend on the nature of the non-compliance and the circumstances of the case. It is also probable that we will see the Mitchell decision being used as a tactical weapon, with parties attempting to catch each other out and exploit any failure by the other party to comply with the rules or court orders in order to gain a tactical advantage. The courts have warned, however, that they are likely to take a dim view of such behaviour – especially if involves the taking of futile and time wasting procedural points. For example, in Vivek Rattan v UBS AG, London branch  EWHC 665 (Comm) the parties agreed in correspondence to file their costs budgets by a specific date, as a previous court order permitted. The claimant subsequently applied for an order that the defendant, who had filed its costs budget on the date specified, which was only 6 days before the Case Management Conference, should apply for relief from sanctions as it was in breach of CPR 3.13. The judge described the claimant’s application, in light of the parties’ agreement, as being “a misguided piece of opportunism” and awarded the defendant its costs of the application on an indemnity basis.
Many practitioners have expressed alarm over the Court of Appeal’s decision in Mitchell, which critics believe has resulted in a slavish focus on compliance at the expense of achieving justice between the parties. At a conference held by the Civil Justice Council (CJC) on 21 March 2014 to assess the impact of the Jackson reforms, Lord Dyson MR made it clear that it was not for the CJC or the Civil Procedure Rules Committee (CPRC) to produce guidelines to amplify and illustrate the Mitchell guidance, particularly with regards to when a breach will be considered trivial. The guidance must, he said, be developed through court Norton Rose Fulbright – May 2014 05 decisions.2 Therefore, unless and until the Court of Appeal revisits its guidance it is likely that the trend towards a strict interpretation of the reforms in circumstances where indulgences might have previously been forthcoming will continue.
In the meantime, practitioners and parties will need to ensure that they run their cases efficiently so that deadlines are not missed. From a practical perspective, this will include checking client, witness and expert availability and the proper consideration of budgeting, if applicable, with input from counsel and experts at an early stage. If it becomes clear that a deadline cannot be met then parties would be well advised to respond proactively by attempting to agree an extension with the other side or, if agreement cannot be reached or it concerns a deadline that cannot be varied by agreement, otherwise making an application for an extension of time before time has expired, as these will, as was made clear by the Court of Appeal in Mitchell, be looked on more favourably than applications for relief from sanctions made after the event. Of course, the difficulty is that the courts are likely to find themselves swamped with such applications, which will in turn increase costs. This is the antithesis of what the Jackson reforms are supposed to achieve. One possible solution that is currently being considered by the CPRC is for the Civil Procedure Rules to be amended to allow parties to agree time extensions of up to 28 days without needing to make an application to the court (also referred to as a ‘buffer rule’).3 If implemented, a buffer rule would go some way towards resolving some of the pressures that practitioners and their clients are facing post-Mitchell.
The new costs management regime that came into force on April 1, 2013 contained significant exemptions in that it did not apply at all to Commercial and Admiralty Court cases and was subject to a £2 million threshold in other courts. It was made clear at the time by senior members of the judiciary, however, that these exemptions were only meant to be temporary and it was not long before the CPRC revisited them. Lord Dyson described the threshold as ‘too low’ and ‘unacceptable’. He indicated that he wanted to see all the exemptions removed completely, as this would ‘accord best’ with the Jackson reform principles.4 As a compromise, it was agreed that the threshold would be increased to £10 million and that the exemption for Commercial and Admiralty Court cases would be removed. These changes apply to all Part 7 multi-track cases issued on or after 22 April 2014. Even where a claim does not automatically fall within the regime, the court will nevertheless retain a discretion to apply costs budgeting to these cases.
Given the above, many more claims will fall within the costs budgeting regime going forward. Practitioners and their clients would be well advised, therefore, to take note of how the courts have approached costs management over the last year, especially since costs budgeting is still a relatively new requirement.
A key point for practitioners and their clients to be aware of is the importance of filing a costs budget on time (that is, seven days before the first case management conference where there is no notice served under CPR 26.3(1)). Not only is the consequence for failing to do so particularly harsh – the party in default will be treated as having filed a budget comprising only the applicable court fees – but the decisions in Mitchell,Utilise and Michael Anthony Burt v Linford Christie  All ER (D) 86 (Feb), another case involving the late filing of a cost budget, all illustrate the potential difficulties in securing relief from this sanction now that the courts are taking a stricter approach to rule compliance. These cases should be a salutary lesson to practitioners to give careful thought to costs budgeting, in conjunction with their clients, at an early stage in the proceedings, taking care to liaise in good time with counsel and experts as to their likely costs.
Whilst cost budgeting is not an exact science, parties conducting litigation must keep in mind that the Civil Procedure Rules state that, when assessing costs on the standard basis, the court should have regard to the approved budget and not depart from it ‘without good reason’. A number of recent decisions suggest that simply getting the budget wrong is unlikely to constitute a ‘good reason’, raising the risk that an approved budget will, in such circumstances, effectively act as a cap on the amount that can be recovered from the other side irrespective of the costs that are actually incurred. In Elvanite Full Circle Limited v AMEC Earth and Environmental (UK) Limited  EWHC 1643 (TCC), a case proceeding under the costs pilot scheme in the Technology and Construction Court, the successful defendant applied to almost double its approved costs budget after the case had concluded. Coulson J observed that this was a case where everything had pretty much gone as expected. Given the scale of the overspend it must follow that something went wrong in the original estimate. In his view, however, it was very doubtful whether a mistake in an approved costs budget would, of itself, amount to a good reason for a later departure. This reflected Coulson J’s comments in Murray v Neil Dowlman Architecture Limited  EWHC 872 (TCC), another case involving a mistake in an approved costs budget, in which he emphasised that: “The courts will expect parties to undertake the costs budgeting exercise properly first time around, and will be slow to revise approved budgets merely because, after the event, it is said that particular items had been omitted or under-valued.” The fact that he went on to permit the mistake to be rectified in Murray was based on the special facts of the case.
There is still very little guidance, however, as to what might constitute a ‘good reason’, although this is likely to change as more cases that are subject to the new costs budgeting regime are assessed for costs. That said, significant and unexpected changes to the course of the litigation are likely to qualify, subject to the facts of the case. In The Board of Trustees of National Museums and Galleries on Merseyside v AEW Architects and Designers Limited  EWHC 3025 (TCC), another case proceeding under the costs pilot scheme in the Technology and Construction Court, Akenhead J ordered the defendant to make an interim payment on account of the claimant’s costs that was significantly in excess of its approved costs budget, commenting that this was an obvious case for a departure from the approved budget. The reasons for this were that: an additional party had been added to the proceedings, there had been substantial amendments to the claimant’s case, and the case had become much more complex than the parties could reasonably have envisaged at the time that the budgets were prepared. Parties would do well, therefore, to take great care when setting out in Precedent H the assumptions and proposed timetable on which their budgets are based so that, if these subsequently change or are departed from, any increase in costs is easier to justify.
Parties will, however, be taking a significant risk if they leave it to when costs are being assessed before addressing any significant over-spend. The better approach is to seek to revise the approved budget, which the Civil Procedure Rules allow for if ‘significant developments’ in the litigation warrant the revision. In bothElvanite and National Museums and Galleries, the successful party did not make an application to amend their approved costs budget until after trial (although both filed amended costs budgets with the court before trial). In Elvanite, Coulson J held, perhaps unsurprisingly, that an application to amend an approved costs budget after judgment was a contradiction in terms. In his view, a party wishing to amend an approved costs budget must make a formal application to the court before trial and as soon as it becomes apparent that the original budget has been exceeded by a more than minimal amount. Akenhead J expressed a different view on this point in National Museums and Galleries. He did not think that a formal application to the court was necessary in circumstances where a revised budget had been filed with the court for consideration at the next procedural hearing. Both views were, however, based on the wording of PD 51G governing the costs pilot scheme. The wording of the current rules concerning the revision of costs budgets is different. Pending clarification of this point, the more formal approach is likely to be the safest course of action. Parties would be well advised, therefore, to review their costs continuously so that such an application can be made as soon as it becomes apparent that one is required.
The rewards for a successful party who has kept within its approved budget are potentially significant when it comes to the assessment of costs. In Slick Seating Systems & Ors v Adams & Ors  EWHC B8 (Mercantile), a case proceeding under the costs pilot scheme in the Mercantile Court, HHJ Simon Brown QC, after finding for the claimant, decided that, having actively managed the case throughout, he would dispense with the need for detailed assessment and summarily assess the claimant’s costs instead. Observing that they had “laudably kept within the budget and exercised due control over their activities and expenditure in exemplary fashion” and that their budget was proportionate to what was at stake, he awarded the claimant their costs as claimed. The result was that the claimant recovered all of their costs and avoided the need for an expensive detailed assessment of their costs. Could this be a trend that the judiciary will adopt going forward (i.e. treating costs that fall within an approved budget as having been reasonably and proportionately incurred)? After all, when approving a budget, the court has in mind both the reasonableness and proportionality of the costs estimates. Lord Justice Moore-Bick was, however, quick to warn against this approach in Troy Foods v Manton  EWCA Civ 615 when dealing with an application for permission to appeal a costs management order on the basis it approved an overly generous budget. He repeated a warning that he had given in an earlier case that an approved budget is not a licence to conduct litigation in ‘an unnecessarily expensive way’. He added that: “I do not accept that costs judges should or will treat the court’s approval of a budget as demonstrating, without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply because they fall within the scope of the approved budget.” For the time being, therefore, successful parties must still be prepared to justify their costs as being both reasonable and proportionate, but it remains to be seen just how rigorous the courts will be when it comes to the assessment of costs which fall within an approved budget.
The changes introduced by the Jackson reforms one year ago have undoubtedly had a significant impact on civil litigation, particularly so far as case and costs management are concerned. The increased focus on rule compliance has increased the risk of parties finding their claim or defence struck out or being otherwise disadvantaged due to a procedural breach, although parties that run their cases efficiently may enjoy unexpected windfalls at the expense of the defaulting party as a result. Costs budgets are also becoming of central importance to the ligation process with the extension of the new costs regime from 22 April 2014. Whilst we await further guidance from the courts as more cases that are subject to the new regime are assessed for costs, the early indications are that simply getting a budget wrong in the first place could result in the party concerned failing to recover the over-spend in the absence of a good reason (such as a significant and unexpected change to the course of the litigation). In addition to giving careful thought to the budgeting process, it will necessary, therefore, for parties to monitor their costs closely throughout and act quickly to address any over-spend by seeking to vary their approved budget at the earliest opportunity.