"Dog Ate My Homework" - Defendants Costs Budgets Restricted to Court Fees Only
Posted on 10th April 2025 at 14:54
Hunt v Oceania Capital Reserves Ltd & Ors [2025] EWHC 837 (Ch) (10 April 2025) is a real lesson in the importance of both compliance with the prescribed Costs Budgeting deadlines and the need to make sure your Costs Budget is prepared correctly. Here the Second & Third Defendant’s costs budget had prepared internally without a costs specialist, it appeared to the court to be a copy of the Claimant’s budget and no satisfactory explanation had been offered for the inconsistencies and errors. The Second & Third Defendant’s relief application was refused and they were limited to court fees only. The court rejected the argument that dismissal of the application for relief was disproportionate to the breach. It really is quite an extraordinary read.
At Carter Burnett we undertake costs budgeting (on CFA cases) on a no win no fee basis and our time is recoverable between the parties. As this case demonstrates it is a no brainer to have a costs specialist working with you on costs management.
The Second and Third Defendant’s applied for Relief from Sanctions having failed to file a costs budget in accordance with CPR 3.13. 3.14 makes clear that any party who fails to file a budget despite being required to do will be treated as having filed a budget comprising only the applicable court fees.
Here Costs Budgets were due by 4 February 2025. The Second & Third Defendant’s Costs Budget was filed at 5pm and as such it was deemed to be served the next working day as per CPR 6.26. It was recognised that ordinarily a 30 minute delay would be neither a serious or significant breach and relief would have been granted.
Master Brightwell summarised thus:
“6. The problem, identified by the claimant in Mr McCluskey's skeleton argument filed the day before the CCMC, is that the budget filed by IPS Law and Mr Farnell contained figures on its front page which did not match up with those on later pages, and on the front page the figures bore striking similarity to the figures in the claimant's budget.”
7. If IPS Law and Mr Farnell had filed on time a document purporting to be a Precedent H, but which failed to include figures which the budgeting party actually considered were a 'fair and accurate statement of incurred and estimated costs which it would be reasonable and proportionate' to incur, the question would arise whether there had in fact been compliance with CPR r 3.13(1)(b). In Lakatamia Shipping Co Ltd v Nobu Su [2014] EWHC 275 (Comm), Hamblen J approved comments in an earlier case that a disclosure list would be illusory if it was obvious that it had been prepared in apparent but not real compliance with the obligation to give disclosure. I consider that a costs budget obviously prepared without real compliance with the obligation to complete Precedent H fairly and accurately would similarly be illusory. Such a purported budget could not properly be signed with a statement of truth in the form prescribed for a costs budget by CPR Practice Direction 22, paragraph 2.3.
8. In the event, however, the failure to file and serve the Precedent H on time means that there was a failure to comply with CPR r 3.13(1)(b), without consideration of the terms of the document filed. This is accepted by IPS Law and Mr Farnell, who have filed an application for relief from sanctions accordingly. Consideration of the contents of the document that was filed and served goes to the nature of the breach and of all the circumstances when determining whether to permit the party in breach to rely on a costs budget.
9. Furthermore, no Precedent R budget discussion report was served by IPS Law and Mr Farnell either, as required by CPR r 3.13(2). Before the CCMC, they had also not provided to the claimant or the court a completed part 2 of their Disclosure Review Document."
The Claimant’s Skeleton Argument identified a litany of inconsistencies and errors:
10. Mr McCluskey's skeleton argument for the 26 February 2025 hearing identified the following issues with the budget served by IPS Law and Mr Farnell's on 4 February 2025:
i) It is on its face incoherent. The figures on the front page for incurred and estimated costs are almost entirely different to those in the subsequent pages.
ii) A comparison with the claimant's budget, served on IPS Law a couple of hours earlier, appears to show that in the interval between service of the two budgets, someone had reviewed Mr Hunt's budget and altered the second and third defendant's budget in order closely to match it.
iii) One example of this relates to costs for the Issue phase. IPS and Mr Farnell claim on the front page to have incurred £58,045, i.e. almost exactly the £58,040 incurred by Mr Hunt and shown in his budget. As to that, in the detailed figures for this phase on page 2 of the budget, IPS Law and Mr Farnell claim to have incurred a totally different figure, £30,000 exactly. This includes £10,000 of court fees (the issue fee paid by the claimant, rather than by the defendants).
iv) Another example is Contingency A (being the incurred costs of a proprietary injunction obtained by the claimant in 2024), which is unexplained (in common with all three contingency phases) in IPS Law and Mr Farnell's budget. It shows the same figures as shown in the claimant's budget. Mr Hunt's incurred costs are £56,149.67. IPS Law and Mr Farnell's are said to be £56,053 in the detailed analysis, and £55,600 on the front page. These figures are contradicted by the costs schedule served by IPS Law and Mr Farnell at the conclusion of the proprietary injunction hearing (which was signed with a statement of truth by Mr Farnell) which stated that their total costs for that exercise were £33,846.99, that counsel had been paid £15,000 (as opposed to the £21,000 stated in the budget) and that IPS Law had incurred time costs of £18,550 (as opposed to the £34,750 shown in their budget – which is almost identical to the £34,455 incurred by Mr Hunt and shown in his budget).
v) IPS Law and Mr Farnell's budget is stated on its face to be a 'Costs budget of Claimant dated 19th July 2022'.
It was noted by Master Brightwell that the similarity of figures between the Claimant’s Budget and the Second & Third Defendant’s Budget was evident.
Master Brightwell continued:
12. Mr McCluskey submitted, in my view entirely reasonably, that the suspicion must be that IPS Law and Mr Farnell simply adapted an old budget without any genuine consideration of its appropriateness to this case, and/or added in figures from the claimant's budget which had been served shortly beforehand. Mr McCluskey relied on the incoherence of the budget, the fact that it included a £10,000 issue fee and the lack of any explanation of the assumptions on which the budget was based.
13. When one looks at the subsequent pages of the budget it can be seen that the figures do not match the front page at all. So, for instance, the breakdown shows incurred pre-action costs were £25,600 (and not £34,510 as on the front page), and incurred and estimated costs for disclosure come to £16,744 and £31,750 respectively as opposed to the sums of £24,983.52 and £31,500 shown on the front page. The contingencies are not defined, and no assumptions are provided for them, even though the figures for the contingencies almost match those provided by the claimant (his contingencies being for the incurred costs of an injunction application, and for a committal application and for the costs involved in handing down judgment). The final contingency should, of course, be dealt with in the trial phase (see CPR Practice Direction 3D, paragraph 10(b)), but that is not the material point. It is clear that a human mind made a decision to include three unnamed contingencies in the second and third defendants' budget and to insert figures very close to those provided in the claimant's budget, yet no explanation is made of that by Mr Farnell.
14. Mr McCluskey submitted that the breach was particularly egregious in the case of incurred costs, where the statement of truth from Mr Farnell on the budget could not properly be made.
15. Having received a copy of Mr McCluskey's skeleton argument, Mr Farnell filed and served a witness statement on the day of the February hearing, asking for relief for sanctions. That witness statement sought to explain the lateness (by a few minutes) of the second and third defendants' budget but did not address, other than parenthetically, the more pertinent points raised by the claimant concerning the obvious inaccuracies in the document and the striking similarity of the figures in the parties' budgets.
16. I accordingly declined to deal with the issue of relief from sanctions at the CCMC, but gave IPS Law and Mr Farnell the opportunity to deal with the issues raised by the claimant. I therefore directed they file and serve an application seeking relief from sanctions, together with Precedent R and a witness statement from Mr Farnell addressing the points in the claimant's skeleton argument concerning the content of the Precedent H.
The Second & Third Defendant’s responded by referring to a malfunctioning laptop and the fact that the law firm was a small practice with only two members of staff who could make amendments and neither were able to remedy the issues. At the hearing they referred to another member of staff having prepared the Costs Budget who was not referred to within the witness evidence.
Master Brightwell was forthright in his comments:
“20. […] There is no acknowledgment of the fact that the figures were apparently copied from the claimant's budget. There is no acknowledgment of the other points about the detail of the figures set out in the claimant's skeleton argument for the February 2025, i.e. the very points which Mr Farnell had been directed to address in his further witness statement. Paragraph 31 does assert that 'the inconsistencies in the budget are attributed regrettably to documented software malfunctions which directly prevented Mr Farnell from amending the documents entirely'. This gobbledegook does not begin to explain how the figures in the budget nearly match those in the claimant's budget. It would be inherently incredible to suggest that a software glitch could have achieved this without any human intervention.”
Further he stated that:
“23. […] What is material, and remains unaddressed is any explanation of how the figures came to be inserted into IPS Law and Mr Farnell's costs budget. It also unsatisfactory that Mr Farnell does not indicate in his witness statements whether he read the budget before he signed it, nor why he considered that he was able to sign the statement of truth in light of the technical difficulties apparently experienced by his firm.”
The criticisms of the Second & Third Defendant’s conduct continued:
25. While many breaches are serious or significant because of the effect they will have on the proceedings, and particularly on the timetable, that is not always so. In this case, the relevant breach was not the delay in filing measured in minutes, but the fact that the costs budget was incoherent, and suffered from the defects identified by the claimant and summarised at [10] above. It contains figures which IPS Law and Mr Farnell accept were incorrect, not least because they have filed a revised budget on which they seek permission to rely instead. That revised budget is itself a problematic document, but I consider that a point to be considered at the third stage of the Denton test.
26. The Precedent H budget was filed and served with incorrect figures, apparently closely based upon another party's budget and yet verified by a statement of truth. Furthermore, it appears in light of the evidence given by Mr Farnell, to the extent that his evidence is capable of comprehension, that the person who completed the document (whether the person mentioned in the evidence or the separate individual mentioned in oral submissions) did not believe that the figures shown in the budget were correct. That is, they did not believe that the document when presented to Mr Farnell for his signature contained an accurate statement of incurred costs and a fair and accurate statement of estimated costs. In saying that, I find in the absence of any attempt at explanation, that somebody deliberately inflated the figures on the front page to match those in the claimant's budget.
27. The effect of this was that the budget was illusory in the sense approved by Hamblen J in the Lakatamia Shipping case mentioned above. There is some doubt whether the pre-CPR case law on which this statement was made is still applicable (see White Book at 3.9.10), but as I have said I do not need to decide that point as there was undoubtedly a breach in this case as the budget was filed and served late. When a document is filed late, the court must be entitled to consider the document in order to determine whether it complies with the procedural requirements applicable to it. Where a costs budget contains admittedly wholly incorrect figures, I consider that this can be taken into account in considering the seriousness of the breach. It seems to me that a party who files an accurate and correctly completed document late commits a less serious and significant breach than does a party who files an inaccurate and incorrectly completed document at the same point.
28. Because the document purporting to be the budget on behalf of the second and third defendants contains figures which are admitted to be incorrect, I consider the breach to be serious and substantial. A case where a statement of truth is signed on a document which is so fundamentally flawed constitutes a very serious breach. It is significant because the integrity of the justice system is compromised when an officer of the court signs a statement of truth on a document where that statement is demonstrably so incapable of being justified. The consequences to flow from that breach depend upon the second and third stages of the Denton test.
29. At the second stage, the court considers why the default occurred. All I am able to say is that I can only surmise because the evidence filed by Mr Farnell does not acknowledge the extent of the problem, let alone explain how the figures in the budget came to be inserted in it. Even accepting that the firm had suffered a real hardware failure in the period when the budget was being prepared, this does not explain how the figures mirroring the claimant's budget came to be included. The real problem seems to have arisen in the hour or two before the budget was filed. No explanation has been provided of what happened in that period, other than that Mr Farnell had to come into the office to sign the budget off.
30. At the hearing, Mr Farnell told me that he had not been able to discuss with Mr Okafor what had happened in that hour or two. In the absence of Mr Okafor having been indisposed throughout the five weeks between the hearings (which was not suggested), I consider this response to have been obfuscatory. In light of the actual problems with the budget, which were clearly identified at the hearing on 26 February 2025, I consider the long explanation of technical problems in Mr Farnell's witness statement to be the equivalent of what Coulson LJ described in Diriye at [63] as 'excuses of "the dog ate my homework" variety'. While it is clear that the technical problems experienced by the firm undoubtedly contributed to the problem, Mr Farnell has not addressed the most significant issues at all.
31. I then turn to stage 3 of the Denton test, being a consideration of all of the circumstances of the case. This is not a case where prior breaches are relied on, or where the conduct of the case going forward will be affected. There has been some effect, however, as an additional hearing had to be listed in order to deal with the application for relief from sanctions.
32. The real issue is that which I have identified above about the integrity of the budgeting process. It is at this point material to consider also the revised budget upon which IPS Law and Mr Farnell seek to rely. A point I made at the hearing was that the budget for the CMC phase now shows fees of £6,500 for counsel having attended the hearing on 26 February 2025, when counsel did not attend. Mr Farnell accepted that was an error, but did not explain how the error was made. Likewise, one contingency is now amended to make clear that it is for the incurred costs of the injunction application in 2024 (although it also suggests that there is 'further work to conclude' this). Counsel's fee is stated as £20,500. As Mr McCluskey pointed out, the schedule of costs served by IPS Law before the final hearing in August 2024 showed counsel's fee as £15,000. These discrepancies are not just rounding errors.
33. Questions also arise as to how the other phases have been revised since the CCMC. No insight has been provided by Mr Farnell as to how the budget has been revised and, in particular, whether the times for fee earners shown in the 4 February 2025 budget other than on the front page had been properly considered in the first instance and, if so, by whom.
34. Accordingly, I do not consider that the court can have any confidence that the revised budget properly reflects the statement in the statement of truth. That, together with the absence of any explanation for the contents of the first Precedent H, which the order made at the CCMC required to be provided, lead me to the conclusion that the application for relief from sanctions must be dismissed. I accept that the prejudice to the second and third defendants in being deemed to have filed a budget limited to court fees is a very real one. The court is also required to consider whether dismissal of the application for relief is disproportionate to the breach. I do not consider it to be disproportionate. For relief to be granted would effectively be to sanction both a serious breach and, more significantly, a wholly unsatisfactory response to the breach which has occurred. It would also permit the second and third defendants to rely on a budget which the court still has no confidence has been properly prepared. For the court to do this would undermine the administration of justice.
35. Finally, I would record my view that Mr Farnell's objection that the claimant's opposition to the application was 'opportunistic' was itself misconceived. See Diriye at [69].
36. The application for relief from sanctions is therefore dismissed.
The lessons here are:
1. Always be aware of court deadlines and give your useful ample to comply. Leaving matters to the last minute will hinder you.
2. If you have a genuine issue in been able to comply with a court deadline be proactive. Seek an extension before breach if you can.
3. When filing & serving a court document late, such as a Costs Budget, make sure that it is prepared properly. Making sure you plan ahead will ensure there is adequate time.
4. If the court asks you to explain an issue then make sure you explain it. Don’t expect sympathy if you can’t. Sometimes it is better to be honest than to ignore the issue completely.
5. If it's work outside your specialism then get a specialist involved. The risk of error and inaccuracies are too great and could see costs restricted to court fees only.
The sanctions with costs budgeting are significant so it’s important to get matters right. If in doubt speak to a trusted costs specialist who can guide you through the court deadlines and assist the preparation of a robust and accurate Costs Budget.
One can only wonder how the Second & Third Defendant's solicitors will be explaining this to their clients.
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