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Claimants unable to recover the costs of the counterclaim

View profile for Lucy Hodgkins
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Claimants unable to recover the costs of the counterclaim where they did not file a revised budget.

In Bhat & Anor v Patel & Anor [2021] EWHC 2960 (Ch) (see judgment here), Mrs Justice Fancourt found that where the claimants had not filed a revised budget, they were not entitled to recover their costs of the counterclaim unless they successfully applied for relief from sanctions.

Fancourt J was determining the defendants’ appeal following the trial of two actions. There were four grounds of appeal against the decision of Recorder Geraint Jones QC, the fourth of which related to the costs of the beneficial interests counterclaim. The claimants had been successful in their counterclaim.

There was a case management order, dated 25 September 2020, requiring them to submit any budget for the costs of the counterclaim. No budget, or relief from sanctions application, was filed. In the first instance, the Recorder found that the claimants were not in default of a mandatory order to file a budget and so relief from sanctions was not required. He therefore exercised his discretion and allowed the claimants to recover their costs of the counterclaim.

The defendants appealed on the basis that the claimants should have been taken to have filed a budget comprising only court fees (CPR 3.14). They submitted that the Recorder was wrong to interpret the order as not including a mandatory provision for the filing of updated budgets; was wrong not to require the claimants to apply for relief from sanctions; and was wrong to exercise his discretion to allow the costs of the counterclaim to be recovered.

The terms of the order of 25 September 2020 were that "The parties have permission to file and serve updated costs budgets by 12 October 2020 if so advised, to reflect the consolidation of the proceedings. The parties will endeavour to agree their updated budgets and any points of disagreement will be dealt with by the Trial judge.” Fancourt J read this as clearly providing an order that the parties would be able to add the costs of the beneficial interests counterclaim now that the action was consolidated. The action had been consolidated and, if an updated budget were not filed, it was clear that the only applicable budget would be that which was already filed.

There was some question as to whether, on the day before the hearing, the parties had orally agreed to dispense with costs budgets for the counterclaim but that issue was not resolved by the Recorder.

On the basis that the Recorder had not found that the parties had agreed to waive the requirement for costs budgets, Fancourt J found that they were in error in exercising their broader discretion as if the parties had agreed to do so. The Order was therefore amended to say that the defendants must pay the claimants’ costs of the possession claim. Should the claimants then wish to pursue the costs of the counterclaim, and notify the Court within 14 days of this, the matter would be remitted back to the County Court to consider the outstanding issues to be addressed. Namely:

a. Whether the parties had mutually agreed to waive default in filing costs budgets that included costs of the counterclaim, so that any costs of the counterclaim awarded following the trial would be dealt with on an unbudgeted basis

b. If not, should relief against sanctions be granted to the claimants

Whilst we do not yet have a decision as to whether the costs of the counterclaim will be limited to court fees only, this case is a stark reminder about the importance of filing budgets on time or (in applicable circumstances) agreeing that they are not required. Without a successful relief from sanctions application it is not easy to avoid the terms of CPR 3.14; so if an order makes reference to filing budgets make sure to take heed!