The consequences of filing an inadequate budget late

Stephen Herbert Hunt v Oceania Capital Reserves Limited & Ors [2025] EWHC 837 (Ch) and the consequences of filing an inadequate budget late.

Background

This claim relates to the claim made by the Claimant that he had been defrauded of £1,050,000 when he paid funds to the Second Defendant, pursuant to an investment agreement made with the first Defendant. The Third Defendant is a solicitor and partner of the Second Defendant. It was alleged that the Second and Third Defendants had acted in breach of trust or in dishonestly assisted a breach of trust, including the use of funds within the firm’s client account for its own benefit. Judgement in default has been entered against the First Defendant.

CPR 3.13(1)(b) requires parties, except litigants in person or if the Court orders otherwise, to file and exchange budgets no less than 21 days before the first case management conference. The first case management conference was listed for the 26 February 2025, requiring budgets to be filed and exchanged by 4 February 2025.

The Claimant filed and served their budget at around 3pm on 4 February 2025. A Precedent H on behalf of the Second and Third Defendant was filed at 5pm on the same date, 30 minutes after the deadline for budgets to be exchanged. The Second and Third Defendants were in breach of CPR 3.13(1)(b), and therefore had to make an application for relief from sanction.

Issues identified with the budget.

Despite the budget being served late, the mere 30 minutes late would likely not have been an issue. Issues were raised with the contents of the budget, namely that the figures on the front page of the budget for incurred and estimated costs are almost entirely different to those in the subsequent pages, the budget appeared to have been amended to closely match the Claimant’s budget, figures appeared to have been taken directly from the Claimant’s budget, including the £10,000 court fee, costs under contingency A were the same costs as those claimed by the Claimant and were around £21,000 greater than the schedule of costs received after the hearing to which Contingency A related to, and finally, and perhaps the most glaringly obvious error was that the budget is stated to be the ‘Costs Budget of Claimant dated 19^th July 2022’.

Comparing budgets side by side, it was clear that figures were incredibly similar, with the phase with the greatest disparity being around £2,500 above that claimed by the Claimant. Compared side by side, select phases looked like this:

It was considered by the Claimant that the Second and Third Defendant had either adapted an old budget without much thought and/or added in figures from the Claimant’s budget. Contingencies were not defined, and no assumptions were provided, so it was impossible for the Claimant to understand the justification for the budget provided.

The Second and Third Defendant’s excuses

Accompanying their application for relief from sanction, the Second and Third Defendant explained that they had two critical technical failures that prevented a timely compliance with CPR 3.13(1)(b). A laptop used by the senior partner malfunctioned, which prevented the senior partner from accessing or modifying the Precedent H and a software malfunction prevented proper submission of the Precedent H impossible without correction. The Senior Partner’s paralegal also experienced issues with software at the office and did not have experience with the matter, which resulted in incorrect characters being included within the Precedent H. The Second and Third Defendant’s Solicitor went on to state that despite these significant technical issues, the document was filed and served 59 minutes after the deadline, demonstrating the trivial nature of the breach. No mention was made of the errors within the Precedent H, save for the acknowledgement that the paralegal inserted some additional characters erroneously.

During the hearing, the position of the Second and Third Defendants Solicitor changed, explaining that a consultant had prepared the budget. The Court was critical of the Second and Third Defendant’s solicitor that he had been able to come into the office to sign the budget and that no statement is made as to why he considered he would be able to sign a statement of truth despite the various issues encountered.

The Court’s considerations

When considering the application, the Court considered the three-stage test of Denton, where consideration would be given to the seriousness and significance of the failure to comply with the order, why the default occurred and thirdly, the circumstances of the case.

Concerns were raised that the person preparing the budget could not have known that this was an accurate statement of both incurred and estimated costs. In absence of any explanation, it was considered that the Second and Third Defendant’s budget had been inflated in line with the Claimant’s budget.

This had a significant impact due to the document being filed late, as the Court must be able to consider the document to ensure it complied with procedural requirements. It was considered that a party that serves a wholly inaccurate costs budget late has committed a more significant and serious breach than a party who has filed an accurate budget at the same point. The fact that incorrect figures had been included was considered a serious and substantial breach.

When considering why the breach occurred, even accepting the substantial issues experienced by the Second and Third Defendant’s Solicitor, does not explain why the figures closely resemble those in the Claimant’s budget. No explanation was given for the time when the error seems to have occurred, namely an hour or two prior to filing. The excuses provided were akin to that of ‘the dog ate my homework’.

When considering the third stage of the Denton test, consideration was given to the integrity of the budgeting process. Issues had been identified within the budget without explanation and no insight has been provided as to how the figures have been reached. As such, the Court considered that they would have no confidence that any revised budget would reflect the statement in the statement of truth. As such, the Court dismissed the application for relief from sanction, resulting in the Second and Third Defendant being limited to a budget consisting of court fees only.

Analysis

This matter shines a spotlight on the importance of preparing an accurate budget and the substantial weight the Court will give to any breach of the statement of truth. Had the Second and Third Defendant spent the necessary time to prepare a budget, even if this may have resulted in the budget being filed and served significantly later, they would have had much greater prospects of obtaining relief from sanction.

When errors or oversights happen, which is the nature of the beast in litigation, it is evident that a clear and honest approach will certainly protect your position greater than exploring any potential shortcuts that, while they may give the impression of the breach being minimal, may ultimately be considered a much more serious and significant breach and may have a catastrophic effect on litigation.