K/S Mountain Invest v Ducat Maritime Limited

Relief from sanction for late filing of a costs budget depends on the three-stage test in Denton. The court must assess whether the breach was serious or significant, whether there was a good reason, and whether relief is just in all the circumstances. The factors in rule 3.9(1), including efficient and proportionate litigation and enforcement of compliance, are particularly important at the third stage. A deliberate decision based on an unjustified hope that compliance would prove unnecessary is not a good reason. Relief may nevertheless be granted where prompt corrective action, limited disruption, agreement of the budgets and the disproportionate effect of the sanction together make relief just, usually on appropriate costs terms.

The defendant applied for relief from sanction after filing its Precedent H costs budget fourteen days late. The budget should have been filed on 3 March 2023 but was filed on 17 March 2023, seven days before the hearing. The application was analysed under the requirements for relief from sanction, whether or not characterised as an application under rule 3.14. The central issue was whether the defendant should avoid the default consequence of being treated as having filed a budget limited to the court fee.

1. The court applied the three-stage test established in Denton: seriousness or significance of the breach; whether there was a good reason; and the justice of the matter in all the circumstances.
2. The delay was both serious and very serious. The defendant’s solicitor had deliberately decided not to file a budget because he hoped that direct negotiations would make compliance unnecessary. That belief was incorrect and unjustified. The decision was therefore not supported by a good reason, even though it was based on a mistaken hope rather than indifference to the rules.
3. At the third stage, the court considered the factors in rule 3.9(1), namely the need for efficient and proportionate litigation and the need to enforce compliance with rules, practice directions and orders. Those considerations weighed heavily against the defendant.
4. Other circumstances nevertheless outweighed them. The solicitor acted promptly after discovering the mistake, the breach delayed exchange of budgets by only one day, disruption to costs-management preparation was limited, and the parties had agreed substantial budgets. Applying the sanction would have been disproportionate and relief was therefore granted.
5. The relief was granted on terms that the defendant pay the costs of and occasioned by the application. The court indicated that those costs should be assessed on the indemnity basis or, at least, generously.