Solicitors' Withdrawal Does Not Excuse Late Costs Budget | Relief From Sanctions Refused

A limited company without legal representation remains subject to CPR 3.13 costs budgeting requirements. Relief from sanction was refused where the director failed to calculate a deadline that would not have been difficult to ascertain.

NATIONAL HOUSE-BUILDING COUNCIL v HODSON DEVELOPMENTS LTD & ORS [2025] EWHC 3438 (TCC)

In National House-Building Council v Hodson Developments Ltd & Ors [2025] EWHC 3438 (TCC), the court refused the first defendant’s application for relief from the sanction imposed by CPR 3.14 for failing to file a costs budget. The first defendant, a development company, missed the 30 May 2025 deadline after its solicitors terminated their retainer. Applying the three-stage test from Denton v White, Recorder Singer KC found the breach was serious and significant, causing the need for an additional hearing. No good reason was established: the director had received clear warnings and should have ascertained the deadline despite being preoccupied with a separate planning inquiry. Working out the deadline “would not have been a difficult exercise.” Considering all circumstances, including the need under CPR 3.9(1)(b) to enforce compliance with rules, the court held it would not be manifestly unjust to maintain the sanction. The first defendant was therefore treated as having filed a budget comprising only court fees for future costs, with estimated costs of approximately £260,000 affected. Incurred costs remained unaffected by the sanction.

Whilst the date of 30 May was not in terms set out in that letter, and Mr Letman rightly points that out -- nor did a later email in May in terms point that out -- nevertheless it does seem to me that it would not have been a difficult exercise by any stretch of the imagination to work out when 21 days before 20 June was; or indeed, as a responsible director of a company, to ask when it was. It does not appear that Mr Hodson actually did that at any time.

Citations

Denton v White [2014] EWCA Civ 906 The court confirmed a three-stage test for relief from sanctions: assessing seriousness of the breach, whether there was a good reason, and whether it would be unjust to impose the sanction in the circumstances. BMCE Bank International Plc v Phoenix Commodities PVT Ltd & Anor [2018] EWHC 3380 Relief from sanctions was refused where a 14-day delay in filing a costs budget, due to solicitor unavailability, was found to be serious and without good reason, reinforcing the importance of compliance with budgeting rules and procedural deadlines. Leadingway Consultants v Saab & Anr [2025] EWCA Civ 852 The Court of Appeal reaffirmed the application of the Denton principles in costs cases and emphasised judicial discretion in determining whether to uphold or disapply a costs sanction under CPR 3.14.

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Key Points

The automatic sanction under CPR 3.14, which restricts a defaulting party’s future recoverable costs to court fees only, is forward-facing; it does not automatically preclude recovery of costs already incurred prior to the default. [8]
When considering an application for relief from the CPR 3.14 sanction, the court applies the three-stage Denton test, with particular regard to the factors in CPR 3.9(1)(a) and (b) concerning efficient litigation and the need to enforce compliance. [3, 6]
A failure to file a costs budget by the prescribed deadline is a serious and significant breach, particularly where it causes delay, necessitates an additional hearing, and hinders the court’s ability to manage costs and the case efficiently. [20, 21, 31]
The fact that a party’s director was preoccupied with other pressing business matters and hoped that former solicitors would resume representation does not, without more, constitute a good reason for a default in complying with procedural deadlines. [25, 27, 29]
The proportionality of the CPR 3.14 sanction is assessed in the context of the specific breach; the sanction is not inherently disproportionate, and its maintenance will not be considered manifestly unjust where the breach is serious, lacks good reason, and has caused inefficiency. [33, 34]

“It seems to me that whilst Mr Hodson, for no doubt very good reasons, was hoping to persuade Gowlings to stay on the record or indeed to come back on the record before and after 30 May 2025, whilst that was something he was entitled to try to do, it brought with it a very significant risk that something bad might happen in the meantime when D1 was not a litigant in person, because it is not a private litigant, but an unrepresented limited company.”

Key Findings In The Case

The first defendant (D1) failed to file its costs budget by the required deadline of 30 May 2025, causing a delay of approximately three weeks and necessitating a further hearing for costs management purposes, which the court found was a serious and significant breach of the Civil Procedure Rules (CPR) [20], [21].
The judge found that the late filing of the costs budget—served on 19 June—was not justified by a good reason; D1’s director failed to calculate or inquire about the correct deadline, despite having received multiple warnings from former solicitors and the court regarding the consequences of non-compliance [22]–[24].
The failure to file a timely budget led to the application of the automatic sanction under CPR 3.14, meaning that D1 is limited to recovering only court fees in relation to future costs, although this sanction does not affect the recovery of incurred costs listed in Precedent H [8].
The breach materially disrupted the efficient conduct of the litigation by requiring an additional hearing in vacation time, occupying judicial resources that could otherwise have been used for other litigants, thereby compounding the seriousness of the non-compliance [20], [31]–[32].
The judge concluded that maintaining the CPR 3.14 sanction would not be manifestly unjust or disproportionate in this case, given the absence of a good reason, the significant delay, and the prejudicial impact on court resources and the efficient management of proceedings [29], [33]–[34].

“Mr Letman, quite properly and forcefully, pressed on the court that there was no real proportionality between missing deadlines and being deprived of costs going forward. And of course that may be right in one sense, but the problem with that is that that is precisely the sanction that 3.14 provides for, and 3.14 cannot be said to be of itself disproportionate. 3.14 allows the court to otherwise order, but that cannot mean that every time a court does not otherwise order, it will necessarily be disproportionate.”

The Technology and Construction Court’s decision in National House-Building Council v Hodson Developments Ltd & Ors [2025] EWHC 3438 (TCC) confirms that a party cannot rely on its solicitors’ withdrawal as a good reason for failing to file a costs budget on time.

Background

The claimant, the National House-Building Council (NHBC), commenced proceedings in January 2024 against three defendants. The first defendant was a development company, with the second and third defendants being its current and former directors. The claim, valued at approximately £5 million, sought remediation and other costs from the first defendant under the NHBC’s rules and, alternatively, under an indemnity agreement from the individual defendants [§11–12].

The defendants initially instructed Gowlings as their solicitors in late February 2024. In late July 2024, due to what was said to be an unexplained conflict, the second and third defendants instructed North Star Law Ltd, which had at some stage acted for all parties in the pre-proceeding stage [§12]. Pleadings closed in June 2025. A first case and costs management conference (CCMC) was listed for 20 June 2025. In accordance with CPR 3.13, the parties were required to file and exchange costs budgets not later than 21 days before that conference, by 30 May 2025.

In the period leading up to this deadline, the first defendant’s director, Mr Hodson, was engaged with a separate planning inquiry beginning in February 2025 and adjourned into mid-April and May 2025. However, the court noted there had been a failure to give proper instructions to Gowlings well before the planning inquiry commenced [§13]. Communications from Gowlings to the first defendant on 3 March 2025 warned of the need to file a budget and the consequences of failing to do so [§14]. Gowlings terminated their retainer on 14 May 2025 and applied for a formal order declaring they had ceased to act, which was granted by Waksman J on 3 June 2025 [§16–17]. The first defendant had notice of that application before it was made [§17]. Consequently, the first defendant failed to file a costs budget by the 30 May deadline.

All three defendants missed the deadline, but at the CCMC on 20 June, relief from sanction was granted to the second and third defendants as their delay was only one day and the application was unopposed [§18].

At that hearing, North Star Law had agreed to act for all defendants from 18 June and a combined budget was before the court on 19 June [§18]. However, as there was no formal application or evidence from the first defendant seeking relief, the court directed a separate hearing to determine whether the automatic sanction under CPR 3.14 should be disapplied for the first defendant [§18]. That hearing took place on 15 September 2025.

Costs Issues Before the Court

The sole issue for determination was the first defendant’s application, dated 4 July 2025, for relief from the sanction imposed by CPR 3.14 [§1]. This rule states that unless the court orders otherwise, a party which fails to file a budget when required will be treated as having filed a budget comprising only the applicable court fees [§5]. The practical effect of maintaining the sanction would be to restrict the first defendant’s recoverable costs for future stages of the litigation to court fees only, should it be successful. Importantly, both parties agreed that the sanction is “forward-facing only” and would not automatically affect the incurred costs already shown in the Precedent H [§8]. The sanction affects only recoverable future costs, not the conduct of the defence itself.

The court was required to apply the established three-stage test from Denton v White [2014] EWCA Civ 906, as recently affirmed by the Court of Appeal in Leadingway Consultants v Saab & Anr [2025] EWCA Civ 852 [§6, §9]. The court was also to consider all the circumstances, with particular regard to the factors in CPR 3.9 [§3].

The Parties’ Positions

The First Defendant’s Position: The first defendant, through counsel Mr Letman, accepted the breach was serious but argued it was not at the worst end of the scale [§20]. It was submitted that the director, Mr Hodson, had been occupied with a critical planning inquiry which concluded in May 2025. He had hoped to persuade Gowlings to resume representation and claimed he did not realise the specific deadline of 30 May would trigger an automatic sanction, as he had no solicitors advising him after 14 May [§23]. The first defendant apologised for the failure and argued that maintaining the full CPR 3.14 sanction would be disproportionate and manifestly unjust given the context [§33]. It was emphasised that the estimated future costs to be managed were approximately £260,000 [§19].

The Claimant’s Position: The claimant, through Mr Townend KC, opposed the application. It was argued that the breach was serious and significant, involving a delay from 30 May until a budget was provided on 19 June [§20]. The claimant contended there was no good reason for the default, pointing to clear warnings in correspondence from both Gowlings and the court, and a general lack of engagement by the first defendant in the litigation [§22, §28]. The claimant relied on authorities including BMCE Bank International Plc v Phoenix Commodities PVT Ltd & Anor [2018] EWHC 3380 (Comm), where relief was refused for a 14-day delay [§7, §21]. It was submitted that granting relief would undermine the need for compliance with rules and the efficient conduct of litigation, as the failure had necessitated an additional hearing.

The Court’s Decision

The court refused the application for relief from sanction. Applying the Denton test, Recorder Singer KC held as follows.

On the first stage, it was found that the breach was serious and significant. The delay was from 30 May to 19 June 2025, a period which the court considered “relatively long” in the context of authorities such as BMCE Bank v Phoenix, where a shorter delay resulted in the sanction being upheld [§20–21]. This failure caused the need for a separate hearing, depriving other litigants of court time [§31].

On the second stage, the court found there was no good reason for the breach [§27]. Whilst Mr Hodson’s focus on the planning inquiry was acknowledged, the court found the first defendant had failed to engage with the litigation and its procedural obligations for some time, as was clear from the evidence from Gowlings [§28]. Correspondence from both the former solicitors and the court had made the requirements clear. The director’s assertion that he did not “see the sanction coming” because he had no solicitors after 14 May was not accepted as justification; the court observed that working out when the deadline fell “would not have been a difficult exercise by any stretch of the imagination” [§15, §24]. His hope that Gowlings would resume representation brought with it “a very significant risk that something bad might happen in the meantime” [§25].

The court also noted the distinction between litigants in person, who are exempt from the costs budgeting requirements under CPR 3.13, and unrepresented limited companies, which are not. The first defendant was not excluded from the rules merely because it lacked representation [§26].

At the third stage, considering all the circumstances, the court concluded that maintaining the sanction would not be manifestly unjust [§29–34]. The breach was serious, the reasons were not good, and the effect was to cause inefficiency by necessitating an additional hearing. The court gave some “minor credit” to Mr Hodson for his statement that he would have acted differently had he known of the automatic sanction [§30]. However, this did not outweigh the other factors.

The court rejected the submission that the sanction was disproportionate in the circumstances of this case, observing that CPR 3.14 prescribes this specific consequence for non-compliance and “cannot be said to be of itself disproportionate” [§33]. The court’s refusal to order otherwise in this case, where there had been a relatively long delay, no good reason, and consequent inconvenience to the court and other litigants, could not render the sanction disproportionate.

Consequently, the automatic sanction under CPR 3.14 was upheld [§34]. The first defendant would therefore be treated as having filed a costs budget comprising only court fees for the estimated future costs of the litigation.

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