Default Costs Certificate Upheld Despite Variation For Irrecoverable VAT

The Senior Courts Costs Office’s decision in MT Construction Limited v Frieze [2026] EWHC 813 (SCCO) addresses the requirements for setting aside a default costs certificate under CPR 47.12, both on the mandatory ground that the receiving party was not entitled to obtain it and on the discretionary ground that there is good reason for the detailed assessment to continue.

Background

MT Construction Limited brought an application for an injunction against Dennis Frieze and Anne Saunders. By an order dated 17 July 2025, the Defendants were ordered to pay the Claimant’s costs of that application on the indemnity basis, to be assessed if not agreed. The order also provided for a payment on account of £20,000, which was duly made.

The Claimant’s costs agents, TLS, prepared a Bill of Costs and Notice of Commencement and began attempts to serve the Service Pack on the Defendants’ solicitors, Hunters Solicitors, from September 2025 onwards. Those attempts were met with some difficulty: Hunters would not confirm whether the Bill had been received when first served by post, nor would they confirm whether they would accept service by email. On 17 October 2025, TLS served the Service Pack by first class post, and Royal Mail tracking confirmed delivery on 20 October 2025. The Notice of Commencement stipulated a deadline of 11 November 2025 for Points of Dispute.

Also on 17 October 2025, a telephone call took place between Mr Collins of TLS and Mr McGuinness of Hunters Solicitors. The parties’ accounts of that call diverged in a material respect. Mr McGuinness’s evidence was that Mr Collins had agreed in principle to grant a 21-day extension for Points of Dispute if service by email were accepted. Mr Collins’s evidence, supported by a file note made on the same day, was that the call recorded only that Hunters did not have instructions for accepting service by email, with no agreement as to any extension.

On Saturday 8 November 2025, Hunters sent an email purporting to record that an agreement had been reached: that if service by email were accepted, 21 days for Points of Dispute would be agreed, and confirming that this was agreeable to Hunters. By that point, Hunters had been in possession of the correctly served Service Pack for 19 days. On Tuesday 11 November 2025, TLS replied by email confirming that Points of Dispute remained due by close of play that day and warning that a request for a Default Costs Certificate (“DCC”) would be filed if Points of Dispute were not received by 4 pm. No Points of Dispute were served, and no application was made to the court for an extension of time. On 12 November 2025, TLS filed a request for a DCC, which was sealed by the court on 14 November 2025, communicated to Hunters by email the same day, and delivered by post on 17 November 2025.

On 28 November 2025, the Defendants issued an application to set aside the DCC, supported by a witness statement from Mr McGuinness. Hunters Solicitors were subsequently intervened into by the Solicitors Regulation Authority on 4 March 2026, and Mr McGuinness moved to Alpha Alexis Law Firm, where he continued to act under the supervision of Mr Mahesh Kakkar.

In open correspondence in December 2025, the Claimant offered to consent to the DCC being varied to remove the VAT element, which would have reduced the certified sum from £47,005 to £39,271. The Defendants did not accept that offer and instead pursued the application to set aside the DCC in its entirety. Points of Dispute were not served with the set-aside application and were not served until shortly before the hearing on 25 March 2026. The matter came before Deputy Costs Judge Erwin-Jones, with judgment handed down on 8 April 2026.

Costs Issues Before the Court

The central issue before the court was whether the Default Costs Certificate dated 14 November 2025 should be set aside under CPR 47.12. Two distinct grounds were in play.

The first was the mandatory ground under CPR 47.12(1), which requires the court to set aside a DCC if it is shown that the receiving party was not entitled to obtain it in the first place. The Defendants contended that a binding agreement had been reached to extend the deadline for Points of Dispute to 1 December 2025, such that the DCC had been obtained prematurely and the receiving party had not been entitled to it.

The second was the discretionary ground under CPR 47.12(2), which permits the court to set aside or vary a DCC where there is some other good reason for the detailed assessment proceedings to continue. Practice Direction 47, paragraph 11.2 sets out the procedural requirements for such an application: it must be supported by evidence, the court must consider promptness, and as a general rule the applicant must file a draft of the Points of Dispute it proposes to serve if the certificate is set aside.

Where the mandatory ground is not established and the court exercises its discretion under CPR 47.12(2), the three-stage framework from Denton v White [2014] EWCA Civ 906 applies. The court is required to assess the seriousness and significance of the breach, the reasons for it, and all the circumstances of the case, including the need to conduct litigation efficiently, proportionately, and in a manner that enforces compliance with the Rules, Practice Directions, and audits. It is clear that good reason for the failure must be established before the court proceeds to consider the wider circumstances.

A further, narrower issue arose in relation to the VAT element of the DCC. The Claimant had offered in open correspondence to consent to the DCC being varied to remove the VAT element, on the basis that the VAT certificate within the Bill confirmed that the Claimant was able to recover VAT as input tax from HMRC. The certified sum of £47,005 would, on that basis, be reduced to £39,271. The Defendants did not accept that offer and pursued the full set-aside application instead.

The costs of the set-aside application itself were also in issue, with the Claimant seeking a summary assessment of its costs of and occasioned by the application.

The Parties’ Positions

The Defendants argued, in the first instance, that the mandatory ground under CPR 47.12(1) was made out. Their case was that a binding agreement had been reached on 17 October 2025 during the telephone call between Mr Collins and Mr McGuinness, to the effect that a 21-day extension would be granted for Points of Dispute in exchange for acceptance of email service. The email of 8 November 2025 was said to record and give effect to that agreement, extending the deadline to 1 December 2025. On that basis, the DCC had been obtained before the extended deadline had expired and the receiving party had not been entitled to it.

In the alternative, the Defendants relied on the discretionary ground under CPR 47.12(2). They submitted that the failure to serve Points of Dispute in time was inadvertent, that Mr McGuinness had genuinely believed an extension was in place until 1 December 2025, and that the period around 11 November 2025 had been one of heavy professional commitments involving High Court work in Birmingham, Manchester, and London. The Defendants further argued that the draft Points of Dispute served before the hearing demonstrated genuine issues to be resolved on assessment, and that setting aside the DCC would cause no prejudice to the Claimant, given that £20,000 had already been paid on account and the remaining sum in dispute was relatively modest.

The Claimant resisted the application in its entirety. On the mandatory ground, the Claimant’s position was that no binding extension agreement had been reached. Mr Collins’s evidence, supported by his contemporaneous file note, was that the 17 October call had recorded only that Hunters did not have instructions to accept email service, with no agreement as to any extension. The Claimant submitted that the email of 8 November 2025, sent unilaterally by Hunters on a Saturday with one working day remaining before the deadline, could not constitute a written agreement of both parties for the purposes of CPR 2.11, and that TLS’s silence in response to that email did not amount to agreement, particularly given that TLS’s email of 11 November 2025 had expressly and unambiguously asserted the original deadline.

On the discretionary ground, the Claimant submitted that the breach was serious and significant, that no good reason had been established for it, and that the reasons advanced—a mistaken belief in an extension and pressure of other commitments—were insufficient. The Claimant further contended that the draft Points of Dispute were in general terms and did not identify with particularity what items were to be challenged or on what basis, and that it would be disproportionate for the assessment to continue given that the proposed costs of the hearing alone totalled over £17,000 in a claim where the net sum in dispute was approximately £39,000 and £20,000 had already been paid on account.

The Court’s Decision

Deputy Costs Judge Erwin-Jones refused the application to set aside the DCC, but varied it to remove the irrecoverable VAT element, reducing the certified sum to £39,271. The varied DCC was ordered to stand as a costs order in the proceedings in respect of the Claimant’s costs of the injunction application.

The Mandatory Ground: CPR 47.12(1)

The judge was satisfied that the Service Pack was validly served and delivered on 20 October 2025 as confirmed by Royal Mail tracking. The period of 21 days prescribed by CPR 47.19 therefore expired on 11 November 2025. On the factual dispute concerning the telephone call of 17 October 2025, the judge preferred Mr Collins’s version of events on the balance of probabilities. The judge found that the email of 8 November 2025 did not satisfy the requirements of CPR 2.11 for a binding written agreement to vary time. An email sent unilaterally by one party after having received documents by postal service, purporting to record the terms of an earlier oral conversation 20 days earlier which the other party denied having had in those terms, could not of itself constitute a written agreement of both parties. TLS’s immediate silence in response to that email did not constitute agreement, particularly since their email of 11 November 2025 expressly and unambiguously asserted the original deadline.

The judge was conscious that 8 November was a Saturday, leaving one whole working day before the deadline at a time when the deadline must have been apparent to Hunters. Having considered all of the evidence, the judge was not persuaded that a binding extension agreement had been reached. The mandatory ground under CPR 47.12(1) was therefore not established.

The Discretionary Ground: CPR 47.12(2)

Turning to the court’s discretion under CPR 47.12(2) and applying the Denton framework, the judge found that the breach was serious and significant. The Defendants’ solicitors had been in possession of the Bill by service since at least 20 October 2025 and almost certainly for several weeks if not over a month beforehand. The 21-day period prescribed by CPR 47.19 is sufficient in all but the most complex cases, and no Points of Dispute were served by the deadline or indeed before the week of the hearing.

Mr McGuinness’s reasons for the breach were that the failure was inadvertent, that he believed there was an extension in place until 1 December, and that the period around 11 November 2025 he was engaged in heavy High Court commitments in Birmingham, Manchester and London. The judge noted that there was no evidence about the systems in place at his firm for supervision, for receiving and distributing email and postal correspondence, no evidence about diary management systems, no explanation as to why email service was initially refused, and nothing to explain what the systems were to cover the work of a busy fee earner working all over the country.

Even accepting that Mr McGuinness believed there was an extension in place, that belief was not objectively reasonable in the absence of any written agreement from TLS and in view of the fact that the Bill of Costs and Notice of Commencement had been served on 20 October and sent by email previously. The unanswered email of 8 November 2025 did not constitute any agreement, but it was relevant that even if one assumed the deadline was 1 December 2025, Points of Dispute were still not served by that date.

The reason for the breach was at best a combination of a mistaken belief in an extension and the pressure of other commitments. These were not sufficiently good reasons within the meaning of the authorities. The court took into account the need to conduct litigation efficiently and at proportionate cost. The Defendants argued that the Points of Dispute now served demonstrated genuine issues to be resolved on assessment and that setting aside the DCC would cause no prejudice to the Claimant because the Claimant had already received £20,000 on account.

The judge found that the draft Points of Dispute served before the hearing were in general terms and did not identify with any specific particularity what items were to be challenged and on what basis. In any event, the mere existence of draft Points of Dispute in a claim of around £39,000 net where £20,000 had already been paid on account did not of itself demonstrate there was good reason for the assessment to continue. It would be disproportionate for it to do so in any event. The proposed costs schedules for the hearing alone together totalled over £17,000.

On promptness, there was a delay of between 14 and 11 days before the application to set aside was issued. Mr McGuinness explained this by reference to the SRA intervention and transition. The judge took that into account but noted that the SRA intervention did not occur until 4 March 2026, well after the application was issued. The delay in November was not explained by that.

The judge was not satisfied that a good reason had been shown for the detailed assessment to continue. The mandatory grounds failed and the discretionary grounds also failed. The application was therefore refused.

Variation for VAT

The Claimant had offered in open correspondence to consent to the DCC being varied to remove the VAT element. In any event, the VAT certificate within the Bill confirmed that the Claimant was able to recover VAT as input tax from HMRC. The DCC was varied under CPR 47.12(2) to reduce the certified sum to £39,271. The payment of £20,000 made on account on 14 August 2025 was to be credited against the varied DCC sum in the ordinary way upon enforcement.

Costs of the Application

The Claimant had succeeded in resisting the application to set aside the DCC. The Defendants brought the application and failed on a substantive ground. The set-aside was refused. The variation of the DCC to remove VAT was, on the Claimant’s open offer, always going to happen. The Defendants chose not to accept the offer to vary and instead pursued a full set-aside. Accordingly, the Defendants were ordered to pay the Claimant’s costs of and occasioned by the application. The judge summarily assessed those costs at £4,250, noting that no VAT was claimed.

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