Costs Budget Deemed Illusory Due to Deliberate Copying of Figures and Failure to Provide Accurate or Credible Explanation for Discrepancies

HUNT V OCEANIA CAPITAL RESERVES LTD & ORS [2025] EWHC 837 (CH)

Hunt v Oceania Capital Reserves Ltd & Ors [2025] EWHC 837 (Ch) addressed critical issues surrounding procedural compliance in costs budgeting and relief from sanctions. The case concerned an application by IPS Law LLP and Mr Christopher Farnell for relief from sanctions after failing to file a compliant Precedent H costs budget within the prescribed timeframe. Master Brightwell examined the defendants’ costs budget, identifying significant irregularities, including figures that closely mirrored the claimant’s budget and appeared to have been copied without genuine consideration. The court found the breach particularly serious due to the inaccurate budget and the signed Statement of Truth, which compromised the integrity of the budgeting process. Despite the defendants’ assertions of technical difficulties, the court deemed their explanations unsatisfactory and lacking credibility. Applying the Denton test, Master Brightwell concluded that the breach was substantial, the explanations inadequate, and the circumstances did not justify granting relief. Consequently, the application for relief from sanctions was dismissed, with the defendants limited to recovering only court fees.

“Because the document purporting to be the budget on behalf of the second and third defendants contains figures which are admitted to be incorrect, I consider the breach to be serious and substantial. A case where a statement of truth is signed on a document which is so fundamentally flawed constitutes a very serious breach.”

Citations

Lakatamia Shipping Co Ltd v Nobu Su [2014] EWHC 275 (Comm) A document which purports to comply with procedural obligations, but is blatantly inaccurate or misleading, constitutes illusory compliance and does not meet the requirement of genuine procedural conformity. Diriye v Bojaj [2020] EWCA Civ 1400, [2021] 1 WLR 1277 Relief from sanctions must be approached by considering the seriousness and significance of the breach, the reasons for the default, and all the circumstances of the case, including the need to enforce procedural compliance.

Track allocation housing disrepair CPR 46.13 settlement sum costs restriction SCCO

MRO fee markup cap 25% detailed assessment personal injury Senior Courts Costs Office

Security for costs refused CPR 25.27 very high probability success excessive estimate King's Bench

IPEC scale costs transfer Patents Court PD 30 para 9.2 costs caps Court of Appeal

Costs budget variation CPR 3.15A promptness significant development unfair prejudice Chancery Division

Costs budgeting inter partes proportionality high hourly rates AI disclosure Patents Court CPR 3E

Beneficiary personal liability section 71(3) Solicitors Act 1974 indemnity costs VAT self-supply SCCO

Summary assessment indemnity costs unless order payment on account disclosure default Chancery Division

Provisional assessment set aside CPR 3.1(7) points of dispute filing duty PD 47 para 14.3 SCCO

Fixed recoverable costs police claims CPR 26.9(10)(e) intentional tort exemption

Key Points

Where a costs budget is filed late and contains figures that are demonstrably inaccurate or copied, the court may treat such a submission as a serious and significant breach of Civil Procedure Rules, regardless of the degree of lateness. [25–28]
A document purporting to be a costs budget that fails to represent a fair and accurate account of incurred and estimated costs, despite being signed with a statement of truth, may be deemed illusory and non-compliant with CPR r 3.13(1)(b). [7–8, 26–28]
The integrity of the statement of truth under CPR Practice Direction 22 requires that the signatory must have a genuine belief in the accuracy of the figures presented; a failure to meet this standard constitutes a very serious breach. [7, 14, 28]
On an application for relief from sanctions concerning defective costs budgets, the court may consider not only the breach itself but also the adequacy of the party’s explanations and remedial conduct when applying the Denton three-stage test. [24, 26, 30–31, 34]
In assessing whether relief from sanctions should be granted in cost budgeting cases, the court may refuse relief where it lacks confidence in the reliability of revised budgets and where the original breach undermines the administration of justice. [31–34]

“The Precedent H budget was filed and served with incorrect figures, apparently closely based upon another party's budget and yet verified by a statement of truth. Furthermore, it appears in light of the evidence given by Mr Farnell… that the person who completed the document… did not believe that the figures shown in the budget were correct.”

Key Findings In The Case

The costs budget submitted by the second and third defendants was filed late and contained figures that were incoherent, internally inconsistent, and closely mirrored those in the claimant’s budget, without explanation—constituting a serious and significant breach of CPR r 3.13(1)(b) and CPR r 3.14 [10–11, 25–28].
The inaccurate budget submitted by the second and third defendants was signed by Mr Farnell with a statement of truth, yet there was no credible evidence that he or his firm genuinely believed the figures to be correct at the time of signing, thereby compromising the integrity of the costs budgeting process and reinforcing the seriousness of the breach [7–8, 14, 26, 28].
Despite being directed to do so, Mr Farnell failed to provide a satisfactory or coherent explanation for how or why the incorrect figures—many apparently copied from the claimant’s budget—were included in the filed costs budget, undermining the second stage of the Denton test concerning reasons for the default [20, 22, 29–30].
The revised costs budget submitted by the second and third defendants after the initial breach contained further inaccuracies, such as claiming counsel’s fees for a hearing at which no counsel appeared, and inflated costs unsupported by previous cost schedules, eroding the court’s confidence in the document’s reliability [32–33].
The cumulative failures by the second and third defendants, including the submission of a defective costs budget, failure to provide proper explanation, and the submission of a revised budget that the court could not rely on, led to the dismissal of their application for relief from sanctions as granting relief in these circumstances would undermine the administration of justice [31–34, 36].

“When a document is filed late, the court must be entitled to consider the document in order to determine whether it complies with the procedural requirements applicable to it. Where a costs budget contains admittedly wholly incorrect figures, I consider that this can be taken into account in considering the seriousness of the breach.”

Background

The case of Hunt v Oceania Capital Reserves Limited & Others [2025] EWHC 837 (Ch) involves a claim by Stephen Herbert Hunt alleging that he was defrauded out of £1,050,000 under an Investment Agreement with the first defendant. The claimant contends that IPS Law LLP and Mr Christopher William Farnell, the second and third defendants respectively, acted in breach of trust or dishonestly assisted in a breach of trust. The claimant accuses the defendants of handling money in IPS Law’s client account for their own benefit and violating the general prohibition under the Financial Services and Markets Act 2000, section 19. A judgment in default was obtained against the first defendant.

According to Civil Procedure Rule (CPR) 3.13(1)(b), all parties who are not litigants in person were required to file and exchange costs budgets not less than 21 days before the first case management conference (CMCC), which was scheduled for 26 February 2025. Consequently, the deadline for filing these budgets was set for 4 February 2025. The claimant complied by filing and serving the costs budget at around 3 pm on that date. However, a document purporting to be a Precedent H costs budget for IPS Law and Mr Farnell was served at around 5 pm, technically breaching the 4:30 pm deadline stipulated under CPR 6.26.

Significant issues arose concerning the contents of the defendants’ budget, which were identified in the claimant’s skeleton argument. The served costs budget displayed inconsistencies, such as front-page figures not aligning with those on later pages and a mirror-like resemblance to the claimant’s budget, suggesting possible manipulation of data shortly after receiving the claimant’s budget. This inconsistency gave rise to concerns about whether IPS Law and Mr Farnell’s budget was prepared in genuine compliance with the obligation to complete Precedent H fairly and accurately.

Costs Issues Before the Court

The primary costs issue before the court revolved around the defendants’ failure to comply with the deadline for filing a coherent and authentic costs budget. Under CPR 3.14, a party failing to file a budget as required is treated as having filed a budget limited to court fees unless the court orders otherwise. This rule prompted IPS Law and Mr Farnell to seek relief from sanctions under CPR 3.9(1). Their application sought the court’s discretion to permit them to rely on their late and allegedly defective costs budget. The defendants also failed to serve a Precedent R budget discussion report as required by CPR 3.13(2), further complicating their request for relief.

The Parties’ Positions

In applying for relief from sanctions, Mr Farnell cited technical issues including malfunctioning hardware and software failures as reasons for the late submission of their costs budget. He argued that these issues made it impossible to complete and submit the budget on time and in the proper format. Furthermore, Mr Farnell contended that the firm’s small size and limited resources exacerbated their difficulties with timely preparation and submission of the documents.

In contrast, the claimant’s counsel, Mr McCluskey, argued that the defendants’ budget was not only submitted late but also contained figures that closely matched those in the claimant’s budget, raising suspicion. The budget displayed significant internal inconsistencies and lacked detail and accuracy. Mr McCluskey suggested that the figures might have been copied from the claimant’s budget without proper consideration of their appropriateness, rendering the defendants’ budget illusory and misleading.

The Court’s Decision

The court, applying the three-stage test from Denton v TH White Ltd [2014] 1 WLR 3926, first assessed the seriousness and significance of the breach. It determined that the late submission issue was less significant compared to the document’s internal inconsistencies and what appeared to be deliberate copying of figures from the claimant’s budget. The court found these breaches serious, compromising the integrity of the justice system, especially given that an officer of the court signed a statement of truth on the defective document.

Secondly, regarding the reasons for the breach, the court found the explanations provided by Mr Farnell, involving hardware and software malfunctions, as inadequate and unconvincing. The court noted that Mr Farnell did not adequately explain how the copied figures were included nor clarified the significant inconsistencies highlighted.

Finally, when evaluating all circumstances, the court emphasised the importance of the integrity and accuracy in the process of budgeting. It was noted that permitting the defendants to rely on a problematic budget would undermine the administration of justice. Additionally, the revised budget submitted by the defendants also contained errors, further eroding confidence in its accuracy.

In conclusion, the court dismissed IPS Law and Mr Farnell’s application for relief from sanctions. The court declared that deeming the defendants’ costs budget to be limited to court fees was justified and proportionate given the seriousness of the breach and the unsatisfactory response.

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