Henry v News Group Newspapers Limited
Court of Appeal - 28 January 2013
In a unanimous judgment handed down today the Court of Appeal has allowed the Claimant's appeal in Henry v News Group Newspapers Limited.
The Lords Justices held that in this claim, proceeding under the defamation costs budgeting pilot scheme, there was good reason to depart from the Claimant's court approved costs budget. At first instance Senior Costs Judge Master Hurst had said there was no good reason, leaving the Claimant with a £300,000 shortfall of costs that could not be recovered from the Defendant.
This was a keenly awaited decision given that a similar costs management scheme involving the use of budgets will apply generally to all multi track cases commenced after 1 April 2013 in a County Court, Chancery or Queen's Bench Division (except the Admiralty and Commercial Courts) unless the court otherwise orders.
No doubt recognising this, perhaps the most important part of the judgment is contained in the obiter comments about the forthcoming scheme at the end of the judgment. The Court of Appeal gives a clear signal that the new scheme imposes greater responsibility on the court and the parties to engage in the process and therefore lays greater emphasis on the importance of the agreed budget, so that departing from it will be rare.
Simon Denyer and Steven Dawson examine the implications of the decision in the light of the impending costs management reforms.
The Claimant social worker brought libel proceedings against 'The Sun' newspaper after it published articles concerning her involvement in the Victoria Climbié and Baby P cases. Proceedings were settled and the Claimant was awarded costs on the standard basis.
The case was dealt with under the pilot Defamation Proceedings Costs Management Scheme, governed by Practice Direction 51D and under which the requirements to update costs budgets and for solicitors to liaise monthly were mandatory.
The Claimant exceeded the budget which had been approved by the court leading to a trial of a preliminary issue on whether there was good reason for the court to depart from the court approved costs budget on detailed assessment. The Claimant's actual costs claimed on assessment were:
- pre-action, issues/pleadings/CMC and settlement - the Claimant exceeded the approved budget by relatively modest amounts.
- expert reports, PTR and trial preparation - the amounts claimed were less than the approved budget, largely because the ten day trial budgeted for did not take place.
- disclosure and witness statements - the approved budget had been exceeded by significant amounts (disclosure by £76,306 and witness statements by £216,404).
The Defendant argued that there was no good reason to depart from the Claimant's approved budget; the Claimant had failed to comply with PD51D so that neither the court nor the Defendant were aware of the significant increase in costs.
The Claimant argued that PD51D was not intended to operate in a draconian manner and asked the court to consider all the circumstances, including that the tactics adopted by the Defendant gave rise to extra work which gave good reason to depart from the costs budget (the Defendant had amended its Defence four times and served ten lists of documents) and the Defendant had also exceeded its budget.
Senior Costs Judge Master Hurst's Findings
- There was no good reason to depart from the budget.
- On detailed assessment, the Claimant would be able to argue very strongly that the costs incurred were both reasonable and proportionate. However, the sole question here was whether there was good reason for the court to depart from the court approved budget. There was no good reason in this case because the Claimant had largely ignored the practice direction.
- The Claimant had not kept the Defendant or the court informed of the fact that the budget was being exceeded. The fact that both sides exceeded their budgets did not help the Claimant.
- PD51D was mandatory. The objective was to manage the litigation so that the costs of each party were proportionate to the value of the claim and reputational issues at stake and so that the parties were on an equal footing. Master Hurst was therefore "forced" to the conclusion that if one party was unaware that the other party's budget had been significantly exceeded, they were no longer on an equal footing and the purpose of the scheme was lost.
Court of Appeal Findings
Moore-Bick LJ, Aikens LJ and Black LJ allowing the appeal, held:
- It is implicit in paragraph 5.6 of the practice direction that the court should not normally allow costs to be recovered in excess of the budget. However, paragraph 5.6 does expressly recognise that there may be good reasons for departing from the budget and allowing a greater sum and it may emerge for example that the proper conduct of the proceedings is more expensive than originally expected.
- When considering whether there is good reason to depart from the approved budget it is necessary to take into account all the circumstances of the case, but with particular regard to the objective of the costs budgeting regime. In this particular scheme the objective is set out in paragraph 1.3 of the practice direction, namely, to manage the litigation so that the costs of each party are proportionate to what is at stake and to ensure that the parties are on an equal footing. The court has responsibility for managing the costs of the litigation as well as the case itself.
- It would be unwise to list the circumstances in which there may be good reason to depart from the approved budget, but the starting point must be:
- that the approved budget is intended to provide the financial limits within which the proceedings are to be conducted; and
- that the court will not allow costs in excess of the budget unless something unusual has occurred.
- Whether there is good reason to depart from the approved budget in any given case, therefore, is likely to depend on, among other things, how the proceedings have been managed, whether they have developed in a way that was not foreseen when the relevant case management orders were made, whether the costs incurred are proportionate to what is in issue and whether the parties have been on an equal footing.
- In concluding that the failure of the Claimant's solicitors to keep the Defendant informed about her costs prevented the parties from being on an equal footing the judge misunderstood the reference in paragraph 1.3 to the parties being on an equal footing. The object of the practice direction is twofold: (i) to ensure that the costs incurred in connection with the proceedings are proportionate to what is at stake and (ii) to ensure that one party is unable to exploit superior financial resources by conducting the litigation in a way that puts the other at a significant disadvantage.
- A failure to exchange information about expenditure at regular intervals does not of itself put the parties on an unequal footing.
- By finding that non-compliance with the practice direction meant there was no good reason for departing from the approved budget the judge had taken too narrow a view of what may amount to good reason.
- Whilst there was a failure to comply it could not be said that compliance with all the requirements of the practice direction was essential before a party can ask the court to depart from the approved budget. It was just one factor. In this case, the Claimant, the Defendant and the Court could all be said to be at fault.
- It was worth mentioning that shortly prior to settling the case the Defendant had asked the Claimant for a clear indication of her costs and was told exactly what they amounted to. The Defendant proceeded to settle the claim with an agreement to pay the Claimant's costs subject to detailed assessment without registering any protest at the time.
- Budgets are intended to provide some constraint but they are not intended to act as a cap. However it will rarely, if ever, be appropriate to depart from the budget if to do so would undermine the essential objects of the scheme.
- The unusual circumstances of this case meant there was good reason to depart from the budget. There were several inter-related reasons which combined meant that the objects which the practice direction sought to achieve were not undermined. In those circumstances a refusal to depart from the budget simply because the Claimant had not complied with the practice direction would achieve nothing beyond penalising her.
The new rules on costs budgeting commencing 1 April 2013
Moore-Bick LJ was keen to point out that the new rules differ in some important respects from PD51D highlighting that:
- they impose greater responsibility on the court for the management of the costs of proceedings and greater responsibility on the parties for keeping budgets under review as the proceedings progress;
- read as a whole they lay greater emphasis on the importance of the approved or agreed budget as providing a prima facie limit on the amount of recoverable costs;
- although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, it should place particular emphasis on the function of the budget as imposing a limit on recoverable costs;
- the primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate.
- For new cases issued from April 2013 onwards, parties will have to prepare detailed budgets setting out the entire costs of the proceedings in time for the case management conference and any departure from those budgets will have to be approved by the court. While some people will see some mixed messages from this judgment, the Court of Appeal has confirmed that the courts are unlikely to allow recovery of costs that are not budgeted for in new cases going forward after April.
- Few commentators predicted that this appeal would succeed; believing that the Court of Appeal would see that firm messages in support of the strengthened new systems of costs management and budgeting were required on the eve of their implementation. In fact, while trying to do justice in the context of this case, the Court has risked starting the new processes off on the wrong foot and increasing the potential for further satellite litigation.
- It is though necessary to bear in mind that in this judgment all the Court has decided is that there was good reason to exceed the budget in this case, taking into account what was a clear lack of costs management supervision by the court or interest in holding the Claimant to those processes on the part of the Defendant. The moral of the story is surely for defendants that where after April courts are reluctant to impose the discipline on claimants' costs of proper costs management, the defendants should ensure that the courts do in fact exercise their powers to do so.
- Our view is that it is vital that insurers should take up as much as possible the opportunity to ensure that the discipline of effective costs management is applied to reduce the burden of claimants' costs in multi track claims. Defendants should comply with the new processes themselves, and should also ensure that claimants do so too. Defendants should challenge claimants' costs budgets whenever appropriate to do so. These steps will enhance the prospects of the courts exercising proper costs discipline.
- We have devised processes to ensure the best use of the new procedures. They bring together the detailed knowledge of the case from the handling lawyer, and we add to that the costs knowledge of a costs lawyer from our specialist in house costs team, working on the matter together at the times that budgets need to be drafted and rechecked. We supplement this with claimant costs MI available from previous similar cases, to be able to compare the budget proposed by a claimant in a new case to those within which we know previous matters have been handled. Bringing these tools together is designed to ensure the prospects are increased of obtaining approved budgets which meet insurers' expectations.
- The road to this area of reform has been a long one. The Woolf reforms of 1999 introduced for the first time the concept of the parties to litigation submitting costs estimates to the court and to each other, but the original rules provided no teeth for exceeding those estimates. In 2003 in Leigh v Michelin Tyres, a case referred to in today's judgment, we represented the insurers who for the first time outside group litigation wished to test the willingness of the courts to tackle the position of a Claimant who had given an inadequate estimate and who wished to recover costs that were substantially more than the estimate. The court was not then willing to take the sort of measures which today's judgment has spoken of as being appropriate post April, but the case did lead to the strengthening of the part of the rules dealing with estimates. The Court of Appeal were then of the view that costs budgeting was likely to be the best way forwards, and that work on that "contentious and important" area should be undertaken. Ten years later we have now surely reached the position where parties to litigation need to recognise that costs budgets in the new post April 2013 world are going to have to be complied with.
- Last week the Law Society Gazette reported that Lord Justice Ramsey, who has taken over responsibility for implementing the Jackson reforms from Lord Justice Jackson, admitted at a meeting of the London Solicitors Litigation Association that there will be 'a few sweaty palms' when lawyers are forced to present their budget for cases before the court. However, budgeting would now be routine and would become accepted in litigation: "It's a new discipline for the judiciary - clearly one will rely on co-operation between solicitors. I would suggest that as experience grows one will set reasonable budgets without any difficulty." The aim for insurers should indeed be to ensure that those budgets are not only reasonable, but are then adhered to.
For a summary of the new costs management regime effective from April 2013, click on the pdf icon below.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.