Practical Law

In May last year, I commented on the judgment in Henry v News Group Newspapers concerning one of the costs management pilot schemes.

This was a case where costs had risen substantially from the court-approved budget under the defamation costs management pilot scheme. The parties had reached a settlement, with the defendant agreeing to pay the claimant’s costs on the standard basis. The question for the Senior Costs Judge, Master Hurst, was whether there was a “good reason” to depart from the court-approved budget. He held that the provisions of the defamation pilot were mandatory and that the claimant had “largely ignored” them. He regarded the claimant’s failure to notify the defendant and the court of her rising costs as critical.

However, Master Hurst said that the defendant’s costs might otherwise have been considered reasonable and proportionate, and granted permission to appeal to the Court of Appeal. That appeal was decided on 28 January 2013 and was successful.

What did the Court of Appeal decide?

Moore-Bick LJ gave the leading judgment and stressed that the issue to be decided was whether there was a “good reason” to depart from the court-approved budget. In deciding this, all the circumstances of the case had to be taken into account. The failure to notify an increase in costs was only one of them.

The costs judge should, in particular, have considered whether the claimant’s failure to notify had put the parties on an “unequal footing”, as referred to in the pilot scheme. In the court’s view it did not, since this phrase concerns the unfair exploitation of superior resources.

In the court’s view:

• The particular circumstances of this case were sufficient to constitute a “good reason” to depart from the court-approved budget.
• To deny the claimant some or all of the increased costs might result in her being unable to recover costs that were reasonable and proportionate.
• There was no disadvantage to the defendant in terms of its ability to defend the claim.
• Restricting recovery to the court-approved budget would serve only to penalise the claimant excessively, which was not a reasonable or proportionate result.
• The defendant’s solicitors had also exceeded the court-approved budget and the court itself should have been more proactive in monitoring both sides’ rising costs.

The matter was to be referred for detailed assessment.

And yet…

This case should not be taken as a softening of the court’s approach to cost budgeting. The Jackson costs reforms place much emphasis on costs budgeting, and the rules expected to come into effect on 1 April 2013 are not identical with those applicable to the defamation pilot scheme.

Under the new rules:

• The court has a greater responsibility to manage costs.
• The parties are responsible for keeping budgets under review as the proceedings progress.

As Moore-Bick LJ noted, a court-approved or agreed budget will be a prima facie limit on the amount of recoverable costs, although the court will still have the power to depart from it for “good reason”.

Going forwards, it will be important that parties keep costs budgets under review and revise them (if necessary) at regular intervals. In default, parties will face an uphill task in persuading the court that their costs, if they go beyond the court-approved or agreed budget, are reasonable and proportionate.

We have all been warned!