With the Jackson Reforms due to come into force on 1st April 2013, there is currently a lot of focus on the subject of costs budgeting. The first case to consider the effects of exceeding a budget has been:
Sylvia Henry v News Group Newspapers [2013] EWCA Civ 19.
This case involved a defamation claim. The Claimant, Ms Henry, was the victim of a sustained and vitriolic campaign by "The Sun" newspaper, following the death of a child. The object of the campaign was to force the claimant out of her job and to prevent her from obtaining any further employment with children. The defamation proceedings were eventually settled on a payment of a substantial sum and the publication of an apology in a prominent position in the newspaper.
In response to concerns over the effect on the media of the costs of defamation proceedings, a pilot costs management scheme was introduced in October 2009 in relation to defamation proceedings. That scheme is now embodied in Practice Direction 51D which applies to all defamation proceedings started in the Central Office of the Royal Courts of Justice and the Manchester District Registry on or after 1st October 2009 and is to run until 31stMarch 2013.
The object of the Scheme, as set out in paragraph 1.3, is to manage the litigation so that the costs of each party are proportionate to the value of the claim and to ensure that one party is unable to exploit superior financial resources. Under the Scheme, each party must prepare a costs budget for consideration and approval by the court at the first case management conference, each party must update its budget and solicitors must liaise monthly to check that the budget is not being or is likely to be exceeded.
In this case, although the parties were able to settle the proceedings, the parties were unable to reach agreement on the amount of costs recoverable by the appellant. The appellant’s bill of costs exceeded the budget which had been approved by the Court on 20th September 2010 by £268,832 before any success fee was added.
At first instance, the judge came to the conclusion that, although the costs incurred were reasonable and proportionate, there was no good reason to depart from the budget because the claimant had ignored the Practice Directions. The judge felt that if one party is unaware that the other party’s budget has been significantly exceeded, they are no longer on an equal footing.
The case centred around whether or not there was good reason to depart from the appellant’s approved original budget. If there were no good reason to depart from this figure, then the court would determine the sums recoverable by reference to the original budget.
On the one hand, the appellant submitted that the way in which the defendant had chosen to conduct the proceedings had caused her to incur a substantial amount of costs that could not reasonably have been predicted when the budget was prepared.
On the other hand, the respondent submitted that there was no good reason to depart from the budget because the appellant had failed to comply with the requirements of the Practice Direction, as her solicitors had failed to keep the respondent’s solicitors informed of the costs being incurred.
At the Court of Appeal, it was held that the judge at first instance had taken too narrow a view of what may account to good reason. It was stated that when the Directions speak of the parties being on an equal footing, it is concerned with the unfair exploitation of superior resources rather than with the provision of information about how expenditure is progressing. Failure to provide such information does not itself put the parties on an unequal footing. In this case, there was no inequality between the parties as a result of the omission by the appellant.
The court was unable to accept that "compliance with all the requirements of the practice direction is essential before a party can ask the court to depart from the approved budget".
The Court of Appeal held that the management of costs is the responsibility of all parties to the litigation and is ultimately the responsibility of the court itself. The appellant, the respondent and the Court were all at fault to a greater or lesser degree.
In this case, when the respondent became aware that it had exceeded its budget and submitted a revised budget to the court, the same day it asked the appellant’s solicitors for a clear indication of their costs to date to assist in the settlement talks. They were advised that the appellant’s costs exceeded their original budget of £1.5m. Knowing this, the respondent agreed as part of the settlement to pay the appellant’s costs subject to detailed assessment. As there were other parties at fault and as the essential objects of the scheme would not have been undermined by departing from the budget, the Court of Appeal held that there was good reason to do so in this case. It was stated that it would be up to the costs judge to decide in what respects and to what extent the appellant should be allowed to recover costs in excess of those for which the budget allows. That will depend mainly on the extent to which the costs actually incurred were reasonable and proportionate to what was at stake in the proceedings.
The Practice Direction with which this appeal is concerned applies only to proceedings for defamation. However, this was a pilot scheme introduced by the Civil Procedure Rule Committee and was intended to provide experience of how costs management would work in practice.
The Jackson reforms, which will become effective from 1st April 2013, will make the management of costs by the court an integral part of the claims procedure.
However, the judge tried to play down the significance of this case on the Jackson reforms, stating that the Jackson reforms differ in some important aspects from the practice direction with which this appeal was concerned. He stated that they will impose greater responsibility on the court for the management of the cost of proceedings and greater responsibility on the parties for keeping budgets under review as the proceedings progress. He did, though, acknowledge that 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, meaning that this case could prove highly significant in the future and which leaves the effectiveness of the Jackson reforms in doubt.