Henry v News Group Newspapers Ltd  EWCA Civ 19
In an eagerly-awaited ruling in the final months of the Defamation Proceedings Costs Management Scheme operated under PD51D (“the DPCMS”), the Court of Appeal has ruled in Henry v NGN Ltdthat Haringey social worker Sylvia Henry should not be shut out from recovering assessed costs in her successful claim against the Sun newspaper when those costs greatly exceeded her court-approved costs budget and her solicitors had failed to comply with procedures under the practice direction for reviewing and getting approval for increased costs budgets.
But with its reprieve for the claimant in Henry, the Court of Appeal also issued a warning that under the new rules for costs management applicable in all multi-track cases from 1st April 2013, costs budgets will be viewed as closer to costs caps, with the court likely to be unimpressed by claims to budget-busting costs.
By putting greater responsibilities on both the court and the parties to keep agreed and approved budgets under review, explained Moore-Bick LJ, the new rules will put greater emphasis on budgets as providing a prima facie limit on recoverable costs. Accordingly, he expected the court would “place particular emphasis on the function of the budget as imposing a limit on recoverable costs.” A receiving party would be “unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake.”
Since October 2009, all defamation actions started in the Central Office of the Royal Courts of Justice and Manchester District Registry have been subject to costs management under PD51.
As described in Moore-Bick LJ’s judgment, in outline paragraph 5 of the practice direction requires the parties to prepare a costs budget for approval by the court at the first case management conference and a revised budget at various stages thereafter. The court has a responsibility to manage the costs of the litigation, as well as the case, in a manner proportionate to the value of the claim and the reputational and public interest issues at stake. The parties are expected to liaise monthly to check their respective budgets are not being exceeded and they may apply to bring the matter back before the court for review at a costs management conference.
The “teeth” of the scheme for keeping costs in check are found in paragraph 5.6. This provides that when assessing costs on the standard basis the court “(1) will have regard to the receiving party’s last approved budget; and (2) will not depart from such approved budget unless satisfied that there is good reason to do so.”
The Henry claim
Sylvia Henry was a senior social worker at Haringey who had been professionally involved in the tragic case of “Baby P”. Following the conviction of Baby P’s abusers and killers, Ms Henry was the victim of a sustained and vitriolic online and newspaper campaign by the Sun (its so-called “Justice for Baby P” campaign) the object of which was to force her out of her job and prevent her ever again working with children.
Her libel claim eventually settled on payment of substantial damages, a statement in open court and a prominent published apology acknowledging that the newspaper had been wrong to target her and that its campaign and the libels against her had been entirely unjustified. As part of the settlement terms, the Sun agreed to pay the claimant’s costs on the standard basis if not agreed, doing so with full knowledge of how much the claimant said those costs were, including CFA success fees and an ATE premium.
Compliance with the DPCMS by the parties and the court
Both parties prepared costs budgets that were approved at the first (and only) case management conference in September 2010. Thereafter, neither party went back to the court to get approval for any increase to their budget. The claimant’s solicitors failed to comply in any significant way with the requirements of paragraph 5.5. They provided the defendant with no information that the claimant had gone over budget or by how much, until asked for a figure in settlement talks. By the middle of May 2011, both parties had exceeded their budgets to a significant extent, but no application was issued until 19 May 2011, when the defendant’s made an application for a costs management conference. The application was listed for 8 June 2011, just 5 days before the trial date. As for the court’s involvement, it did not raise the question of costs management either at the defendant’s succession of non-party disclosure applications or at a hearing on 13 April 2011 of an application by the claimant for specific disclosure and an application by the defendant to strike out a case raised in aggravation of damages.
Notwithstanding that on settlement it had agreed to pay the claimant’s reasonable costs, at the subsequent assessment the defendant objected to the claimant’s bill of costs on grounds that it exceeded the claimant’s latest (and only) approved budget. A preliminary issue was listed before the Senior Costs Judge, Master Hurst, to decide whether, for the purposes of paragraph 5.6(2), there was “good reason” to depart from that budget.
Master Hurst plainly found himself in a quandary. He was unimpressed by the defendant’s argument that the claimant had been caused no significant, cost-generating inconvenience by its conduct of the proceedings. As stated in his judgment, he had no doubt whatsoever that on assessment it could be strongly argued that the costs incurred were both reasonable and proportionate. But the claimant’s solicitors had almost entirely failed to comply with the obligations under paragraph 5.5, either to communicate on budgets with the defendant or to make application to court for review and ratification of an increased budget.
The judge decided that the purpose of the costs management scheme to keep parties “on an equal footing” (see PD 51D paragraph 1.3) had been lost where, as he found, one party had been unaware that the other party’s budget had been significantly exceeded. He reluctantly concluded that, because this had resulted from the claimant “largely ignoring the provisions of the Practice Direction”, there was no “good reason” to depart from the budget.
So far had the claimant exceeded her approved budget, the effect of the judge’s order was to disallow £268,832 of the claimant’s claimed costs before any success fees under the solicitor’s CFA.
The Court of Appeal found the Senior Costs Judge had got it wrong.
The object of the Practice Direction, as described at paragraph 1.3, was twofold: to ensure costs incurred are proportionate to what is at stake (the value of the claim and reputational issues); and to ensure one party could not exploit superior financial resources in a way that put the other at significant disadvantage. The latter objective was what paragraph 1.3 intended when speaking of the parties being “on an equal footing”, rather than the parties being kept informed how expenditure was progressing.
In this case, the failures of the claimant’s solicitors to comply with the practice direction had not prevented the parties being on “an equal footing”. Neither party was financially embarrassed. There had been no “inequality of arms”.
The judge had also taken too narrow a view in finding there could be no “good reason” to depart from the budget just because the receiving party had largely ignored provisions of the practice direction. The court would rarely if ever depart from the last approved budget if that would undermine the essential objects of the scheme described by paragraph 1.3. But otherwise, the court had to consider all the circumstances of the case.
The starting point, said Moore-Bick LJ, was that the approved budget set a limit within which the proceedings were to be conducted, and the court would not allow costs in excess unless “something unusual has occurred”. Thereafter, whether there was “good reason” to depart from the budget would depend, inter alia, on: how the proceedings had been managed; whether they had developed in a way unforeseen when management orders were made; whether the costs were proportionate to the issues; and whether the parties had been “on an equal footing”.
The factors the Senior Costs Judge had been obliged to consider in Henry (but had not) included: the extent to which not only both parties but also the court had exercised their responsibilities under the management scheme; the way proceedings had developed; the response of the claimant’s solicitors to demands imposed by the way the defendant’s case had developed; and the defendant’s agreement when fully informed of the total amount claimed to pay the claimant’s reasonable costs to be assessed if not agreed as part of the compromise of the claim.
Considering those matters, the Court held there was good reason to depart from the claimant’s budget.
It was strongly arguable, said the Court, that the claimant’s solicitor’s failures had not resulted in the claimant incurring costs disproportionate to the issues at stake. Those failures had not put the defendant at a significant disadvantage in defending the claim. In those circumstances, refusing departure from the budget would achieve nothing beyond penalising the claimant. While that might encourage others to comply more assiduously, penalising the claimant for that reason alone would be unreasonable and disproportionate. As conducted by the defendant, the proceedings had been constantly changing in ways that could not be passed off as a minor inconvenience to the claimant. The defendant had also exceeded its budget (albeit not by so large an extent). The court had been less active than it should have been in monitoring the parties’ expenditure when the opportunity arose on hearing the applications made in April 2011. And the fact that the defendant had raised no protest when it was finally informed of the amount of costs incurred by the claimant suggested some recognition by the defendant of the extent to which the development of the litigation had affected the claimant’s preparation.
Back to the Judge
The Court of Appeal’s decision refers the case back to the costs judge to assess costs, deciding in what respect and to what extent the claimant should recover costs in excess of sums allowed by the last approved budget. The burden would be on the claimant to satisfy the court in what respects and to what extent it should depart from the budget, said Moore-Bick LJ. That would principally depend on the claimant showing those costs were reasonable and proportionate to the issues at stake and on the extent to which (if any) they could have been reduced if the practice direction had been properly followed.
After 1st April 2013
Of wider interest, the Court of Appeal took the opportunity in Henry to point up that under the new rules for costs management that will be applicable in all multi-track cases from 1st April 2013, the court is much less likely to allow budget-busting costs.
Moore-Bick LJ observed that the new rules differ in important respects from the DPCMS. “In particular, they impose greater responsibility on the court for the management of the costs of the 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.”
While the court could still depart from the approved or agreed budget if satisfied that, taking all the circumstances into account, there was good reason to do so, he expected the court to emphasise the function of the budget in limiting 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 to what is at stake.”
The judgment is available here.