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Henry v News Group Newspapers Limited, Court of Appeal, 28 January 2013

11 February 2013
The issues

Costs – costs budgets

The facts

The claimant, a senior social worker with Haringey Council, brought proceedings for defamation against the publisher of the Sun newspaper. Proceedings were settled for an undisclosed amount of money, together with a statement in open court, the publication of an apology. The defendant agreed to pay the claimant’s costs.

The detailed assessment proceedings came before Senior Costs Judge Hurst on a preliminary issue.

The purpose of the practice direction was to ensure that the costs incurred were proportionate and to ensure that one party was unable to exploit superior financial resources by conducting the litigation in a way that put the other at a disadvantage

In the course of the substantive proceedings costs budgets had been prepared by both parties for the first case management conference. The totals of the two budgets were similar, but the amounts included for various stages of preparation for trial differed considerably. The Master approved both budgets. Thereafter neither party sought approval to any revised budget. The defendant/paying party objected to the claimant’s bill of costs on the grounds that it exceeded the budget that had been approved by the Master. Accordingly, the following question was tried as a preliminary issue:

“Whether there is good reason for the Court to depart from the Court approved costs budget as approved on 20th September 2010, following which: i) in the event that the Court finds that there are no good reasons to depart from the budget, the Court will at that Hearing determine the sums recoverable by reference to the budget; ii) in the event that the Court finds that there are good reasons that the budget should be departed from, the Court will determine by how much the budget should reasonably be exceeded and when, if necessary, provide directions in respect of the remaining budget items”.

Before the costs judge, the claimant had said that the way the defendant had chosen to conduct the proceedings had caused her to incur costs that could not reasonably have been predicted when the budget was set and that that was a good reason for departing from it. The defendant argued that there was no reason to depart from the budget because the claimant had failed to comply with the requirements of the practice direction, in that her solicitors had failed to keep the defendant solicitors informed of the costs being incurred and had failed to obtain the court’s approval for a revised budget when the costs overran. The costs judge came to the conclusion that there was no good reason to depart from the budget. The effect of the Order was to disallow £268,832 before any success fee was added.

The claimant appealed.

The decision

The practice direction made it clear that the costs budget was intended to provide the framework for a detailed assessment and that the court should not normally allow costs in an amount exceeding what had been budgeted. However, it also recognised that there might be good reasons for departing from the budget. In considering whether there was good reason it was necessary to take into account all the circumstances of the case, but to have particular regard to the objective of the costs budgeting regime. Budgets were intended for provide a form of control rather than a licence to conduct litigation in an unnecessarily expensive way. It was not wise to attempt an exhaustive definition of the circumstances in which there might be good reason to depart from an approved budget. The starting point had however to be that the approved budget was intended to provide the financial limits within which the proceedings were to be conducted and that the court would not allow costs in excess of that budget unless something unusual had occurred. Whether there was good reason to depart from a budget in any given case would be likely to depend on, among other things, how the proceedings have been managed, whether they had developed in a way that was not foreseen when the relevant case management orders were made, whether the costs incurred were proportionate to what was in issue, and whether the parties had been on an equal footing.

In this case, the judge had found himself in a difficult position on the basis that the claimant had largely failed to comply with the practice direction requiring communication with regard to the budget. However, he had taken too narrow a view of what might amount to be good reason and had misunderstood the reference in the practice direction to the parties being on an equal footing. The purpose of the practice direction was to ensure that the costs incurred were proportionate and to ensure that one party was unable to exploit superior financial resources by conducting the litigation in a way that put the other at a disadvantage. The reference to the parties being on unequal footing was concerned with the unfair exploitation of resources rather than the provision of information. In this case neither party was financially embarrassed and there was no inequality of arms. The court could not accept that compliance with all the requirements of the practice direction was essential before a party could ask the court to depart from the budget. It was no more than one factor which the court could take into account. In this case the claimant was not the only one at fault. Both parties were at fault to a greater or lesser degree. Both parties had exceeded their budgets to a significant extent. In addition, in the process of settlement negotiations, the claimant had sent a schedule of costs to the claimant’s solicitors and settlement had taken place against that background. In this case the preliminary issue should be answered in the affirmative.

The court was persuaded that the costs actually incurred were reasonable and proportionate to what was at stake in the litigation. The failure of the claimant’s solicitors to observe the requirements of the practice direction did not put the respondent at a significant disadvantage. Nor did it seem likely that it led to the incurring of costs that were unreasonable and disproportionate. The objects of the practice direction therefore were not undermined. To refuse to allow a departure from the budget simply because of non-compliance with the practice direction would achieve nothing beyond penalising the claimant. To do so would be unreasonable and disproportionate. There had also to be born in mind that the claimant’s solicitors were not alone in failing to comply and that the defendant’s solicitors had exceeded their budget, although by not so large an extent. The court itself had been less active than it should have been in monitoring the parties expenditure when the matter had come before it on procedural Applications in April 2011. There was therefore good reason to depart from the claimant’s budget and it was for the costs judge to decide in what respects and to what extent the claimant should be allowed to recover costs in excess of those allowed by the budget. This would depend principally on the extent to which the costs incurred were reasonable and proportionate. The burden of satisfying the court that it should depart from the budget in any particular respect was on the claimant.

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