In what is thought to be the first costs management pilot case to proceed to detailed assessment, the court has held that there was no good reason to depart from the claimant’s approved costs budget. This was in circumstances where the claimant’s costs had exceeded the budget by approximately £270,000 but neither the defendant nor the court had been kept informed of the overspend: Henry v News Group Newspapers Limited  EWHC 90218 (Costs).
The court reached this conclusion despite its view that (apart from the budget) the claimant would have been able to make out a very good case on detailed assessment for the costs being claimed. Subject to any appeal (for which permission has been given) the decision suggests that where a party fails to comply with the requirements of the costs management regime, and in particular the obligation to update its costs budget, it is unlikely that it will be able to recover the extra costs even if those costs were reasonable and proportionate.
The underlying case was a defamation claim brought by a social worker involved in both the Victoria Climbié and Baby P cases in respect of defamatory articles published in The Sun newspaper. The proceedings were settled shortly before trial, and the claimant was entitled to its costs on the standard basis (i.e. it could recover costs which were reasonable and proportionate, with any doubt as to reasonableness being resolved in favour of the defendant).
The case was dealt with under the pilot Defamation Proceedings Costs Management Scheme, which requires the parties to prepare detailed costs budgets and update them as necessary. To the extent the budgets are not agreed between the parties, the court will approve or disapprove each side’s budget. If the court assesses a party’s costs on the standard basis, it will have regard to the last approved budget and will not depart from it unless satisfied that there is good reason to do so.
In this case the claimant exceeded its approved costs budget by close to £270,000 (claiming £650,137 compared to a budget of £381,305). This was mainly due to an overspend in relation to disclosure (£87,556 against a budget of £11,250) and witness statements (£228,891 against a budget of £12,487). In all other categories the costs were either within budget or exceeded the budget figure by only a relatively modest amount.
The claimant did not keep either the defendant or the court informed of the fact that its budget was being exceeded. Although the defendant had also exceeded its budget, it had informed the claimant of the costs being incurred and ultimately revised its budget.
The court (Master Hurst in the Senior Courts Costs Office) considered, as a preliminary issue, whether there was good reason to depart from the court approved costs budget.
The claimant argued that the tactics adopted by the defendant gave rise to extra work which justified the overspend and meant there was good reason to depart from the budget. Although Master Hurst said he had “no doubt whatsoever” that the claimant would be able to argue very strongly that the costs incurred were both reasonable and proportionate, he found there was not good reason to depart from the budget. In reaching this conclusion, he said:
“The provisions of the Practice Direction are in mandatory terms. Each party must prepare a costs budget or revised costs budget…, each party must update its budget…, solicitors must liaise monthly to check that the budget is not being or is likely to be exceeded…. The objective of the Direction is to manage the litigation so that the costs of each party are proportionate to the value of the claim and reputational issues at stake, and so that the parties are on an equal footing…. I am forced to the conclusion that if one party is unaware that the other party’s budget has been significantly exceeded, they are no longer on an equal footing, and the purpose of the cost management scheme is lost”.
This case illustrates the dangers of failing to comply with the provisions of the costs management regime, where it applies in a given case.
Although this case related to the defamation pilot, the position is likely to be the same under the costs management procedures which will apply to all multi-track cases commenced in the county court or the High Court (with the exception of the Commercial Court) from next April – see post. Those rules similarly provide that, when assessing costs, the court will have regard to a party’s last approved or agreed budget and will not depart from it unless satisfied that there is good reason to do so.