The Defamation Costs Budgeting Scheme – Ignore It at Your Peril
We read with interest the recent judgement in Silvia Henry -v- News Group Newspapers (SCCO Ref: PTH 1106483) on the subject of the Defamation Proceedings Costs Management Scheme under CPR Practice Direction 51D (“the Scheme”) which applies to all libel and malicious falsehood cases issued after 1 October 2009, the primary requirements of which are set out below.
The reason for the interest being that the critical final paragraph of the Scheme, the wording of which has been amended since the Scheme’s inception, suggests that the budgets in approved form would be binding on a costs judge but that there would be room for manoeuvre if there was “good reason” to do so. Practitioners had been waiting for the first case under the Scheme to reach assessment in order to see how the final paragraph would be interpreted. In summary, the Henry case suggests there is very little room for manoeuvre on the budgets unless the receiving party has followed the practice direction to the letter.
The Scheme provides for “costs management based on the submission of detailed estimates of future base costs. The objective is to manage the litigation so that the costs of each party are proportionate to the value of the claim and the reputational issues at stake and so that the parties are on an equal footing”. The parties are required to prepare “budgets” of their estimated future costs and costs incurred which are exchanged with the other side shortly before the CMC. A “Costs Budgeting Conference” is heard at the CMC at which the Master looks at the budgets and decides whether to approve the budgets or “record the court’s view”. The court is obliged to “manage the costs of the litigation as well as the case itself in a manner which is proportionate to the value of the claim and the reputational and public interest issues at stake.” Invariably in my experience, this involves reductions to the budgets. Once the court’s view is recorded, the parties prepare and exchange the approved budgets. The parties are then required to liaise with each other monthly about the budgets. If the approved budget looks like it will be exceeded, the party concerned must apply for a further costs budgeting conference.
The Scheme had some early teething problems, some of which have now been ironed out in subsequent versions of the Practice Direction. At the first Costs Budgeting Conference I attended, for example, (which I understood to be the first ever heard under the Scheme), the Master unexpectedly slashed the costs already incurred of each party by around 40%. The Practice Direction has subsequently been amended to specifically prohibit this.
To return to the critical final paragraph (paragraph 5.6) of the Practice Direction, the initial wording issued in October 2009 was as follows: “Unless there has been a significant change in circumstance the Judge will approve as reasonable and proportionate any costs claimed which fall within the last previously approved budget. Save in exceptional circumstances, the Judge will not approve as reasonable and proportionate any costs claimed which do not fall within the last previously approved budget.”
This led to debate about what would constitute “exceptional circumstances” and also how the Scheme would fit into the well-established Part 36 regime. An order for indemnity costs following a successful Part 36 offer requires the court to have no regard to proportionality, the principle upon which the Scheme is based. It would be most unfair on a party who had made a successful Part 36 offer if that party’s costs could not then be assessed on the indemnity basis as a result of the Scheme. In any event, this wording was replaced in 2010 with the following:
“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.”
At first glance, the revised wording seemed to be more favourable to a party who had exceeded its budget because the Judge could depart from the budget if there was “good reason to do so” rather than the more onerous “save in exceptional circumstances.”
In the Henry case, which involved extremely serious allegations against the Claimant who was a Haringey social worker involved in the Baby P and the Victoria Climbié case, the initial budgets were approved in September 2010. The case appears to have settled shortly before trial around June 2011 with both sides exceeding their approved budgets. The Claimant, who was entitled to recover her costs on the standard basis, sought to justify the departures from the approved budget by relying on the manner in which the Defence had been conducted which had the effect of increasing the work load of the Claimant’s solicitors (the allegations against the Claimant were increased from “incompetence” to “criminal incompetence” for example and the Defence was amended four times). The Defendant also served ten additional lists of documents.
Senior Costs Judge Hurst found that although the Defendant could not pass off the manner in which it conducted its defence as a “minor inconvenience” and that the costs incurred by the Claimant were likely to be found to be both reasonable and proportionate, the Claimant had “largely ignored the provisions of the Practice Direction”. It followed that there was no good reason to depart from the approved budget and the Claimant’s solicitors were criticised for failing to engage with the Defendant’s solicitors over the budgets. The Claimant has therefore been left with a hefty bill, reportedly as much as £300,000, comprising of the shortfall between what she was able to recover from the Defendant by way of costs and the actual costs incurred by her legal team who were acting under a CFA for which she is liable.
The case is, therefore, a salutary reminder to follow the Practice Direction to the letter. As the Judge commented, the provisions of the Practice Direction are not optional. Each party must update its budget or revised costs budget (paragraph 3.1) and solicitors must liaise monthly to check that the budget is not being or is likely to be exceeded (paragraph 5.5). As such, the Scheme is likely to be onerous and time-consuming for solicitors, particularly in demanding cases where the litigation takes unexpected twists and turns. In the Henry case, for example, in preparation for the detailed assessment the Claimant was required to prepare twenty separate breakdowns relating to the additional work that exceeded the approved budget. It can only be hoped that the Scheme will becomes less onerous over time as the courts and practitioners become accustomed to the practicalities and requirements of the Scheme.