Draconian or pragmatic costs estimating rules?

Sylvia Henry v News Group Newspapers Ltd

As we edge closer towards 1 April 2013 and the dawn of Lord Jackson’s new era of litigation, the Court of Appeal’s decision in Sylvia Henry v News Group Newspapers Ltd [2013] EWCA Civ 19 provides some welcome clarity on what the Court’s approach will be to cost budgeting.

Ms. Henry was the victim of a number of defamatory articles in The Sun regarding the role of Haringey social services in the circumstances surrounding the death of ‘Baby P’. Ms. Henry brought a libel claim against News Group which was eventually settled for the payment of an undisclosed sum, a published apology and a statement in open court. The settlement also provided that News Group would pay Ms. Henry’s costs of the proceedings to be assessed on a standard basis if not agreed.

The case was dealt with under the Defamation Proceedings Costs Management Scheme (the “Scheme”) which applies to libel claims commenced on or after 1 October 2009. The Scheme required both of the parties to prepare a costs estimate and to liaise on a monthly basis to ensure the agreed estimates were not being exceeded.

After the parties settled, it became apparent that both parties had exceeded their estimated costs. Despite obligations under the Scheme to do so, Ms. Henry had not kept the defendant or the court informed of the position. The Scheme stated that departure from an approved estimate should only be allowed where there was “good reason”. The court was asked to consider whether there was a good reason for Ms. Henry to be allowed to recover more than her costs estimate.

Senior Costs Judge Hurst found that there was no good reason for Ms. Henry to have departed from the approved estimate, despite also considering that it was likely that the bill of costs was reasonable. Further, the conduct of News Group, which included amending its defence four times and serving ten lists of documents and the resulting effect this had on the way Ms. Henry conducted her case, was not sufficient to excuse the failure of Ms. Henry to comply with the Scheme.

This decision emphasised the mandatory nature of the provisions of the Scheme and the key requirement for parties to monitor and amend, if necessary, their cost estimates. In this case, as Ms. Henry failed to update the initial costs estimate or inform News Group of the increased costs being incurred, the court found that the parties were no longer on an equal footing, and accordingly the objectives of the Scheme had not been met. Therefore Ms. Henry was not entitled to recover more than the costs set out in her initial estimate.

In light of the importance of the issues in this case, permission to appeal was granted and the Court of Appeal’s decision was published on 28 January 2013 (for the full judgment click here).

The decision of the Court of Appeal

Disagreeing with Judge Hurst’s conclusions, the Court of Appeal held that there was “good reason” for Ms. Henry to have departed from the initial costs estimate and considered the purpose of the Scheme in more detail. While confirming that the approved estimate is the intended starting point when considering the financial limits within which proceedings are to be conducted, the Court of Appeal noted that costs should only be allowed in excess of the estimate where “something unusual has occurred”.

The purpose of the Scheme was to ensure that costs incurred are proportionate to the amounts at stake and to prevent the exploitation of superior financial resources to put one party at a disadvantage. The Court of Appeal considered that a failure to advise the other party of additional cost expenditure does not put the parties on unequal footing. In addition, the Court of Appeal noted that News Group were aware of Ms. Henry’s total costs as, at the time proceedings were settled, News Group were advised of the total costs and agreed to pay such costs on a standard basis if not agreed, without raising any objection as to the amount and without reference to Ms. Henry’s costs estimate. (The Court of Appeal does not appear to have considered whether News Group may have only agreed to pay the costs because they assumed that in light of Ms. Henry's breach of the rules of the Scheme she would recover no more than the amount set out in her costs estimate.) Further, the Court of Appeal noted that compliance with the requirements of the Scheme was just one factor the court may take into account when considering a party’s departure from an approved estimate.

Significantly, the Court of Appeal noted that in this case, Ms. Henry was not the only party at fault. The Court of Appeal emphasised that effective costs management is a responsibility of all the parties and ultimately the court itself. In this case, both the parties and the court were, in differing degrees, at fault. Both parties exceeded their costs estimate and the court failed to ask the parties if they were still within the approved costs estimate at an opportune moment.

The Court of Appeal maintained that a party can depart from an agreed/approved estimate where there is good reason to do so, taking into account all the circumstances of the case. However, the Court of Appeal noted that it will rarely, if ever, be appropriate to depart from the estimate if to do so would undermine the fundamental purposes of the Scheme. In this case, the purpose of the Scheme was not undermined and there was good reason for Ms. Henry to have departed from her costs estimate.

The future

On 1 April 2013, the civil litigation rules in England and Wales will go through significant changes. These will include new rules in relation to management of costs by the court. This will require parties to submit a ‘costs budget’ at an early stage of proceedings, thereby front-loading the issue of costs. The Court of Appeal noted that the new rules will differ significantly from the Scheme, in particular, they will place greater importance on the approved or agreed "budget" as imposing a limit on recoverable costs. As such, the Court of Appeal’s ruling in this case is likely to be of little significance going forward and parties should not take comfort from this judgment that the court will be easily persuaded to depart from the approved or agreed costs budget.

The critical time to challenge costs will shift; strategies in the early stages of litigation will need to include consideration of whether a settlement can be forced by strong objections to the other party’s budget. While detailed assessment will remain a key step on completion of the case, where costs fall within an agreed/approved budget there is likely to be less scope to challenge costs.