Henry v News Group Newspapers Ltd
The case of Henry v News Group Newspapers Ltd has proved to be a false dawn for those who had hoped that the courts would hold parties strictly to their costs budgets. However, it does not mean that the sun will not rise on Sir Rupert Jackson’s ambitious costs reforms. One is left with the distinct impression that the Court of Appeal was not willing to allow this particular Defendant a windfall, even if it meant missing an opportunity to underline the credentials of costs budgeting.
Overturning the first instance decision, the Court of Appeal held on Monday that there was good reason to depart from the Claimant’s budget, with the result that the Claimant’s costs were not arbitrarily limited to a figure which would leave almost a £300,000 shortfall.
However, the Court was at pains to draw a distinction between this case and those which may follow under the new costs budgeting rules. One must, therefore, trust that the courts will not be as accommodating in future to parties who have exceeded their budgets at the conclusion of the case.
On the face of it, this is a disappointing decision for defendants. However it seems unlikely that the courts will treat this as a strong precedent for the approach to be taken by following the wider introduction of costs budgeting from 1 April 2013.
The Court of Appeal specifically referred to how the new rules differ from the defamation costs budgeting pilot in that:
"They impose greater responsibility on the court for the management of the costs of 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."
Yes, there will be downsides from this decision. That the Court of Appeal has not used this case to set rigid boundaries as to when costs budgets can be exceeded means that inevitably there will be unwelcome satellite costs litigation from parties who have significantly misjudged their likely costs expenditure. We can anticipate generously drafted initial budgets as well as frequent revised budgets where, as is often the case, the litigation does not take its planned course. This will lead to an additional layer of cost, ironically, in drafting and seeking approval of costs budgets.
Costs budgeting is unlikely to help the defendant whose conduct causes the claimant to incur additional costs even if that claimant fails to update his or her budget.
However, for the defendant who engages with this process, updates its own budget where necessary and, where the litigation has taken a different turn, presses the claimant for an updated budget or confirmation that the original remains valid, we should expect the court to be slow to depart from a budget - even if that means that the claimant is left with a shortfall.
New costs budgeting rules come into force on 1 April 2013 which will require parties to provide a detailed costs budget within 28 days of service of any defence, including a detailed breakdown for each stage of the litigation.
The approach of the Court of Appeal to Henry, which arose from a defamation costs budgeting pilot scheme, was expected to provide a useful indicator of how the courts may approach deviation from these budgets. Both the defamation pilot scheme practice direction and the new costs budgeting rules contain almost identical wording stating that on a detailed assessment the court will not depart from a budget "unless there is a good reason to do so".
Ms Henry was a social worker who had been the victim of what was described as a sustained, vitriolic and unjustified campaign by The Sun following the death of "Baby P". She sued for defamation. News Group agreed to settle for a substantial sum and issue an apology acknowledging that its newspaper’s campaign was completely unjustified.
At first instance, Senior Costs Judge Hurst reluctantly took a robust stance where the successful Claimant had significantly exceeded parts of her budget, leaving her with a potential £300,000 shortfall.
However, the Court of Appeal has disagreed, finding that there was good reason to depart from the Claimant’s budget.
The Court of Appeal said that the starting point must be that the approved budget is intended to provide the financial limits within which the proceedings are to be conducted and that the court will not allow costs in excess of the budget without good reason.
In Henry, various factors were present which supported a departure from the budget. These were:
- Unless the Court departed from the budget, Ms Henry would not be able to recover the costs of the action. Whilst this alone was not a good reason, the Court of Appeal recognised that there was a strong argument that the costs Ms Henry had incurred were both reasonable and proportionate.
- The failure to provide updated costs budgets did not put News Group at a significant disadvantage in being able to defend the claim nor did it lead to the incurring of unreasonable or disproportionate levels of costs.
- To penalise Ms Henry so as to send out a message to future litigants would be unreasonable and disproportionate.
- The litigation had been constantly changing in a way which the Court of Appeal described as more than a minor inconvenience.
- News Group also exceeded its budget and the Court had failed to monitor budgets as actively as it should.
- Before entering into the settlement and agreeing to pay costs (albeit subject to a detailed assessment), News Group had asked Ms Henry what her costs were and had been provided with that information. It did not register any protest at that point.