Overview

  • As of 1 October 2009, a new practice direction will give the court the power to manage the • costs of ongoing litigation in actions for defamation by placing an obligation on both sides’ solicitors to prepare detailed estimates and budgets which must be approved by the court if those costs are to be recovered.  
  • This means that it is vital that, once an estimate has been made, it is not exceeded. If at any time it looks as though a party’s costs are going to run over their estimate, that party must apply for a costs management conference to have this excess approved.  
  • It will therefore be more important than ever to ensure that solicitors have a mechanism in place to warn them when the costs are approaching the estimate given to the court.  
  • The parties will now be required to discuss costs regularly to try to keep them proportionate.
  • Having to submit regular budgets to the court to be approved may affect City firms whose estimates will naturally be significantly higher than many other firms for similar work.  
  • On the other hand, if all estimates have been approved, it may make recovery of the costs at assessment more certain.  

Introduction  

  • A new practice direction (PD51D (Defamation Costs Management Scheme)) comes into force • on 1 October 2009. It is a pilot scheme which will operate until 30 September 2010 in the Royal Courts of Justice and the District Registry in Manchester.  
  • It will apply to all proceedings which include allegations of libel, slander and/or malicious falsehood.
  • The scheme aims to provide the court with greater control over the management of costs in proceedings through the submission by each party’s solicitors of detailed estimates of future costs. The aim is to try to ensure that the costs of both sides are proportionate to the value of the claim and the reputational issues at stake and to make sure that the parties are on equal footing.  

How the new scheme will work

  • Under the new scheme the court will manage the costs of the litigation as well as the litigation • itself. This will be done using the existing case management conferences as well as costs management conferences.  
  • Each party must provide an estimate of their costs in a detailed budget setting out the costs • for the entire proceedings in the form of the standard template which will be found as an annex to the Practice Direction.  
  • The costs budgets must be prepared by both parties:  
  1. in advance of any CMC or costs management conference;  
  2. for service with the pre-trial checklist; or  
  3. at any time as ordered by the court.

Litigants in person will not have to produce a costs budget.

Each party should make reasonable allowances in the costs budget for:

  1. all intended activities (e.g. disclosure, preparing witness statements, experts’ reports, mediation or any other steps that will be necessary in that particular case);  
  2. specified contingencies (e.g. specific disclosure applications or resisting inappropriate applications); and  
  3. disbursements (e.g. court fees, counsels’ fees or experts’ fees).
  • When preparing the budgets, the parties should discuss all assumptions made on which the budgets were based and also the timetables used.  
  • Once they are ready, the budgets must be exchanged and lodged at court in the prescribed form 7 days before the hearing at which the budgets are required. The court may order the attendance of the parties at regular hearings if this is appropriate, although these would ideally be done over the telephone.  
  • Each party must update their budget for each case or costs management conference or pre-trial review. This will allow the judge to see the update figures and check what changes have been made and why. This will be taken into account by the judge when making his directions.
  • At the conferences or pre-trial reviews, the court will record its approval or disapproval of each side’s budgets. If the court has expressed its disapproval, it will also record its own view on what the budget should be.
  • Whether or not the budget was approved, it must then be shown by the lawyers to the parties along with any directions which have been handed down. Solicitors will have to liaise monthly to ensure that the budgets are not being exceeded. If either side has exceeded their budget, they may apply to fix a costs management conference to discuss the amended estimate and the reasons therefor.
  • When the costs judge comes to do the detailed or summary assessment, he will have to consider the budget estimates of the receiving party that were submitted and any views which the court had previously expressed. Unless there is a clear reason why the circumstances have changed, the court will only approve as reasonable and proportionate any costs claimed which were included in the last approved budget. The judge will only approve such costs in exceptional circumstances.

Implications of the new scheme

  • It is argued that this scheme will not create any more work for the solicitors as they are already under a duty to provide costs estimates to their clients pursuant to Paragraph 2.03 of the Solicitors Code of Conduct 2007.
  • While it is accepted that, if costs exceed those given in the estimate to clients, a firm may only recover the excess if there has been a change in circumstances and the client has been kept informed, this new regime goes beyond this.
  • Under this new system, there is a burden on firms to ensure that estimates are not only accurate but take into account every eventuality. At the outset, the estimate must be for the entire litigation, which could require second-guessing what the other side may do. Parties have to ensure that regular costs management conferences are arranged in order to approve any changes to the estimate to take into account unexpected developments. This is clearly more onerous than the requirements of the Code of Conduct and is going to be very difficult.
  • It will be important for the solicitors regularly to discuss the stages of the litigation for which a budget is being prepared so that the budgets are for the same work. However, this may well have an effect on firms which have a higher charge out rate. A judge looking at two budgets for the same amount of work, one of which is from a regional or high street firm and the other from a City practice, will no doubt take the disparity in figures into account when registering approval or disapproval. This may make it even harder to recover City fees than it is already in the wake of the King case.
  • It is quite clear that this is going to add to the costs of running a litigation as it will increase the amount of time that is spent on budgets and preparing for and attending conferences to deal with the costs, and also put a greater burden on the costs department of any firm.