On 16 May 2012 the Senior Costs Judge gave judgment in a defamation case that has important implications for the future management of costs in defamation cases – and, quite possibly, costs budgeting schemes generally: Sylvia Henry v News Group Newspapers ( EWHC 90218 (Costs)).
It is an unfortunate feature of defamation proceedings that more time may be spent arguing about legal costs than about the merits of the case. The costs of litigating are indeed frequently greater – far greater – than the damages the claimant gets to compensate him for the libel.
Defamation proceedings were therefore a natural choice for a costs management pilot scheme. That scheme is set out in Practice Direction 51D of the CPR.
One of the first cases to which the scheme applied was a case brought by the former Haringey social worker Sylvia Henry. Ms Henry had been briefly involved in the notorious case of Baby P. She had also been involved in the earlier, equally notorious case of Victoria Climbié. The Sun newspaper had published a large number of articles about Ms Henry, which prompted a libel action against it by Ms Henry which was settled shortly before trial by the payment of damages and a statement in open court which vindicated Ms Henry of the allegations against her.
As part of the settlement NGN, the publisher of the Sun, agreed to pay Ms Henry’s costs, such costs to be assessed on the standard basis if not agreed.
Pursuant to the costs management pilot scheme, the parties had at an earlier stage of the proceedings prepared budgets of their estimated costs to the end of trial. The budgets, which were approved by the court at a costs management hearing, were very close to one another: £539,847 for the claimant and £531,746 for the defendant. (The claimant was on a CFA which provided for a success fee, but the success fee and her ATE premiums were of course not included in the budget figure, which was for base costs only.)
When the claimant served her bill of costs following the settlement, it turned out that the budget had been significantly exceeded. Most of the excess related to two items – witness statements and disclosure – and it is those two items that became the focus of the dispute before the costs judge.
In respect of witness statements the claimant had exceeded her budget by a factor of 18, and in respect of disclosure by a factor of eight. The total overspend was no less than £292,710 – and don’t forget, that figure does not include the success fees claimed by the claimant’s solicitors and counsel.
The issue before the Senior Costs Judge was whether the sums by which the budget had been exceeded were in principle recoverable by the claimant (if recoverable in principle, they would of course still be subject to the detailed assessment process). That issue depended on an interpretation of 51D.
Under PD51D the court, when assessing costs on a standard basis, “will not depart from [the] approved budget unless satisfied that there is good reason to do so”. Was there a good reason for the court to depart from the costs budget in this case?
Senior Costs Judge Hurst decided there was not. He was satisfied that the claimant’s lawyers had had to do work not contemplated when the original budget was prepared and if the bill were to be subject to detailed assessment, the claimant “would be able to argue very strongly that that the costs incurred were both reasonable and proportionate”. However, he found against the claimant because she had failed to comply with the costs management scheme, which required her to keep the defendant notified of the fact that her costs were going over budget. He correctly noted that the terms of the costs management scheme are in mandatory terms: parties must update their budgets and must liaise monthly to check that the budget is not being or is likely to be exceeded:
“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”.
Because this was the first case under the defamation costs management scheme, and also because of the significant sums at stake, Senior Costs Judge Hurst has given the claimant permission to appeal. The claimant’s solicitors have said the decision will be appealed and it is possible that the case will be fast-tracked to the Court of Appeal.
In the meantime, the lesson is clear enough: parties need to engage with the costs budgeting scheme. It will not do to come along later, once significant costs have been incurred, and argue that costs in excess of the budget should be allowed because the demands of the case justified an overrun. The whole point of the scheme is to ensure that each party knows what the other party’s costs are as the case is progressing and that purpose will be undermined if parties keep that information to themselves.
The Henry case has implications for civil proceedings other than defamation. Lord Justice Jackson’s civil costs reforms envisage costs management schemes for all kinds of civil litigation as early as next year.
Keith Mathieson is a partner of RPC and is acting for NGN in the costs proceedings in the Henry case.