A costs budget wasn't a cap on costs recovery – but might be soon
Summary: the Court of Appeal has allowed a claimant to recover her costs despite the fact that she disregarded the costs management practice direction and exceeded her costs budget.
Key issue: was there a good reason for the court to award the Claimant her costs despite the fact that they exceeded the approved budget? The Court of Appeal said ‘yes'.
With only two months to go before the Jackson reforms are implemented, this is a taster of what's ahead. Some lawyers have lamented the decision arguing that it undermines the essence of the costs reforms by allowing a costs recovery despite non-compliance with costs management rules. However, such a view fails to take into account the Court of Appeal's very clear warning that in future it will be difficult to establish reasons good enough to justify a departure from costs budgets.
Background: Lord Justice Jackson's recommendations for stricter costs management led to a costs management pilot scheme for defamation claims which is regulated by Practice Direction 51D (PD51D). This provides that when making a costs assessment, the court must consider the receiving party's last court approved costs budget – and only depart from it if there is good reason.
High Court Costs Assessment: the claimant had brought a claim against the defendant over defamatory coverage of her in the press. During the subsequent proceedings, both parties had exceeded their approved budget. They eventually settled the claim and the defendant agreed to pay the claimant's costs. When they could not agree the level of those costs, the parties went back to court for an assessment.
The claimant argued that the way the defendant had handled its defence had given rise to the extra costs and there were therefore good reasons for the court to depart from the budget. The costs judge disagreed: the claimant had not complied with PD51D and while her costs were reasonable and proportionate to the claim, he could find no good reason to depart from the approved budget. The claimant appealed.
The Appeal: In allowing the appeal, Lord Justice Moore-Bick of the Court of Appeal explained that PD51D's purpose was to ensure that the costs incurred were proportionate to what was at stake, and to allow the parties to litigate on an equal footing – in other words, to prevent wealthier parties from using their comparative wealth to conduct litigation in a way that disadvantages the other party.
The judge confirmed that the court must look at all the circumstances in deciding whether to depart from the budget. In this case, the judge based his decision on some key facts:
- the claimant's costs were reasonable and proportionate;
- her non-compliance with PD51D had not disadvantaged the defendant. In actual fact, the defendant had also exceeded its budget without court approval. Further, the defendant had been aware of the level of the claimant's costs at the time of settlement;
- not allowing the claimant to recover costs would amount to a penalty and would be a disproportionate sanction for her non-compliance; and
- the court itself had not been sufficiently proactive in ensuring the budget was reviewed.
Practical points: This decision must have been a considerable relief to the claimant. However, such comfort might not be available to future claimants who do not comply with the relevant costs management practice directions.
So where does this case leave us as we speed towards the implementation of Lord Justice Jackson's costs reforms? Bear in mind the following: this decision was based on the costs management guidelines set out in PD51D – and the specific facts of the case – and the costs management rules due to be implemented from 1 April 2013 will be different.
Those wondering why the court did not take the opportunity to enforce a cap on an approved court budget, should heed Lord Justice Moore-Bick's warnings about costs management post 1.4.13. In particular:
- the court will have greater responsibility to manage costs – as will the parties to review their budgets. Judges should take on board the Court of Appeal's emphasis on a judge's duty to take a proactive approach to costs management;
- the budget is more likely to be used to set a limit on the amount of recoverable costs; and
- although the court will still, in theory, have power to depart from the budget, a receiving party is unlikely to be able to persuade the court that costs over the budget are reasonable and proportionate to what is at stake.
Some lawyers are going to find it rather uncomfortable presenting their budgets to court knowing there will be little wriggle room on the figures in the event of a costs assessment. All lawyers are going to have to talk more frequently and more openly to their opposite numbers about their trial preparation, the time spent on each procedural step and whether their costs are still within budget.
If there is any increase in the costs expenditure, lawyers will have to be prompt and proactive about telling the court and obtaining court approval to any budget revisions. Either that or risk some disconcerting questions from clients when it comes to the costs assessment…
