Court of Appeal overturns Senior Costs Judge and allows recovery of £300,000 budget overspend

Court of Appeal: costs judge misunderstood meaning of “equal footing”

A social worker involved in the Baby P case can recover £300,000 in costs from a successful libel claim against The Sun after the Court of Appeal ruled that she had good reason to depart from the court-approved costs budget, the Court of Appeal has ruled.

Overturning the decision of the Senior Costs Judge, Peter Hurst, the court said today that it could not accept that compliance with all the costs budgeting rules is essential before a party can ask the court to depart from the approved budget.

Lord Justice Moore-Bick, who at the time of the hearing was the deputy head of civil justice, said: “Costs budgeting is not intended to derogate from the principle that the court will only allow costs as have been reasonably incurred and are proportionate to what is at stake; it is intended to identify the amount within which the proceedings should remain capable of being conducted and within which the parties must strive to remain”.

But he emphasised that a budget is not intended to act as a cap: “[Budgets] are intended to provide a form of control rather than a licence to conduct litigation in an unnecessarily expensive way. Equally, however, it may turn out for one reason or another that the proper conduct of the proceedings is more expensive than originally expected.”

Henry v NGN is the first major ruling in relation to budgeting and the result is something of a surprise as many observers had expected the Court of Appeal to uphold the tough line taken by Master Hurst ahead of the practice becoming standard in multi-track cases from 1 April.

At the same time, Lord Justice Moore-Bick pointed out at the end of the ruling that the rules coming into force on 1 April differ “in some important respects” from those of the defamation costs management pilot under which this case was conducted.

“In particular 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… although the court will still have the power to depart [from it] if it is satisfied that there is good reason to do so.”

London media firm Taylor Hampton acted for Sylvia Henry, who was one of the individuals named in the newspaper’s high-profile and prolonged campaign against Haringey Social Services following the death of Baby P.

It sent a pre-action protocol letter to News Group Newspapers (NGN) on 2 March 2010, the budget was approved on 20 September 2010 under the defamation costs management pilot, and the case settled on 4 June 2011, shortly before both a costs management hearing and then the trial. Ms Henry received a prominent apology in the newspaper and “substantial” damages.

Her approved budget, excluding trial costs, was £381,305, but the final bill came in nearly £300,000 over budget because of extra disclosure and witness statement costs, which her solicitors argued was because of the way the defence was conducted. Master Hurst accepted this, but he said the sole question was whether there was good reason for the claimant to depart from the court-approved budget. Given that the claimant had “largely ignored the provisions of the practice direction”, he “reluctantly” concluded that there was no “good reason” to depart from the budget, which was the test set out.

The Court of Appeal said Master Hurst had misunderstood the reference in the pilot scheme that an objective of costs management to keep parties on an “equal footing”. It said this was concerned with the unfair exploitation of superior resources rather than the provision of information about how expenditure was progressing. Taylor Hampton’s failure to observe the requirements of the pilot did not put the newspaper at a significant disadvantage, nor were the costs incurred unreasonable or disproportionate.

As a result, the court said that Master Hurst had taken too narrow a view of what amounted to “good reason” to depart from the budget.

Taylor Hampton partner Daniel Taylor said he was delighted with the verdict. He said: “Crucially, the Court of Appeal made reference to the fact that, immediately prior to settlement, The Sun had asked for details of the total costs of the action. Having been informed of the costs incurred, it failed to register and protest with regard to the figures and ‘armed with that knowledge’, had agreed to pay those costs subject to assessment.

“As Lady Justice Black commented during the appeal hearing, prior to settlement The Sun had something better than any updated costs budget required under the new pilot scheme: it was in possession of the actual figure of costs being sought.”