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Henry ruling leaves lawyers rueing lack of clarity and warning of satellite litigation


Stark: ruling gives carte blanche to ignore the new rules

The Court of Appeal ruling in Henry [2] yesterday has been met with disappointment and criticism from lawyers for failing to send out a clear message about the importance of costs management, and for risking an onslaught of satellite litigation.

Iain Stark, chairman of the Association of Costs Lawyers, said: “This judgment sends out completely the wrong message to anyone involved in litigation. The government has made it clear that it wants costs budgeting to help constrain the spiralling costs of litigation, yet the decision flies in the face of this intention. Not only does it undermine the government’s efforts, but it also gives licence to further undermine costs judges and places yet more burdens on them.

“A budget is there for good reason. Ignoring it just begs the question of what is the point of having one in the first place? This ruling gives litigants carte blanche to ignore the new rules – and satellite litigation is certain to follow. Post April it looks like we will be waiting, as in the bad old days of the Costs War, for cases to reach the Court of Appeal, thus paralysing the courts underneath and the everyday administration of justice. This will produce greater uncertainty, exactly what these reforms were supposed to stop.”

Rod Evans, president of the Forum of Insurance Lawyers, said: “This is an extremely disappointing judgment. Lord Justice Jackson made clear that cost budgeting was a key proposal in his raft of reforms to tackle the disproportionate and unbalanced costs of civil litigation and that his reforms were intended to be implemented as a whole and interlocking package.

“We now have major concerns over the adherence to the new cost budgeting rules from the 1 April and what sanctions will be available to apply against those who don’t adhere. We are disappointed that the Court of Appeal has seemingly undermined the implementation of the Jackson reforms which are needed as a matter of urgency to tackle the current dysfunctional costs of civil litigation.”

Fellow defendant lawyer Christopher Malla, a partner at City firm Kennedys, said the appeal court had missed its first opportunity “to assert its authority to control escalating litigation costs and dismiss the appeal. The judgment is now an open door to satellite litigation, having failed to provide clear guidance as to when a court will exercise its discretion to depart from an approved budget.

“Litigators are, however, warned by the Court of Appeal that post 1 April the new rules impose a greater obligation on the parties and the court to manage costs and stick to cost budgets which provide a ‘prima facie limit on the amount of recoverable costs’. To be safe any departure from an agreed cost budget will require communication and judicial approval. We now have to wait and see how the courts exercise their discretion post 1 April.”

Graham Huntley, London Solicitors Litigation Association executive committee member and partner in Signature Litigation LLP, said that rather than produce hoped-for clarity, “the judgment helps to confirm that there will be many future disputes over non-compliance with the requirement in the practice direction to file and agree revised budgets”.

He continued: “At the core of the decision was the issue whether, despite the fact that there was ‘good reason’ to depart from the existing approved budget, the court should nonetheless decline to do so because the mandatory requirement to update the budget had not been complied with. We at least have been told that non-compliance does not shut the door to the courts assessing costs outside the approved budgets.

“The reason is clear – the overall objective of proportionality trumped the out-of-date budget. The Court of Appeal has tried to meet the risk that this will open the door to future non-filing of revised budgets and storing-up of ‘good reasons’ to use at the end of the case.

“However, we can expect vigorous argument as to whether, as the Court of Appeal appears to have thought, the new rules coming into effect in April 2013 are so materially different from those in the pilot scheme as to justify future courts being less lenient than the Court of Appeal in this case.”

Thomas Blackburn, national advocacy manager at Just Costs Solicitors, said that while on its facts the ruling was “a victory for common sense and indeed the underdog”, it raised “serious concerns” over costs management – the ruling has “watered down” the new rules before they have even come into force, he suggested.

“Unfortunately the legacy of Henry v NGN might be to encourage all parties (claimant and defendant alike) to spend millions of pounds in satellite litigation, as the clarity which was intended by Lord Justice Jackson… has just disappeared.”

This view was shared by Rani Mina, partner at City law firm Mayer Brown, who said the ruling was “not the strong message” that had been expected. “One of Lord Justice Jackson’s concerns was that his reforms should not increase the level of satellite litigation over costs. This decision must surely increase the likelihood of appeals in relation to tough cost budgeting decisions at first instance.”

However, a briefing from costs firm John M Hayes emphasised the unusual circumstances of Henry, saying the huge reputational damage that was done to the claimant, along with the awkward manner in which the respondent conducted the case, “evidently weighed heavily” on the judges.

“The Court of Appeal has made it clear that it will only be in rare circumstances that the court will depart from budgets when assessing costs. The fact that a party will not recover its costs will not be sufficient to cause a departure. The preparation of an accurate budget and the ensuring that budgets are adhered to when conducting a case are no less important following the Court of Appeal’s ruling than they were following the SCCO’s judgment.

“On a final note, the respondent attempted to adduce an argument in terms that a receiving party could not ask the court to depart from a budget if that budget was plainly inadequate. Due to the very late notice given that this argument was to be raised, the Court of Appeal refused to hear the same. As such, this question remains unresolved.”