The Court of Appeal's decision in Henry v News Group Newspapers: costs budgeting

Costs budgeting is one of the key planks of the Jackson reforms due in force on 1 April 2013.

The Court of Appeal's decision in Henry v News Group Newspapers Limited this morning (28 January 2013) indicates how the parties, and the judiciary, will be expected to approach costs budgeting in order to avoid the considerable pitfalls of exceeding a budget. 

Sylvia Henry's defamation claim against "The Sun" (over her treatment by the newspaper in the aftermath of the Baby P case) is the first Court of Appeal test of the Court's increased control over costs which will be applied to most cases from 1 April. Under the Defamation Proceedings Costs Management pilot scheme, the parties were each required to prepare a budget of costs at various intervals throughout the proceedings.

When settling the case, The Sun agreed to pay Sylvia Henry's reasonable legal costs. The (base) costs exceeded the approved budget by almost £300,000; a conditional fee agreement success fee was payable in addition, calculated by reference to the base costs.

The general rule under the pilot scheme (as it will be under the impending new rules) was that when assessing costs on a standard basis the Court would not depart from the approved budget unless "satisfied there is good reason to do so". Senior Costs Judge Hurst, in deciding a preliminary issue, held that Sylvia Henry was only entitled to the amount of base costs specified in the approved budget.

On appeal, the Court of Appeal held in favour of Sylvia Henry, finding that there was good reason to depart from the budget on the facts. Lord Justice Moore-Bick stated that "when considering whether there is good reason to depart from the approved budget it is necessary to take into account all the circumstances of the case, but with particular regard to the objectives of the cost budgeting regime".  The objectives were to manage the litigation in a way which was proportionate to the issues at stake in the case and to ensure that the parties were broadly on an equal footing.  It is interesting that in this first test case the Court of Appeal was critical of both sets of solicitors and of the Judge in the underlying action for failing to manage costs in the way set down in the rules.  The Court of Appeal also held that the Senior Costs Judge (whose decision it overturned) had taken "too narrow" a view as to what amounted to a good reason on these facts. However, the Court declined to seek to define what may or may not amount to good reason in any particular case because it said that would run the risk of setting the rules too rigidly and constraining the proper exercise of judges' discretion in future cases.

Whilst the precise circumstances in which there may be good reason to depart from an approved budget remain unclear, the Court confirmed that one of the key functions of the budget will be to impose "a limit on recoverable costs".  For Defendants and their insurers, as the paying party in many cases, costs budgeting will offer some welcome costs protection, particularly where Claimant solicitors exceed their budgets. The lack of detailed Court of Appeal guidance will however mean that the speed and consistency of judicial approach to the implementation of the new rules is likely to vary widely after 1 April.  It also means that there will be considerable potential for disputes and negligence claims against solicitors where budgets are underestimated or exceeded without good reason.