This case is an early example of the Court’s approach to costs management and budgeting and indicates the approach the courts will take when considering whether to depart from approved costs budgets.

The case was conducted under the Defamation Scheme set out in Practice Direction 51D and although the claim settled shortly before trial, both parties had exceeded the approved costs budgets. The contentious issue in the Detailed Assessment proceedings was that the successful Claimant had exceeded her budgeted costs for disclosure and witness statements by rather large sums; in relation to disclosure the Claimant sought £87,556.00, against an approved figure of £11,250.00 and in relation to witness statements sought £228,891.00 against a budget of £12,487.00.

Chief Master Hurst had to determine as a preliminary issue whether there was a “good reason” for the court to depart from the previously approved budget. The Claimant sought to justify the departures from the budget by relying on Defendant’s conduct. The Defendant had mounted a “vigorous” Defence which was amended four times and also served ten lists of documents. The Claimant argued that conduct had the effect of increasing their workload beyond that anticipated within the approved budgets. The Defendant argued that the Claimant did not apply to amend the budget and had failed to communicate that the budget had been exceeded.

At the original hearing Master Hurst held that the provisions of Practice Direction 51D were mandatory and that the objective of the Direction was to manage the litigation so that the costs of each party were proportionate to the value of the claim and issues at stake, and so that the parties were on an equal footing. Master Hurst also concluded that if one party was unaware that the other party’s budget had been significantly exceeded, they were no longer on an equal footing, and the purpose of the cost management scheme was lost. Master Hurst reluctantly came to the conclusion that there was no good reason to depart from the budget despite the fact he had no doubt that the Claimant could make a very good case at Detailed Assessment in support of the costs claimed.

On appeal, the Court of Appeal overturned the decision of Master Hurst, 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. In the case of the present scheme the objective is set out in paragraph 1.3 of the practice direction, namely, to manage the litigation so that the costs of each party are proportionate to what is at stake and to ensure that the parties are on an equal footing”.

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. It was highlighted that under the rules, Court’s have a duty not only to manage litigation but to also manage the costs of the litigation. The Court of Appeal also held that Master Hurst had taken “too narrow” a view as to what amounted to a good reason on the facts. The object of the practice direction, as described in paragraph 1.3, was twofold: (i) to ensure that the costs incurred in connection with the proceedings are proportionate to what is at stake and (ii) to ensure that one party is unable to exploit superior financial resources by conducting the litigation in a way that puts the other at a significant disadvantage. Therefore when paragraph 1.3 speaks of the parties’ being on an equal footing it is concerned with the unfair exploitation of superior resources rather than with the provision of information about how expenditure is progressing. The Court went on to state that Paragraph 5.5 assumed that the parties would exchange information about expenditure at regular intervals, but a failure to do so did not of itself put the parties on an unequal footing in the sense in which that expression is used in paragraph 1.3.

The Court further commented that it was not necessary for a party to demonstrate compliance with all the requirements of the Practice Direction before they could ask the Court to depart from an approved budget. This was simply one of the factors which a Court could take into account in deciding whether or not there was a good reason to depart from the budget.

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 to do so would run the risk of setting the rules too rigidly and constraining the proper exercise of judges’ discretion in future cases. The Court did, however, state that “the starting point must be that the approved budget is intended to provide the financial limits within which the proceedings are to be conducted and that the court will not allow costs in excess of the budget unless something unusual has occurred. Whether there is good reason to depart from the approved budget in any given case, therefore, is likely to depend on, among other things, how the proceedings have been managed, whether they have developed in a way that was not foreseen when the relevant case management orders were made, whether the costs incurred are proportionate to what is in issue and whether the parties have been on an equal footing”.