In Simpson -v- MGN Limited  EWHC 126 (QB) Mr Justice Warby considered several contentions in relation to costs budgeting; non-service of costs schedules and proportionality. This is, again, a case that serves as an object lesson as to the difficulties that can arise.
In a defamation action the judge had granted the claimant’s application to strike out a plea of justification and refused the defendant’s cross-application to amend that plea. At the end of the application the claimant applied for costs in the sum of £24,096.20.
- On the facts of this case the failure by the claimant to have his costs budget approved on a preliminary issue was not fatal to the recovery of those costs.
- Insofar as necessary on the facts of the case it was appropriate to depart from the costs budget.
- The failure of the claimant to serve a costs schedule on the defendant led to costs being reduced by 10%.
- The costs of two counsel at the hearing were disallowed.
THE ARGUMENTS AS TO COSTS
It was agreed that the claimant was the successful party and would ordinarily be entitled to costs. The defendant put forward several arguments as to costs:
- That the claimant’s approved costs budget did not include anything for the application. There was no good reason to depart from the budget, therefore no costs should be allowed.
- The claimant failed to serve the costs schedule on the defendant. Therefore no costs should be awarded.
THE COSTS BUDGET POINT
At the costs budgeting and CMC stage the claimant indicated that it would apply for a trial on a preliminary issue and this was included as a contingency (it was also a contingency in the defendant’s cost budget). The Master declined to order a trial of a preliminary issue, but anticipated that there might be an order in the future.
In relation to the contingency for the hearing of a preliminary issue the Master marked n/a. Consequently the defendant’s contingent costs were agreed but not approved; the claimant’s were neither agreed or approved. However the claimant’s figure was not disapproved either.
The claimant subsequently made the application. The draft order included provision for the defendant to pay the claimant’s costs.
THE DEFENDANT’S ARGUMENTS
Without giving the claimant prior notice the defendant took the point that the rules did not allow the court to depart from the costs budget unless the court is “satisfied there is good reason to do so”. The claimant’s budget included no provision for the trial of a preliminary issue and there was no good reason for the court to depart from this.
THE JUDGMENT ON THIS ISSUE
- Mr Barca submitted that the defendant’s stance represented rank opportunism. The defendant had failed to reply to the claimant’s solicitors’ letter of 9 December 2014 for over a month. They had left it until just 2 working days before the hearing, by which time it was too late for the claimant to submit its budget for approval by the Master. If the defendant’s submission was upheld it would result in an unwarranted windfall for the defendant, which had fought and lost the applications. The hearing had been beneficial for the litigation as a whole, indeed beneficial for the defendant itself, potentially saving many tens of thousands of pounds compared with a full trial.
- It is clear that if costs management is to work conclusions reached upon reviewing costs budgets must be adhered to, and not second-guessed at a later stage. The wording of CPR 3.18(a) focuses attention on budgets for phases of the litigation. It is clear from CPR 3.18(b) that if a figure has been agreed or approved for a particular phase of proceedings the amount recoverable by the receiving party in respect of that phase will be capped at that figure, unless there is good reason to depart upwards. (If the receiving party has incurred costs less than budgeted there will be good reason to depart downwards.) If significant developments have taken place which increase the cost of a phase, or add an element of cost, a revised figure should be discussed, and if not agreed submitted for approval, if time allows: PD3E paragraph 7.6. Time may not allow. Equally, if a party’s budget for a particular phase has been reviewed and assessed at nil, there would need to be good reason to award any costs at all.
- The application of the wording of CPR 3.18(b) is not so straightforward in the circumstances of this case, where (a) the receiving party has put forward a budget for this phase of the litigation but one that is not agreed or approved, or disapproved but considered inapplicable; and (b) the paying party has prepared a budget for this phase which has been agreed. I am inclined to think that the wording of CPR 3.18 was not aimed at such a situation, but rather at ensuring that once the court has reached a decision on what it is reasonable for a party to spend on a given phase that conclusion should be final in the absence of some good reason. However, that was not a point addressed in argument and I reach no conclusion on it. Assuming that I am wrong in this it seems to me that on the facts of this case there is good reason to depart from the budget approved by Master Yoxall for this phase of the litigation, by allowing recovery of some costs by the claimant.
- It is true that the claimant failed to comply with PD3E paragraph 7.6 by submitting a revised budget for the court’s approval prior to the hearing. However, having regard to the wording of CPR 31.18 it seems to me that what the defendant seeks, strictly speaking, is that by way of a sanction for this failure the claimant’s recoverable costs of success on the applications should be assessed at nil. That is not a sanction prescribed by the Practice Direction or the rule. The order sought would in my judgment be an unjustly disproportionate sanction, not sufficiently justified by the overriding objective, the need to enforce compliance with rules, practice directions or orders, or any of the other specific aims listed in CPR 1.1(2).
- It is not enough in my view for the claimant to point to the beneficial impact of the applications’ outcomes on the overall cost of this litigation. In reaching my conclusion I am influenced by the following factors in particular.
i) The claimant did budget for this phase before the CMC and his final proposed figure was known from 29 October 2014 onwards.ii) The Master did not disapprove that figure. He reached no conclusion on what it would be reasonable for the claimant to incur on this phase if, contrary to his decision, this phase took place at all. He simply and quite properly put this issue to one side as regards the claimant, on the footing that it was then inapplicable because of his decision that there should not be a preliminary issue.
iii) On the other hand the defendant’s budget for this phase was agreed by the claimant, and accordingly noted by the Master in the order made at the CMC. There was therefore an imbalance between the parties from that point on as regards this phase.
iv) The claimant did submit a revised budget for agreement, albeit prompted by the defendant to do so. It did so within three weeks of issuing its application and some six weeks before the hearing.
v) The defendant’s solicitors failed to respond to the letter enclosing that budget until very shortly before the hearing, when it clearly was too late to ask for prior approval. That is not a co-operative approach.
vi) The defendant never suggested, nor would the court ever have concluded, that the claimant’s budget should be set at nil. Nor did any of the defendant’s several combative letters on the question of costs suggest that it would be submitted that the claimant should recover no costs at all because no budget had been approved. There is therefore force in Mr Barca’s windfall point.
vii) The claimant’s failure to comply has had only a modest impact on the efficient dispatch of this litigation, and no appreciable impact on the efficient conduct of litigation overall. It was never likely to have any substantial impact on either.
- The approach I took to the assessment of costs, as described in paragraph 3 above and further detailed later in this judgment involves a sanction for the claimant’s failure to comply with the Practice Direction which is in my judgment just and proportionate in the circumstances of this case, and one which in more general terms provides a sufficient incentive to parties to comply. That approach involves an assessment which makes every assumption against the party which has failed to submit an amended budget, and properly compensates the defendant for the additional costs involved.
THE COSTS STATEMENT POINT
The claimant had failed to serve a copy of the costs schedule on the defendant. The judge rejected the argument that costs should be disallowed in total but allowed only 90% of the costs.
- The claimant prepared a statement of costs and filed it at court, but failed entirely to serve it on the defendant. Thus it was that when Mr Wolanski rose to make submissions on costs he still did not know that there was a claimant’s costs schedule. He pointed out that there had been a manifest failure to comply with PD44 paragraph 9.5 for which there was no excuse (and none was offered on behalf of the claimant.) Once he had seen the costs schedule Mr Wolanski pointed out that it was not in form N260, though he did not place great weight on that point. He did submit that paragraph 9.6 indicates that it is open to the court in its discretion to decline to make any costs order, if no costs schedule is served.
- I accept that this is so, and that in an appropriate case the court might conclude that a successful party which is in principle entitled to costs should not recover any, by reason of a failure to serve a costs schedule. But the Practice Direction does not prescribe such a sanction. Rather, it obliges the court to take the default into account in exercising its discretion as to costs, including its discretion whether to make any order at all. This is not a case in which the making of no order for costs would be a just and appropriate sanction for what I must assume was an oversight in failing to serve the schedule as well as filing it at court. The schedule was not in form N260 but it did not depart very significantly from that form, and it enabled a sufficiently detailed scrutiny of the sums claimed.
- There is no doubt, however, that the failure to serve the statement of costs led to unnecessary delay and cost in the process of resolving the amount of costs that it would be just for the claimant to recover and for the defendant to pay. I rose for a short while to allow Mr Wolanski to review the statement and to take instructions. The result of this and the additional time spent in dealing with Mr Wolanski’s first submission is that the hearing before me was prolonged, by my estimate, by at least an hour. That hearing was attended on the defendant’s side by Counsel, a partner of, and an associate in the defendant’s solicitors.
Amount of costs
- I accepted Mr Wolanski’s submission that a deduction should be made from the costs recoverable by the claimant to reflect the fact that the defendant succeeded in persuading me that references to the claimant’s previous infidelity meant that it was somewhat overstating the matter to suggest that his family relationship with Ms Ward and their daughter was portrayed in the article as a ‘stable’ and ‘secure’ one. I did not accept, however, that this was a matter of as much significance as Mr Wolanski suggested, and therefore concluded that I should allow 90% of reasonable standard basis costs.
The judge reduced the hourly rate and hours spent. However the major deduction was in disallowing the costs of two counsel.
- I assessed what was reasonable on the basis indicated in paragraph 3(ii) above. For this purpose Mr Wolanski invited me to have regard to the defendant’s costs schedule, which was lower than the agreed budget figure, and I did. The defendant’s total costs for all the applications were, according to their schedules, £15,435.60. I had reviewed the claimant’s costs schedule before the hearing.
- The hourly rate of the partner involved on the claimant’s side was said to be high, and the time spent was criticised. I made deductions from the time claimed for attendances on the defendant and counsel, disallowed entirely attendance on ‘colleagues/others’, cut the time spent on documents by approximately half to 6 hours, and reduced the time spent at court to 2.5 hrs. Allowing for the 10% deduction indicated above I allowed total profit costs of £3,600 inclusive of VAT against a claim for £5,841.60.
- The major reduction I made was in Counsel’s fees. I accepted Mr Wolanski’s submission that from the perspective of costs between the parties it was not reasonable for the claimant to instruct two counsel on applications of this kind. Although Mr Barca QC was right to say that the applications had important consequences for the action as a whole, they were not legally or factually complex and one Counsel would have sufficed. I assessed 90% of a reasonable fee for a single Counsel of appropriate experience at £6,000 plus VAT. I added disbursements of £200 to arrive at a total of £11,000.
- From this sum I made a deduction to reflect the additional costs referred to in paragraph 3(ii) above. This was on the assumption that Counsel’s fee included attendance at the hand-down, but bearing in mind that the hourly rates for the solicitors present at that hearing were £300 and £235 per hour, which are reasonable rates for the grade of solicitor involved. Thus I arrived at a final sum of £10,500 inclusive of VAT for all the applications.