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The Court of Appeal recently handed down its decision in relation to the costs issues arising in the highly-publicized case of Mitchell v News Group Newspapers Ltd  EWCA 1526. The decision, which demonstrates that the Courts are now taking a strict approach to the new costs budgeting rules, is a stark warning to all litigators and clients that procedural breaches in relation to costs will no longer be tolerated by the Court.
A key aspect of the Jackson Reforms is an increase in emphasis on compliance with Court rules, practice directions and orders. Since the implementation of the Reforms on 1 April 2013, a new costs management regime (as set out in Civil Procedure Rules (CPR) 3.12 to 3.18 and Practice Direction 3E) has applied generally to multi-track claims, which are claims for over £50,000 or which involve complex points of law and/or evidence.
A main feature of this is the requirement for parties to file and exchange costs budgets, and to agree them where possible. The purpose of the exercise is to get the parties to budget for the whole case including contingencies in advance. The Court will thereafter adjudicate on any parts of the budgets which have not been agreed between the parties at a costs management conference.
CPR 3.13 provides that parties must file and exchange costs budgets by either a date specified by the Court or, if no such date has been specified, seven days before the first case management conference. CPR 3.14 provides the sanction for parties who fail to file a costs budget: they "will be treated as having filed a budget comprising only the applicable court fees".
Former Government Chief Whip Andrew Mitchell brought a defamation claim against The Sun newspaper on 7 March 2013 for damages in the sum of £150,000 for its reporting of the "Plebgate" scandal. The transitional provisions in respect of the Jackson Reforms provided that defamation proceedings commenced before 1 April 2013 would be governed by the defamation proceedings costs management scheme set out in Practice Direction 51D. Effectively, these provisions mirror those set out implemented on 1 April 2013, save for that they do not explicitly provide a sanction for non-compliance (see CPR 3.14). Mr Mitchell's solicitors were therefore required to file and serve a costs budget within the time limits set out in the CPR.
The Master had initially ordered on 5 June 2013 that a case management conference would take place on 10 June; however, the hearing was relisted for 18 June 2013 to provide the parties with enough time to file and serve various documents, including their costs budgets. Despite this extension, Mr Mitchell's legal team did not file their costs budget - which estimated Mr Mitchell's overall costs at £506,425 - until 17 June 2013, less than 24 hours before the case management conference and after being chased by the Master via email. By contrast, News Group Newspapers Ltd (News Group) has filed its costs budget for £589,558 within the deadline, on 11 June 2013.
At the case management conference, Mr Mitchell applied for relief from the sanctions set out in CPR 3.14. His solicitors argued that they were a small law firm and were very busy, with their resources stretched due to a number of staff absences. However, the Master stated that these were not exceptional circumstances and that the breaches of the CPR were serious and therefore made an order that Mr Mitchell's costs budget would be limited to £1,350 in respect of the Court fees payable. In light of the severity of the sanction, the Master gave permission to appeal her own decision.
Mr Mitchell appealed against the Master's order, arguing that the Court was not entitled to apply the sanctions set out in CPR 3.14 as the Practice Direction in relation to costs in defamation proceedings did not have an equivalent provision.
However, the Court of Appeal dismissed Mr Mitchell's appeal, therefore upholding the strict approach that News Group had advocated and the Master's application of CPR 3.14. The Court of Appeal made it clear that all parties involved in litigation should take heed of the Courts' robust approach in relation to procedural breaches, commenting that relief from sanction "should be granted more sparingly than previously".
The Court of Appeal also commented that a Court, when considering an application for relief from sanction, should consider all the circumstances, but the need for litigation to be conducted efficiently and at proportionate cost (and the need to enforce compliance) will be of "paramount importance", with all other considerations being given less weight.
Relief from sanction will usually be given if the breach is trivial and the party is otherwise fully compliant with the CPR, and if the application for relief is made promptly. Other than in these circumstances, any relief will only be granted if there is a good reason (which is likely to mean a reason that is outside the control of the party or its legal representative(s)).
The Court of Appeal noted that solicitors suffering from a debilitating illness or being involved in an accident "may" constitute a good reason. By way of contrast, administrative errors or the pressures of work will rarely be good reasons.
Another point to note is that the Court of Appeal accepted that CPR 3.14 not only applies when a party has failed to file a costs budget, but also where the budget has not been filed before the prescribed deadline.
Therefore, the same sanction will apply to both late filing and a failure to file a budget at all. Late filing is effectively regarded as being as bad as not filing a budget at all, and the same sanction will apply to both.
The Court of Appeal was clear that, although it may appear that the sanction in this case was draconian, if it were to overturn the Master's decision to refuse relief, the change in culture that the Court is trying to instigate would receive a major setback.
It is therefore highly likely that other litigants will suffer in the process of the Court implementing this change.
Parties involved in litigation must therefore take heed: hurdles to achieving compliance which are not regarded by the Court as exceptional will not be accepted as excuses. Costs budgets need to be prepared by legal representatives (and reviewed and agreed by their clients) in good time and preferably prior to issuing proceedings.
For more information please contact Ashley Armitage, Associate
+44 (0)20 7427 6466