From 1 October 2009 the new Practice Direction 51D will be inserted into the CPR introducing the Defamation Proceedings Costs Management Scheme into Civil Procedure. The scheme will supplement pre existing rules which already allow for costs procedures such as cost capping to be used in general litigation.
This experimental change will run for a year as a pilot scheme and will mean that all defamation and malicious falsehood claims filed on or after 1 October 2009 at the High Court in London or the District Registry at Manchester will have to conform to a more detailed costs procedure in a bid to prevent costs becoming exorbitant.
The motive behind the change came following a consultation paper earlier this year which reviewed the issue of costs in defamation cases. The consultation paper highlighted the spiralling costs involved in defamation proceedings and the need for claimants and defendants to be on an equal footing. The new focus for the court when managing costs in defamation cases will be whether or not the costs are proportionate to the value of the claim and the reputational issues at stake.
In practical terms the changes mean that each party will be required at an early stage of the proceedings to give a detailed estimate of future base costs. The reason for implementing detailed costs assessment at such an early stage is so that the court can ensure parties are going to incur proportionate costs throughout proceedings and that both sides are on an equal footing from the start.
The thought behind introducing detailed cost estimates for the court is not to increase administration on the part of the solicitor but to extend disclosure of budgets to the court in addition to those given to the client as required under the Solicitors’ Code of Conduct.
In preparing budgets it is intended that the parties will exchange information about how they expect to incur costs and at what stage these costs will be paid. At least 7 days before any hearing where the issue of costs will be raised the parties are required to exchange the estimates with each other and lodge them with the court. It is not yet clear from the guidance which particular hearings require the preparation of cost estimates.
Having put forward each party’s estimate of costs the burden will then fall upon the court not only to case manage but also to cost manage. In order to do this there will no doubt be a greater use by the court of Case Management Conferences both in person and by telephone in order to check that both parties are on target and have not incurred unreasonable expense. Whilst this will add greater transparency between the parties with regard to costs, it will inevitably increase solicitors’ costs for time taken to attend hearings.
On a monthly basis solicitors on both sides will conduct an internal review of their estimates and costs to make sure that budgets are not being exceeded. Both parties will then be expected to communicate this information to each other.
The courts have issued a sample costs schedule in the form of “Precedent HA” which is available via their website. This precedent sets out which specific costs are expected to be put forward and how they are to be presented. Whilst there is only one format available, this particular precedent shows how much information is needed by the courts and how much planning is needed in advance of hearings.
Following communication between the parties about costs, estimates will be revised and put forward to the judge before the CMC or pre-trial review. It is then for the judge to review the figures and analyse whether or not any unnecessary costs have been incurred and if so ask why the party has chosen to depart from their budget. Any directions given by the judge in relation to costs will be given to each side’s solicitors together with copies of approved or disapproved budgets.
The estimates themselves will have to include allowances for all costs incurred during litigation including: witness statements; expert reports; counsel’s fees and any mediation or other dispute resolution costs.
Although it may appear that such potential caps on costs will impose the utmost restriction on parties there is provision for an overhaul of initial budgets and estimates if it is shown that there has been an exceptional change in circumstances. What constitutes an exceptional change in circumstances is not yet understood but it would seem that with greater limitation on how the parties can incur costs many solicitors may find themselves with little choice but to apply for amendment under the exceptional change principle.
If, for example, a claimant wishes at some stage to join another defendant to the proceedings then the costs incurred thereafter will greatly increase and therefore original estimates will not be applicable. It is not clear whether this quite common occurrence would constitute an “exceptional change” or whether the parties would face sanction for overstepping their original budgets. It will be left for the cases commenced after 1st October to provide greater clarity as to what is meant by “exceptional”.
Defamation costs have been a concern for some time with excessive costs being incurred in a plethora of cases and therefore the fact that the Ministry of Justice is addressing this issue seems to be a step in right direction. However, a greater issue which this pilot scheme fails to address is that of Conditional Fee Arrangements (CFAS).
The fact that claimants are entitled to enter into a “no win no fee” arrangement tends to put the parties on unequal footing. Part of the aim of this pilot scheme is to ensure that parties are on an equal footing and to an extent by monitoring costs this will help however, there is an overriding issue that with CFAs in place the claimant is free to choose their solicitor whilst the defendant is constrained by issues of costs and therefore may not be represented by a solicitor of the same calibre.
In theory the changes to costs will see greater transparency in defamation and malicious falsehood cases in terms of the parties having access to what each side is spending and what they are shelling out costs for. However, with a new burden being added to the courts’ functions it may mean, in practice, more visits to court and hearings lengthened in order to discuss costs which will inevitably increase costs. Therefore the very aim that the courts are striving to achieve may not be realised.