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The evolution of proportionality

14 January 2016

One of the biggest challenges faced by Lord Justice Jackson in his reforms to the civil costs landscape was how to make costs proportionate.

The rules, as they stood prior to April 2013, stated that the court would only allow costs which were "proportionate to the matters in issue". The approach to be adopted, as endorsed by the Court of Appeal in the leading case of Lownds v Home Office, was for the Costs Judge to undertake a two stage test. Firstly, the judge must consider whether the costs on the whole appeared to be proportionate. If they did, he would assess the bill of costs on the basis of whether or not the items contained in the bill had been reasonably incurred. If they did not, it would trigger what was supposed to be a much stricter test where the receiving party had to demonstrate that such costs had been necessarily incurred as well.

However, within his report Lord Justice Jackson concluded that this test did not work. Even with the stricter test of necessity imposed, costs were simply not proportionate. Consequently, the rules on proportionality were changed.

The test, now contained within CPR 44.3 (2)(a), takes matters a step further in stating that the court will “only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred”.

Given the ambiguity of this wording, and the lack of any judicial guidance as to how this approach was to be implemented on assessment, it is perhaps easy to see how this has caused both paying and receiving parties some discomfort. It is therefore pleasing to see that these questions are now starting to be answered.

The first case was Savoye & Savoye –v- Spicers Ltd [2015] EWHC 33 (TCC), in which Arkenhead J reduced the costs in a £900,000 dispute from just over £200,000 to £96,465 on the basis they were disproportionate. Admittedly, it was a rather straightforward 'one issue case' involving three short hearings relating to an application for summary judgment plus a trial, but in reducing the costs by over 50% the judge took the opportunity to give guidance under CPR 44.3 on what should be considered by the judge, which can be summarised as:

  1. the relationship between the costs spent and the amount in issue
  2. the amount of time spent by the legal representatives conducting the case, particularly in relation to the total length of any final hearings
  3. whether the case was a ‘test’ case
  4. the importance of the case to either party.

In concluding that Savoye did not really tick any of these boxes, and that far too much time had been spent by both specialist solicitors and counsel, he took a ‘costs hatchet’ to the claim presented and reduced it significantly.

Adopting a different approach but reaching a similar conclusion, Master O’Hare, in the case Hobbs -v- Guy’s and St Thomas’ NHS Foundation Trust [2015] EWHC B20 (Costs) considered the test of proportionality in the context of a low value clinical negligence case. He initially reduced the bill from £32,329.12 to £11,000 and then, in a review post assessment, reduced it further to £9,879.34.

But he did not stop there.

Quoting from both Lord Justice Jackson and Lord Justice Neuberger he went on to say that “proportionality trumps necessity” and that the way to implement this is to consider the figure reached at the end and, in the event this is still not proportionate, to reduce the claim further. This, he said, was not to be done by reducing the bill of costs by an arbitrary amount, but instead by targeting items within the bill which were reasonable for the claimant to incur at the time, but which with the benefit of hindsight the costs of which were not reasonable to pass on to the defendant.

While this is only one judge’s view, it is certainly well founded. In making his decision the Master took the opportunity to quote from Leggatt J in the case of Kazakhstan Kagazy PLC v Zhunus [2015] EWHC 404 (Comm) in which guidance was given on the approach to proportionality which should be taken in hard fought litigation where the sums in issue exceeded many millions of pounds. 

Leggatt J opined that "In a case where very large amounts of money are at stake, it may be reasonable from the point of view of a party to spare no expense that might help to influence the result of the proceedings. It does not follow, however, that such expense should be regarded as reasonably or proportionately incurred when it comes to determining what costs are recoverable from the other party.  The touchstone is not the amount of costs which it was in a party's best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently."  

In other words, it doesn’t matter whether the work done was reasonably done at the time… but instead whether at the end the same conclusion could have been reached cheaper. 

Three very different cases; courts; judges; and assessment – but with a common theme. It is not how one gets to the final costs figure, but what the final figure is. If nothing else, the above cases are evident that all courts are prepared to take a hard line with disproportionate costs in whatever manner they are presented or at whatever stage of the proceedings they arose.

While it would perhaps be rather naïve to suggest that any of these cases are likely to be representative of the last word in determining what proportionality means in a Jackson era of litigation, this author cannot help but conclude that for Defendants at least, we are off to a good start.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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