Proportionality and What it Means for Your Recovery
Perhaps the most fundamental question that can be asked of a Costs Lawyer is ‘what will our costs recovery be if we proceed to assessment?’ In answering, a good Costs Lawyer will rely on comprehensive knowledge of the authorities, sound analysis of the facts of the case, and professional experience. When proportionality comes into play, however, the question is not straightforward to answer.
The Court of Appeal has yet to provide guidance on how the post-LASPO proportionality test is to be applied, and there have been a number of conflicting decisions from the lower courts. In this article I tackle proportionality from a practical perspective to help cut through the uncertainty surrounding this issue.
Two Proportionality Tests: Which Applies?
The current proportionality test is set out in CPR 44.3. Its most striking difference from the pre-1 April 2013 proportionality test is that costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred (CPR 44.3(2)(a)). Under the pre-1 April 2013 test, where costs were disproportionate in amount, they would nevertheless be allowed if necessarily incurred (see Lownds v Home Office [2002] EWCA Civ 365).
All costs incurred before 1 April 2013 will be subject to the old test, and if the claim was issued before 1 April 2013, the old test will apply to the whole case. The new test applies only to cases issued after 1 April 2013 and only to such costs in those cases as were incurred from 1 April 2013 onwards. What follows addresses the new test.
Not Purely a Question of Money
What renders costs proportionate or, as the case may be, disproportionate? CPR 44.3(5) states that costs incurred are proportionate if they bear a reasonable relationship to 5 factors. “The sums in issue in the proceedings” is only one of those factors. The others are: the value of any non-monetary relief; the complexity of the litigation; additional work generated by the conduct of the paying party; and any wider factors, such as reputation or public importance.
The factors other than the sums in issue are of particular relevance in human rights and civil liberties cases, as well as privacy and defamation cases. The courts have recognised that such cases may in fact be highly important and complex, notwithstanding the fact that damages can be comparatively modest (see for example Various Claimants (In Wave 1 of the Mirror Newspapers Hacking Litigation) v MGN Ltd [2018] EWHC B13 (Costs), in which it was also found that “vindication” can constitute a “wider factor”).
In cases where the non-monetary factors do not weigh heavily, there remains more to proportionality than simply comparing costs to damages. In Sharp v Blank and Ors [2017] EWHC 141 (Ch) Nugee J found that the Court should consider what work is involved in the action in determining the proportionate costs, such that very large sums in issue did not automatically justify a very large costs spend. There is also a distinction to be drawn between the “sums in issue” and the level of damages ultimately recovered, as they may in fact be two different things (see Various Claimants (In Wave 2 of the Mirror Newspapers Hacking Litigation) v MGN Ltd (3 August 2018, SCCO, Unreported).
The Role of Costs Budgeting
Should the case fall subject to costs budgeting, the judge upon setting a party’s Costs Budget will consider whether the costs fall within the range of reasonable and proportionate costs (Practice Direction 3E, 7.3). Should the Court consider that the costs as set out in the proposed Costs Budget are disproportionate, they will be reduced, and absent a subsequent significant development in the litigation, or the Costs Judge upon detailed assessment finding a good reason to depart from the Costs Budget, the costs recovered at the end of the case will be limited to the approved allowances.
It should be borne in mind that, although the Court does not approve costs incurred before the date of the costs management hearing (Practice Direction 3E, 7.4) and therefore such “incurred” costs do not strictly fall subject to costs budgeting, should the Court consider the incurred costs to be disproportionate, it can record comments upon those costs and any such comments will be taken into account by the Costs Judge upon assessment.
If the nature of the litigation alters after the Costs Budget is set, for example if the value of the claim changes substantially or a novel issue arises, this may have an impact upon the proportionality of the costs. The costs position will need to be reviewed as a matter of urgency and an application to revise the Costs Budget considered (see my article, “Costs Budgeting – 5 Key Points for Solicitors” here: https://www.whittakerscosts.com/news-notes/2018/9/26/costs-budgeting-5-key-points-for-solicitors).
Should the costs fall within the budgeted allowances at the conclusion of the case, there may be a strong prima facie case that the costs are proportionate. This does not, however, obviate the need for the Court upon assessment to consider proportionality at that stage (Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792). In the appeal in Reynolds v One Stop Stores Limited (21 September 2018, County Court at Norwich and at Cambridge, Unreported), it was found that a significant reduction on the basis of proportionality was appropriate notwithstanding that there had been no good reason to depart from the Costs Budget.
Reductions on the Basis of Proportionality
At detailed assessment, the Costs Judge will first make an assessment of the costs on the basis of reasonableness[1]. Having arrived at a figure for the reasonable costs, the judge will then “stand back” and consider whether that figure is proportionate and if it is not, what reduction should be made (BNM v MGN Limited [2016] EWHC B13 (Costs)).
How the Costs Judge should go about the task of making reductions on the basis of proportionality remains the subject of considerable uncertainty. In BNM the Costs Judge assessed the base costs and additional liabilities in the sum of £167,389.45 on the basis of reasonableness, and having found these costs to be disproportionate, applied a reduction of approximately 50% to both the base costs and additional liabilities to give a figure of £83,964.80. The decision was, however, successfully appealed and the Court of Appeal found that the old test of proportionality should apply to the success fee and ATE premium, with the new test applying only to base costs, meaning that, in line with Lownds, a global deduction may not be made to the additional liabilities.
But as far as the base costs are concerned, how will a judge calculate the appropriate reduction to disproportionate costs? Will they reach for the broadsword or the rapier? In May v Wavell [2016] EWHC B16 (Costs), the costs of a private nuisance dispute in which damages of £25,000.00 were recovered were reduced from an assessed reasonable sum of £99,655.74 to £35,000.00 plus VAT, with the Costs Judge commenting that a global assessment of proportionality “involves the court wielding a blunt instrument rather than a precision tool” (paragraph 48). The decision was appealed, however, and HHJ Dight found (2018, County Court at Central London, Unreported) that the Costs Judge had misinterpreted and misapplied the proportionality test, stating that “I doubt, for the reasons given above, that the proper interpretation of the rules requires or indeed entitles a costs judge at the end of an item by item assessment to impose a very substantial reduction on the overall figure without regard to the component parts”. With regard to the reductions that were appropriate to the experts’ fees and profit costs, £75,000.00 plus VAT was found to be a proportionate figure.
The Court of Appeal refused permission to appeal HHJ Dight’s judgment, and there remains an absence of definitive guidance as to how the new test should be applied. Indeed, it may be noted there is little by way of detailed explanation as to how the figure of £75,000.00 plus VAT was arrived at by HHJ Dight, notwithstanding that the need to consider the component parts of the costs is acknowledged. HHJ Auerbach in Reynolds has since rejected the Appellant’s submissions based upon May that the court should set out the weight placed on each of the five factors in CPR 44.3(5), adopting instead a broad brush approach (see paragraph 75).
What You Can Do
In light of the continuing lack of definitive guidance on proportionality, there remains the risk that if the costs in your case are found to be disproportionate, the assessing judge will do violence to your costs claim with a “blunt instrument”, and make heavy reductions. Every precaution should therefore be taken to avoid a finding of disproportionate costs. The following tips will help:
Anticipate the Costs Dispute
When conducting a case, it is helpful to have issues of proportionality in one’s mind. What is the likely level of damages? Are there any legal or factual complexities that may justify higher expenditure? Does the case justify expert evidence in a particular discipline, or not? These questions are always best considered before costs are incurred rather than after. If cogent justification can be given in an attendance note as to why a particular activity or expense was considered proportionate, there will be a better chance of recovering it at assessment.
Monitor the Costs Spend
In the heat of litigation, it can be difficult to keep track of the level of costs that have been incurred, but it is important to do so. Once disproportionate costs have been incurred, there is only so much that can be done to minimise the reductions that will follow at detailed assessment. As the case progresses, keep a close eye on how the costs compare to the likely level of damages and the complexity of the matter.
Consult a Costs Lawyer Before Costs are Incurred
If you are considering incurring a significant cost, for example, having a conference on a particular issue, but are unsure whether the assessing judge would consider it proportionate, it is advisable to consult a costs professional before incurring the cost in question. A good Costs Lawyer will be able to advise you on the likely outcome on assessment.
Serve an Adequate Costs Budget, and Revise it if Necessary
Having regard to the interrelationship between Costs Management and proportionality, perhaps the single best way to protect the position on proportionality is to prepare a robust Costs Budget and, once it is approved, to ensure you remain within the budgeted allowances. While this will not preclude arguments on proportionality at detailed assessment, it will place your case in a much better position than if the budget has been exceeded, and establish a strong prima facie case that the costs are proportionate. To ensure that your Costs Budget is both adequate and persuasive, it is important that it is prepared by a suitably experienced Costs Lawyer who is capable of justifying the allowances sought at the CCMC.
Once the Costs Budget is approved, the level of costs being incurred will need to be monitored to ensure that the budgeted allowances are not exceeded. A Costs Lawyer can do this and the costs of doing so will be included within the recoverable 2% cap in Practice Direction 3E, 7.2(b). If there has been a significant development leading to increased costs, the Costs Budget will need to be revised accordingly.
Serve an Adequate and Persuasive Bill of Costs
A poorly drafted Bill of Costs, with a confusing, patchy narrative and scanty chronology, can do serious damage to your case on proportionality. The narrative needs to clearly demonstrate the complexities of the case, why costs were required to be incurred at a given level, and any features of the paying party’s conduct which served to increase costs. Excessively brief, or conversely, unhelpfully verbose narratives are too often seen. Similarly, the chronology should contain sufficient detail to understand the history of the case, and why given aspects of the costs were required to be incurred at a given time. The matters in issue, and the sums in issue, may fluctuate over the course of the claim, so the assessing judge will need a clear sense of how the claim progressed and the decisions that were taken over its conduct before they are able to resolve the question of proportionality in the receiving party’s favour.
As can be seen, proper account needs to be taken of proportionality at all stages. Should you require assistance or advice on proportionality or any other costs issue, Whittakers Legal Costs is on hand to help.
[1] Master Brown of the Senior Courts Costs Office has recently commented extra-judicially that proportionality needs to be considered at the beginning of the hearing, to inform the “line-by-line” assessment, albeit that no proportionality determination need be made at that point.
