Applying proportionality in costs law

Proportionality has been an omnipresent concept in costs litigation since the Jackson Reforms came into play on 1 April 2013. Yet despite this omnipresence and importance, it is a concept of whose application is impossible to predict due to the significant judicial discretion that surrounds it. Whilst CPR 44.3(5) attempts to assist this ambiguity by listing factors to consider during its assessment, there is little determinative methodology for each judge to follow.

As such, the case of May v Wavell Group PLC (2016) may well be the best indicator yet of how this test should be applied.

The Facts

May v Wavell Group related to a private nuisance claim brought by Dr Brian May and his wife following the development of their neighbour’s basement. Here a settlement was obtained early on, with the Defendants’ Part 36 offer of £25,000 being accepted prior to the filing of any defence. This entitled the Claimants to costs on the standard basis. Costs however reached a somewhat inordinate £208,236.54.

Detailed Assessment

At detailed assessment Master Rowley, citing the two stage test under CPR 44.3(2), firstly reduced the Bill to £99,655.74 on the grounds of reasonableness. He stated ‘some reasoning’ for this significant level of reduction lay in the nature of the Claimant’s method of representation: instructing leading Counsel directly to conduct the litigation, without first instructing a firm of solicitors.

Master Rowley then made a further reduction with regard to proportionality, considering the CPR 44.3(5) factors in turn:

• Firstly, with regard to the sums in issue in the proceedings, Master Rowley highlighted the lack of an attempt to negotiate a settlement higher than £25,000, stating there was nothing in the narrative to the Bill to suggest the case was ever worth over this amount.
• Regarding the value of any non-monetary relief in issue, Master Rowley agreed with the Defendant’s representative’s suggestion that the value of any potential injunction was included in the Part 36 offer in any case.
• Master Rowley then affirmed his view that the litigation was neither factually nor legally complex, stating that despite the need for service outside of the jurisdiction, this ought not to have caused much additional work.
• Finally, Master Rowley contended no conduct of the paying party equated to additional work and that no wider factors were involved in the proceedings.

Such conclusions left the total costs allowed at £35,000 plus VAT: a clear statement that proportionality trumped the previous ‘necessity’ test.

Appeal (HHJ Dight (Master Whalan sitting as an assessor))

On appeal, it was acknowledged early on by HHJ Dight that the figure ordered by Master Rowley could not be overturned merely because a different judge may have reached a different figure when considering the same factors. However he then contended that Master Rowley ‘misinterpreted and misapplied the new proportionality test,’ giving too little weight to the complexity of the litigation, and misinterpreting the meaning of ‘sums in issue in the proceedings’. The appeal was allowed and the total costs were replaced with a figure of £75,000 plus VAT.

Reasonableness

It was firstly argued that Master Rowley initially reduced the costs too much on the grounds of reasonableness by unnecessarily reducing the court fees and the costs of drafting the Bill, and, applying too great a reduction to the expert’s fees which played an essential part in the case.

Sums in Issue

Here, Master Rowley’s contention that there was no evidence that a figure greater than £25,000 was in issue was disputed: HHJ Dight cited the claim form, pleadings and narrative in the Bill which set out the sums in issue which could have been considered as £50,000 – £100,000.

Further, HHJ Dight stated that the final judgment figure alone should not be determinative: arguing ‘the battle ground’ itself is more important than the final figure which ‘brought the battle to an end.’ Master Rowley was criticised for looking at the Defendants’ view of the value of the claim and not undertaking an objective evaluation.

Complexity

Whilst HHJ Dight recognised the case may not have been complex within its category, he highlighted the fact that it was complex when compared with other claims of a similar value within the County Court and thus Master Rowley had not given enough weight to this factor during his assessment of the case.

Early Settlement

Additionally, the appeal court did not share Master Rowley’s view that early settlement required a greater reduction in the overall costs, despite their admission that the stage the claim had reached or ‘time spent on the case’ (CPR 44.4(3)(f)) was relevant to the assessment of proportionality.

Conclusion

It is clear that the comments made by HHJ Dight on appeal will be useful for practitioners going forward in determining proportionality: in particular by his emphasis on the complexity of the litigation justifying increased costs as proportionate. Nevertheless unfortunately such guidance therefore works two ways: whilst helpful in complex litigation, these comments will not be useful precedent for instance in simple personal injury claims.

Furthermore, it is no longer sufficient for a costs judge to state the proportionate sum itself without supplying some empirical evaluation of each relevant factor and a sum which can legitimately be determined the result of that process.

Such guidance will also have a wider impact however, due to the favourable light it installs on the receiving party: this means insurance companies will be faced with the prospect of potentially paying more legal fees which will resultantly increase premiums.

Whilst this judgment therefore brings welcome guidance to an ever-ambiguous concept, proportionality remains very much at the court’s discretion and should thus be treated with caution. It remains an absolute must for practitioners to advise clients of its nature at the outset of each case in order to adequately manage expectations and not fall victim to a concept of which can be the bearer of some very much subjective results.