Costs update
Costs update: proportionality post Jackson
Francis Kendall discusses the ‘new’ , post-Jackson proportionality test that applies to costs in claims which, it is argued, is a developing approach to costs assessments.
About the author
Francis Kendall is an Association of Costs Lawyers council member and a partner at Masters Legal Costs Services.
P ractitioners will be well aware of the ‘old’ test of proportionality that applies to costs in claims issued before April 2013. In any assessment of costs, the reasonableness test has always applied and that test remains in place for any item(s) of costs claimed between the parties.
Before the Jackson reforms, and under the trite case of Home Office v Lownds [2002] EWCA Civ 365, the added – and higher – hurdle of necessity was applied to costs that were deemed to have the appearance of being disproportionate at the outset of the assessment. This test could be applied both on a global basis and to any individual item claimed.
For claims issued before April 2013, this test remains for all costs to be assessed. If the claim was issued after 1 April 2013, the old test remains for any costs incurred before that date and any presented costs claim should be split accordingly.
The ‘new’ , post-Jackson test, as discussed below, is a developing area of the law in the detailed assessment process, although clearer guidance is beginning to filter down now we are some three years into its application. Bearing in mind that the underlying case would need to have been issued in the last three years, concluded, and detailed assessment initiated and heard, that level of delay is, perhaps, unsurprising.
The ‘new’ test is set out in Civil Procedure Rule (CPR) 443(2) and applies only to costs to be assessed on the standard basis. Practitioners are well aware – or should be – of the burning need to obtain indemnity costs wherever possible to avoid the application of proportionality as available (mainly through use of effective claimant Part 36 offers).
An indemnity basis assessment will not have any proportionality test applied to the costs claimed, and never did even under the pre-Jackson CPR. In short, under the ‘new’ test costs are to be proportionate, and may be disallowed or reduced even if they have been deemed to be reasonably and necessarily incurred. In addition, any doubt will be applied in the paying party’s favour.
We are only now entering the realms where such decisions have been made and their impact can be properly considered, even if Court of Appeal decisions remain awaitedAn indemnity basis assessment will not have any proportionality test applied to the costs claimed, and never did even under the pre-Jackson CPR. In short, under the ‘new’ test costs are to be proportionate, and may be disallowed or reduced even if they have been deemed to be reasonably and necessarily incurred. In addition, any doubt will be applied in the paying party’s favour.
The consideration to be given by the court is set out in CPR 44.3(5), wherein five factors are to be considered by way of a reasonable relationship to the value of the claim; to any non-monetary relief; to complexity; to additional work arising from the conduct of the paying party; and to any wider factors, such as reputation or public importance.
Costs of preparing the bill of costs, in addition to pre-April 2013 costs, also fall outside of the new proportionality test, and therefore the consideration given by the court should exclude these costs (which, for the avoidance of doubt, will obviously remain subject to a reasonableness test on any assessment).
Recent court experience has highlighted three seminal cases in this regard that have been well reported in the legal press. A brief summary of each case is set out below together with the lessons learned/to be applied as a result of these decisions.
This was a clinical negligence case in which Master O’Hare took an approach of revisiting certain items which had already been allowed as reasonable and necessary on the line-by-line assessment. In applying the new proportionality test, in the light of the final figure allowed remaining, in his view, disproportionate, he further disallowed/reduced some of the items he had previously allowed (as being reasonable and necessary) for being disproportionate. This approach of an item-by-item reassessment was not supported or adopted in the two further cases below.
The Senior Costs Judge, Master Gordon-Saker , presided over the assessment of a bill of costs relating to misuse of private information – a quasi-phone-hacking claim. The bill of costs presented totalled £241,817, including a success fee on both the lawyers’ fees and those of counsel together with an after-the-event (ATE) insurance policy. The case was settled for damages of £20,000.
The line-by-line assessment preceded the application of any proportionality test, and the reasonable and necessary costs allowed were £167,389.45. The Senior Costs Judge concluded, at a later hearing, that the sum remained disproportionate and was approximately twice the sum that would be proportionate. He, therefore, reduced the assessed amount to approximately £84,000 and provided a split of these costs as between the elements of the costs claim (interestingly, leaving the court fee as the only element untouched).
The most interesting, and now almost obsolete, element of his decision was the application of the proportionality test to the additional liabilities claimed. In Banks v London Borough of Hillingdon (2014) 3 November, unreported, a personal injury case with ATE arranged through DAS Legal Expenses Insurance Co Ltd, the claimant was awarded damages of £6,890.
Costs were agreed, except for the ATE premium for which the claimant sought £24,694 and, on provisional assessment, Master Gordon-Saker again ruled that this was disproportionate and reduced this to £9,375.
HHJ Walden-Smith , sitting with District Judge Lethem as assessor, said that Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134 supported the ‘book-based ’ approach to the calculation of premium. ‘There is not a determination of risk on a case-specific basis but on a ‘basket of risk’ with the successful cases supporting those that are lost.’
She said that it was not for the master to recalculate the premium without access to the whole basket of risk, and that he ‘misdirected himself in determining that Rogers permitted him to judge the reasonableness of the premium in very broad brush terms’.
The evidence before Master Gordon-Saker was clear that the premium was calculated on the basis of the basket of risk, and so by considering instead the prospects of success, he had taken the wrong approach. The judge said that there needed to be evidence to challenge a premium. ‘The master had fallen into the error of considering the individual case rather than the basket of risk,’ HHJ Walden-Smith said.
This was a claim for private nuisance in the county court in which the claimants accepted a defendants’ Part 36 offer of £25,000 before the defences being entered. Under the authority of a CPR 44.9 deemed costs order, a bill of costs for £208,236.54 was rendered with all work post-dating 1 April 2013, ie, the ‘new’ test was applicable to all the costs claimed. The item-by-item reasonableness assessment reduced the claimed costs to £99,655.74.
Thereafter, Master Rowley applied the appropriate test stating:
In summary, this is a case worth in the region of £25,000 and for which there was a modest prospect of an injunction at least early in the case. There was no noteworthy complexity in the litigation of either a legal or factual nature. There were no additional costs caused by the defendant’s conduct nor were there any wider factors to be considered. In these circumstances the reasonable costs allowed of £99,655.74 are undoubtedly disproportionate (para 43).
Master Rowley further reduced the claimants’ bill to £35,000 on the basis of proportionality. He ruled that in cases where the sums in issue were modest:
The amount that can be recovered from the paying party is not the minimum sum necessary to bring or defend the case successfully. It is a sum which it is appropriate for the paying party to pay by reference to the five factors in CPR 44.3(5). It is not the amount required to achieve justice in the eyes of the receiving party but only a contribution to that receiving party’s costs in many modest cases (para 35).
Having attended several detailed assessments recently, one, in particular, was the subject of a proportionality dispute. The claim settled, by way of Part 36, shortly after issue against one of two defendants for damages of £12,000. In addition, an element of rectification work had been undertaken pre-issue , and there remained the question of an ongoing indemnity.
Doing the best he could, the Senior Courts Costs Office master estimated that the value of relief obtained was in the region of £25,000. The costs claimed against the second defendant were in the region of £85,000, which were reduced to approximately £60,000 on the item-by-item assessment. From that figure, approximately £5,000 was pre-April 2013 costs and costs of preparing the bill of costs.
The costs judge, therefore, balanced £55,000 of reasonable costs with relief of £25,000, with the three cases above considered. In all three cases, the proportionate costs allowed remained a multiple of the damages achieved. His conclusion was, therefore, to make no further reduction. The costs judge refused an oral application for permission to appeal.
It must be borne in mind that in the May case, in particular, it was pointed out that the stage at which the case settled must be considered. The proportionate amount of costs must be smaller for a case that concludes early compared to one which reaches a final hearing.
The amount allowed in May and my case reflected early settlements. Therefore, it is reasonable to assume that a case going to trial could attract costs at a multiple of damages in excess of those detailed above, if the same approach continues to be adopted. This is indicated in BNM, the only of the three cases to have gone to a hearing where proportionate costs remained at a multiple of over four compared to damages.
At the time of writing, my next proportionality war awaits, with a defendant seeking to introduce a proportionality dispute in a budgeted case. The defendant seeks to disregard an assertion of proportionality during the costs management of the case on the basis that all the facts of the case and the costs claimed are now before the court. Although not particularly attractive, the point has been raised and I would anticipate that such a decision would necessarily make a mockery of the budgeting process and have Jackson turning in his wig!
Unfortunately, other factors may leave any such decision in my client’s case untested or, at the very least, not tested for some time. No doubt there will be other challenges, particularly to the applicability of proportionality in the diminishing pool of cases where additional liabilities remain an issue.