Proportionality Guidance

Whilst there is no definitive guide, the question of proportionality is slowly being addressed and answered by the Courts.

The issue of whether costs are considered proportionate are currently governed by CPR 44.3(5). Costs incurred are proportionate if they bear a reasonable relationship to:

1. the sums in issue in the proceedings;
2. the value of any non-monetary relief in issue in the proceedings;
3. the complexity of the litigation;
4. any additional work generated by the conduct of the paying party; and
5. any wider factors involved in the proceedings, such as reputation or public importance.

Despite the fact that the Jackson reforms came into effect over 6 years ago there is still no practice direction to accompany CPR 44.3 nor is there any binding Court of Appeal judgment.

With paying parties invariably placing emphasis on CPR 44.3(5) (a), receiving parties often struggle to justify that their incurred costs are necessary and reasonable by making reference to the remaining CPR 44.3 (5) factors, not knowing which way the decision will turn.

However, both at County Court and High Court level, there have been at least a couple of very informative recent decisions that are hoped to provide some clarity to this rather ambiguous issue.

Sarah Jane Reynolds -v- One Stop Stores Ltd (21 September 2018) County Court at Norwich and Cambridge

This case initially concerned an employer’s liability claim. The Defendant made a pre-action admission of liability and put forward an early settlement offer for £35,000, which was not accepted. Proceedings were issued for damages up to the value of £50,000 and the Claimant’s injuries apparently worsened. The Defendant obtained surveillance evidence, which was disclosed to the Claimant during the course of the proceedings, however despite this, the Claimant successfully applied to increase the value of the claim form from £50,000 to £350,000. The Claimant’s Costs Budget was also amended upwards to £117,352.65.

Joint expert witness evidence indicated that the claimant’s expert was not too convincing in light of the surveillance evidence. A revised Schedule of Loss was served shortly before the listed trial, detailing past losses of £74,067.88 and future losses of £100,907.72. On day one of the trial, the parties agreed to conclude the claim for the sum of £50,000, together with costs to be paid by the defendant on the standard basis.

The matter proceeded to a detailed assessment hearing, where the Claimant’s costs were found to be disproportionate with reference to the CPR 44.3(5) and were reduced initially by a line-by-line assessment to £115,906.09. In accordance with the Jackson proportionality test and the case of Harrison -v- Coventry & Warwickshire Hospitals NHS Foundation Trust, a further view was taken at the conclusion of the assessment hearing and the assessed costs were further reduced to £75,000.

The award attracted a success fee of 25% on base costs payable. In an adjournment, Counsel agreed a proposed calculation of that (together with VAT), which brought the inclusive total to £86,250. DJ Reeves then approved that figure and made an order assessing the costs in the sum of £86,250. After further argument, he also awarded the Defendant its costs of the assessment, summarily assessed at £3500.

The Claimant appealed against the decision on four grounds:

1. that the District Judge erred in his interpretation of the ‘sums in issue’;
2. that the District Judge erred in his interpretation of the ‘complexity’ of the claim;
3. that the District Judge erred in his interpretation of ‘conduct; and,
4. the District Judge’s ‘approach’, being that he wrongly treated the issue of proportionality as discretionary and failed to attach the appropriate weight of the CPR 44.3(5) factors.

The appeal was heard by HHJ Auerbachun who held that the District Judge did not err in taking proportionality at the end, nor in applying it to the whole of the provisional total to both incurred and budgeted costs. It was also found that he did not fail to consider each of the 44.3(5) factors in turn coming to a decision on proportionality in the round. In short it was quite clear that he considered that the costs were disproportionate to the sums in issue and that this was not a case where the complexity of the litigation, additional work generated by the paying party’s conduct, nor any other factors in the 44.3(5) list had a prevailing impact, such as to lead to a different overall conclusion.

Whilst the judgment gave useful insight as to how courts ought to approach the 44.3(5) factors, recent legal commentary urged that further legislative guidance was still required. 

The recent case of Malmsten v Bohinc (2019) EWHC 1386 (Ch) provided the first High Court guidance as to the approach to be taken by a Judge when assessing the proportionality test in accordance with CPR 44.3.

This case concerned the costs awarded in relation to a successful application under section 306 of the Companies Act 2006. Ms Bohinc sought costs of £62,520.00 plus vat and on assessment Master Whalan allowed £47,500.00 plus VAT.

Master Whalan decided not to reduce the figure further on the basis of proportionality, primarily because of Mr Malmsten’s conduct of the case (he represented himself), turned what should have been a relatively straightforward application, into a “more protracted and bitterly fought and undoubtedly therefore more expensive undertaking than it would otherwise have needed to be”.

In considering the five proportionality factors in rule 44.3(5), the Master identified in order (d) (any additional work generated by the conduct of the paying party), (b) (the value of any non-monetary relief) and (c) (the complexity of the litigation) as the relevant ones in this case.

The appeal was heard by Mr Justice Marcus Smith.

It was noted that Ms Bohinc’s solicitors had instructed experienced Counsel 26 times and spent 230 hours of solicitor’s time on it, which could not be attributted to Mr Malmsten’s conduct.

It was concluded that the Master’s reliance on factor (d) was not justified by the circumstances before him and that the Master’s decision on proportionality was, for this reason, wrong in law.

Factor (b) was not particularly relevant as the importance of the case to Ms Bohinc still did not justify the time spent.

Whilst the Judge found that Master Whalan had adopted the correct approach when considering proportionality in accordance with 44.3(5), the weight given to those factors was wrong.

Although the Appellant suggested that a mathematical approach be adopted to the five factors under 44.3(5) in that each factor permitted a 20% uplift insofar as each factor applied, this was not adopted.

The judge went on to conduct the test himself and reduced the costs to £15,000, although this was not solely on the basis of proportionality.

This case provides some real guidance on how the Courts should assess the issue of proportionality and is a must read!

This article was written by Darrel Lumby who is a Costs Lawyer with over 20 years’ experience in costs, dealing with a wide and varied range of cases, including Court of Protection and high value and complex Personal Injury, Clinical Negligence and Commercial Litigation. He has also been instructed in high profile and sensitive Actions against the Police and Civil Liberty Claims. His experience and knowledge has led him to be instructed in cases where costs exceed £1m.