Proportionality Update

Paul Edwards, Director and team leader at Keoghs’ Liverpool office, provides an update on proportionality in costs.

I was sat with a Costs Master and my opponent during an adjournment on a hearing I was dealing with, when the latest guidance on proportionality was published on 7 November 2017. Copies were printed and passed around with much excitement and hope that there would be some clear guidance that could be used going forwards. A quick review of the outcome led to a wearisome acceptance that little would change in practical terms.

The Court of Appeal decision in BNM v MGN Ltd [2017] EWCA 1767 doesn’t really move the position forward in terms of proportionality generally, whilst clarifying a relatively narrow issue, albeit one that impacts a lot of claims.

Ever since the concept of proportionality was enshrined in the CPR, parties and Judges alike have been looking for firm guidance as to its application. There has been frustration that the courts were unwilling to take big decisions when considering the principle; partly it seems out of a lack of understanding as how to apply it and partly due to a fear of being appealed. 

As such, even in cases where Judges appeared to believe that costs were disproportionate, they would not make such a finding and would attempt to fudge the issue when assessing the costs item by item.

These frustrations have been present both under the old proportionality test, as in the old CPR 44.2(2) as applied in the “Lownds” test, and the new, post-LASPO test whereby the court, as per the lower court decision of Master Gordon-Saker in BNM v MGN Limited ruled that after assessing costs on the standard basis, the court should first assess what costs are deemed reasonable, before stepping back and considering if that total figure was proportionate. If it was not then he ruled that the costs should be further reduced as appropriate. On a general basis it was hoped that the new rules would encourage a more robust approach from Judges however it does seem as if this additional power to reduce costs is rarely used.

MGN was a privacy claim which is one of the exemptions to LASPO in terms of the recovery of additional liabilities but the principles are not dissimilar to pre-LASPO cases.

The issue that was the subject of the appeal was, as set out at paragraph 2:

“….whether the success fee payable under conditional fee agreements between the claimant (who is the appellant) (“BNM”) and her solicitors and between her solicitors and her barristers, and the premiums payable under an after the event (“ATE”) insurance policy taken out by BNM, are subject to the old or the new proportionality rules under the Civil Procedure Rules on an assessment of her costs on the standard basis.”

Master Gordon-Saker had held that the new rules and new proportionality test applied to the additional liabilities because it would be absurd to assess pre-LASPO incurred base costs with reference to the old test and the additional liabilities on the new test. As a result the success fee and ATE premium had been reduced by 50%.

The Court of Appeal disagreed with the Senior Costs Master following a detailed analysis of the old and new rules, the exception provisions and the transitional arrangements. It was ruled that the new proportionality test does not apply to additional liabilities in cases commenced either before LASPO or where the matter is subject to the LASPO exceptions or transitional arrangements. If it was intended that the new proportionality regime applied to additional liabilities then the transitional regulations would have explicitly made provision for that.

Disappointingly, the chance to examine the merits of Master Gordon-Saker’s application of the new test was missed, with the court remitting the matter back to the lower court for the Senior Costs Judge to consider afresh in light of the new guidance. 

Keoghs Comment

Whilst the Court of Appeal’s decision is correct based on a pure analysis of the law, it does serve to make the ongoing assessment of additional liabilities in matters where proportionality is a relevant issue more difficult.

In his judgment of June 2016 at para 32, Master Gordon-Saker observed that: “Ringfencing and excluding additional liabilities from the new test of proportionality would be a significant hindrance on the court’s ability to comply with its obligation under CPR 44.3(2)(a) to allow only those costs which are proportionate”.

This is exactly what has happened and whilst it is good to have the law confirmed, it is feared that we simply face the ongoing situation where the application of the principle of proportionality promises much and generates considerable legal argument - but delivers little in terms of definitive outcomes.

That said it remains an important issue to raise when challenging costs, if only to set out in general terms the extent to which the costs are excessive and to set the scene for the Costs Judge.

Paul Edwards
Director
0151 921 7082
pedwards@keoghs.co.uk