Proportionality

When the Civil Procedure Rules (CPR) were implemented in 1998, one of the key features of the new costs rules was the introduction of the concept of proportionality. When costs were to be assessed on the standard basis, costs had to be, not only reasonable, but also proportionate. 10 years later, the issue remains contentious. A recent article in the Law Society Gazette (28th March 2008) commented on the argument created by a recent report from the Association of British Insurers (ABI) (Adding Insult to Injury: the need for reform of the personal injury compensation system – March 2008). The report opined that the personal injury legal system was ‘riddled’ with high legal costs which were ‘disproportionate to the work involved’. In response, the article reported comments from the Claimant side of the argument that the only reason for high legal costs was the conduct of Defendant insurers in handling claims. Clearly, it seems proportionality of legal costs remains a very live issue and one which personal injury practitioners need to be aware of.

The Rules
The starting point for any consideration of proportionality is CPR 44.4:

Section 11 of the Costs Practice Direction adds some further detail:

It is fair to say that the above neither helps to define what proportionality means, as opposed to what it does not mean, not does it provide any help to a judge who is faced with the question of how to apply the rule in practice. The Court of Appeal recognised this gap and sought to provide some answers in the seminal case of Lownds v The Home Office (2002)

The Lownds Test

Lownds concerned a claim by a prisoner against the Home Office for clinical negligence. The matter had settled for £3,000 and costs on the standard basis. The Court had assessed costs in the sum of £16,784 and the Defendant appealed on the basis that the Court had failed to apply the requirement of proportionality to the costs.

The Court of Appeal set out a methodology for dealing with issues of proportionality in the form of a two-stage test.

Stage 1: Before assessing the Bill, the court should consider whether the global costs claimed in the Bill are proportionate by considering the following issues:

Stage 2: If the global costs are proportionate, the Bill should then be assessed in the standard manner, considering whether individual items are reasonable.

If, however, the global costs are not proportionate, the Bill should be assessed and only those costs that are considered necessary should be allowed. Any such necessary items should be allowed at a reasonable amount.

Following the decision in Lownds, some further nuances of the 2 stage test were clarified in further case law. Firstly, in Clyde v Thomson Holidays (2002), the Court confirmed that when considering the global proportionality test, the Court should include costs incurred both pre and post CPR, notwithstanding that the requirement for costs to be proportionate did not exist prior to the implantation of the CPR. Then, in Giambrone v JMC Holidays (2003), it was confirmed that one should not include VAT when considering the global first stage of the test and also that the court could still reduce individual items in the Bill on the basis of them being disproportionate, irrespective of the proportionality or otherwise of the global costs.

An alternative test

The senior costs judge in the case of King v Telegraph Group (2005) suggested the following alternative test for considering proportionality:

In this alternative view of proportionality, one has to consider not only the level of costs incurred but also the issues at stake and ask the common sense question, is it worth it to the client, assuming that they are actually paying the Bill. The difficulty is that, in practice, very few Claimants are actually paying the Bill, particularly if the case is being funded by way of legal expense insurance or a Conditional Fee Agreement (CFA).

How does this work in practice?

In Pask v McNicholas (2006) costs were claimed in the sum of £269,000 for an employer’s liability claim arising from the collapse of a tunnel on a miner. The claim commenced in April 2002 and liability was admitted within 2 months. Thereafter a large special damages claim was made and the claim was pleaded at £769,000. The matter was settled in December 2005 at mediation shortly before trial in the sum of £678,500. Applying the Lownds test and also the further test suggested by Master Hurst in King, the court held that the costs were globally disproportionate and demonstrated a lack of planning which resulted in the litigation proceeding in an uneconomic and disproportionate manner.

By contrast, in Cox & Carter v MGN Ltd. (2006), the Court confirmed that the level of damages was only one factor when considering proportionality. The Claimants had sued the Defendants for breach of privacy in publishing photographs of the Claimants whilst on honeymoon and was awarded damages of £50,000. Base costs were in the sum of £142,728 and it was argued that this was disproportionate. The Court held the compensation was only part of the case as the Claimants were more concerned with obtaining undertakings and destruction of the photos. It was therefore inappropriate to merely compare the damages to the costs and in the circumstances, the costs were not disproportionate.

Finally, in Finster v Arriva London (2007), an RTA pleaded at £1.4M was settled for £10,000. On assessment, the court held that the case was over-pleaded, was neither novel nor complex and concluded that the base costs of £54,000 were disproportionate to the matters in issue. The reasonable costs would be assessed on the basis that the claim had a potential value of up to £15,000 and would have required a 1-day trial, as opposed to the 3-day trial set down.

Summary

The difficulty faced by parties challenging costs on the basis of proportionality is that, even if one can persuade a court that the global costs are disproportionate, how does the requirement of necessity differ from the standard test of reasonableness? In reality, if a court is persuaded that the costs claimed are disproportionate, this has to be reflected in the reduction of individual items within the Bill of Costs. A judge who considers the costs disproportionate is almost certainly going to consider the costs unreasonable as well and therefore one has to question what proportionality adds to the test of reasonableness.

Paul Jones
Technical Director
LCN

Cases Cited:

Lownds v The Home Office [2002] EWCA Civ 365
Clyde v Thomson Holidays [2002] EWHC 9011 (Costs)
Giambrone v JMC Holidays (2003) 1 All ER 982 (QBD)
King v Telegraph Group [2005] EWHC 90015 (Costs)
Pask v McNicholas (2006)(SCCO) (unreported)
Cox & Carter v MGN Ltd. [2006] EWHC 235 (QB)
Finster v Arriva London [2007] EWHC 90070 (Costs)