Reasonable Use of the Proportionality Test in Respect of Costs

In a recent case, His Honour Justice Dight and Costs Master Whalan considered, on appeal, whether the new ‘proportionality’ test, on costs, had been ‘reasonably’ applied.[i]

Factors to be considered, on the proportionality of costs, are stated in CPR 44.3(5), as follows:

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The claimants were appealing the 1st instance judgment of Costs Master Rowley, who reduced the claimants’ Bill of Costs from £208,000 to around £100,000, on an item by item assessment, and further reduced costs to £35,000 when the test of proportionality was applied. The claimants argued that Master Rowley had erred in misapplying the post-2013 proportionality test to substantially lower reasonable costs to a ‘rough and ready but proportionate amount’. Indeed, at paragraph 48 of the High Court judgment,[ii] Master Rowley said, of the ‘proportionality’ test, that:

There is only so much finesse that can be employed when using a broadsword rather than a rapier. A concluding global assessment of proportionality as envisaged by the new approach involves the court wielding a blunt instrument rather than a precision tool’.

On appeal, HHJ Dight reasoned that it was unlikely the Civil Procedure Rule Committee, in drafting the current proportionality test, ‘intended that a costs judge could or should bypass an item-by-item assessment and simply impose what he or she believed to be a proportionate global figure’.

To place such significant weight on a test which has ‘very limited authoritative guidance’ in respect of Master Rowley’s interpretation, the circuit judge noted, would make that stance even more doubtful.

Instead, HHJ Dight asserted that it would be more understandable if the CPRC intended for ‘the tests of reasonableness and proportionality ... to work together, each with their specified role, but with the intention of achieving what is fair having regard to the policy objectives’.

In order to link the test of ‘proportionality’ with the concept of ‘reasonableness’, the judge opined that, initially, ‘one has to go back to the wording of sub-rule 44.3(5)’ and then proceed to ‘reach a judgment as to the amount of costs whose relationship with all the factors identified in that sub-rule is a reasonable one’. The judge identified that, in striking a balance between both aims, the appropriate method ‘may necessitate a certain amount of fine tuning’.

In respect of ‘reasonableness’, HHJ Dight identified that it requires ‘an objective assessment and an objective balance to be undertaken in respect of them with a view to achieving the policy objectives of compensating the receiving party for his expenditure but not requiring the paying party to pay more than the litigation warranted’. He also highlighted that:

Whether the relationship is reasonable is, in my view, a matter of judgment, rather than discretion, and, as I have said above, requires a costs judge to attribute weight, and sometimes no weight, to each of the factors (a) to (e)’.

When construing the purpose of the proportionality test in isolation, HHJ Dight stated:

... it seems to me that the word proportionate is intended to have a consistent interpretation across rule 44.3(2), rule 44.3(5) and 44.4, which means that in considering proportionality, the court is to have regard to all the circumstances (see CPR 44.4) which includes, but is not limited to, the further factors specified in CPR 44.4(3) even though they are not specifically referred to in CPR 44.3. There is a considerable degree of overlap but the plain intention is that there should be a holistic approach; the costs judge is intended to stand back and look at the overall picture’.

In any event, the judge stated that there had been a ‘considerable undervaluation’ of the sums in dispute, undertaken by Costs Master Rowley, which had failed to appreciate the complexity of the litigation and the component parts of the overall figure.

Despite conceding that the proportionality test may, depending upon the judge overseeing the case, lead to ‘slightly different’, but nevertheless ‘legitimate’ conclusions, HHJ Dight and Master Whalan had been convinced that the rule on proportionality had been misapplied, in this instance. HHJ Dight allowed the appeal of Master Rowley’s 1st instance decision, on the basis of ‘proportionality’, awarding the claimants £75,000 in costs. Further, the circuit judge held:

... the final figure in this case does not appear to be based on any specific mathematical calculation nor is there a specific explanation of how the weighting of the various factors resulted in the final figure’.

Whilst we await the transcript of the Appeal judgment, the first instance decision can be found here.

 

[i] Neil Rose, ‘It’s a hard life for under pressure costs judges after proportionality ruling bites the dust’ (8 January 2018 Litigation Futures) <https://www.litigationfutures.com/news/hard-life-pressure-costs-judges-proportionality-ruling-bites-dust> accessed 8 January 2018.

[ii] May & Anor v Wavell Group Plc & Anor [2016] EWHC B16 (Costs)