Few litigators are keen on the current rule on proportionality of costs, but fewer still support the ones set to replace them, says Colin Gibson
Bob Hope once said “you know you are getting old when the candles cost more than the cake”. Lord Neuberger did not - disappointingly - paraphrase Bob Hope in his recent lecture on Jackson implementation but he had in mind something similar: when the costs of litigation outweigh the value, monetary or otherwise, of the litigation something has gone awry.
The Master of the Rolls was speaking on the unveiling of the new CPR rule 44.4(5) which is intended to implement the Jackson reforms on proportionality of litigation costs and which will go live in April 2013.
The practitioners I have spoken to do not much like the current rule but are not convinced by the changes.
The new rule sets out that costs will be proportionate if they bear a reasonable relation to the sums in issue, the value of any non-monetary relief, the complexity of the litigation, any additional work generated by the conduct of the paying party and any wider factors involved. This seems similar to what we have seen before and Lord Neuberger recognised that the real change will be in how the courts apply the new rule.
Lord Neuberger shares Sir Rupert Jackson’s view that the procedure for assessing proportionality set out in Lownds v Home Office is not working. The current Lownds test is a two-stage affair. First the costs judge dealing with the assessment should consider whether the costs as a whole are proportionate. If they are deemed globally proportionate then the assessment will continue on an item-by-item basis with items being allowed if they are reasonably incurred. If the global costs are found to be disproportionate then on an item-by-time basis they will be allowed if they were reasonably and necessarily incurred.
Necessity as an interpretation
Anyone who has been through a Lownds-based preliminary issue on proportionality in costs proceedings will tell you that the current system does not work. Attempting to assess overall proportionality in a brief hearing without getting into the merits and what work was necessary is very difficult. It adds an extra hearing, and ironically therefore more cost, to the process. If a finding of disproportionality is made then the necessity test is not straightforward and can be difficult to balance with the still relevant concepts of reasonableness and proportionality. As Nietzsche said (and would presumably repeat if lucky enough to attend a detailed assessment hearing) “necessity is not an established fact, but an interpretation”.
Necessity is just another vague criterion for the costs judge to apply and potentially adds little. Moreover, the practical experience of most litigators will be that recoverable costs on the standard basis tend toward 70-75 per cent of the bill as drawn, costs on the indemnity basis toward 80-90 per cent and costs following a finding of disproportionality towards perhaps 60-65 per cent. If that is right then it is the finding of disproportionality in itself, and not the test to be applied as a result, that
Lord Neuberger expects the following:
1. The Lownds test will be reversed so that the bill will be assessed on an item by item basis and only then, at the very end, will the final figure be weighed by the costs judge against the proportionality criteria;
2. Necessity is likely to be jettisoned as a test, or at least firmly put in its place behind proportionality;
3. The courts will, on a case-by-case basis, sort out the detail.
The abolition of the Lownds test is welcome as is the possible abolition of the necessity test. There was no sense in assessing proportionality before looking in detail at what work had actually been done and the necessity test was difficult to apply. However, my heart sinks at the prospect of going through every item line by line and then potentially seeing the bill slashed at the very end for seemingly arbitrary reasons. Currently at least one can see how an assessment is going at the halfway stage and project forward, as can your opponent, with that visibility making settlement possible. Under Lord Neuberger’s suggestions that will no longer be possible. It is to be hoped that the courts will see quickly that in litigation unpredictability is unhelpful.
It is also disappointing that so much will be left to the courts. Immediately post April 2013 we can expect some very inconsistent decisions and a number of unnecessary trips to the Court of Appeal
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