Equality of arms: the intended effect of the new rules on cost proportionality

So, the wraps are off the planned measures to implement Sir Rupert Jackson’s proposals to reform and tighten the concept of proportionality as part of much more rigorous civil litigation costs management in the near future. In a lecture delivered to the Law Society on 29 May 2012 the Master of the Rolls, Lord Neuberger, embarked upon a brief discussion of how the concept of proportionality might be applied in the future.

The idea that civil litigation costs should be “proportionate” was of course at the heart of Lord Woolf’s Civil Justice Review approximately fifteen years ago. It took its place within Rule 44 of the Civil Procedure Rules, and linked sections of the Costs Practice Direction, that evolved from 1998.

Ironically, it is the former Lord Chief Justice himself who has often been accused of pulling the teeth from the sentinel beast that he created.

In the case of Secretary of State for the Home Office v Karl Edward Lownds [2002] EWCA Civ365 the Court of Appeal established the now familiar two-stage approach.

The first global test would indicate whether or not the total sum claimed appeared disproportionate having regard to the relevant matters set out in CPR44.5(3). If the costs as a whole did not fail that test then the court would merely need to decide whether or not each item had been reasonably incurred, and the cost itself was reasonable.

But if the costs as a whole appeared ?disproportionate then not only would the amount of each item need to be reasonable but the court would have to be satisfied ?that the performance of each item of work was necessary.

Judging necessity

It is the guidance that followed from Lord Woolf, on how to judge necessity, that has so often irked paying parties. At paragraph 38 he said this: “In deciding what is necessary, the conduct of the other party is highly relevant. The other party by co-operation can reduce costs, by being unco-operative he can increase costs. If he is unco-operative that may render necessary costs which would otherwise be unnecessary and that he should pay the costs for the expense which he has made necessary is perfectly acceptable.”

Crucially he acknowledged: “Access to justice would be impeded if lawyers felt they could not afford to do what is necessary to conduct the litigation.”

It is this important caveat which has ?for the last decade kept David on terms ?with Goliath.

Proportionality has not always been an issue but in many cases I have dealt with, usually but not always for receiving parties, costs judges have taken a practical approach. Often the court has lost no time in concluding that on the face of it the bill is ‘disproportionate’ but swiftly moved on to scrutinise the detail.

Frequently judges make little distinction whatever the outcome of the global test. If it wasn’t necessary then it isn’t reasonable; if it was necessary, the amount must still be reasonable. What appears to be conflation of the second stage objectively works no injustice, the experienced costs judge consistently resolving doubt against the receiving party on the standard basis.

In this way, costs judges have effectively and justly allowed seemingly disproportionate (in financial terms alone) costs where the paying party has only itself to blame for the fact that the work was done, provided the time and rates were reasonable.

Inequality of arms might otherwise prevail in many types of litigation between diverse parties but nowhere is it more ?apparent than in the field of personal ?injury litigation.

Typically, the profile of claimants and defendants is very different. On the one hand, the claimant’s case will be enabled only by the conditional-fee agreement of a solicitor gambling on the ability to recover sufficient and enhanced reward from the opponent.

On the other side will be the liability insurer whose resources are, for the practical purposes of each individual case, limitless. Recoverability between the parties is an essential ingredient for one but not the other.

So, insurers can well take the hit even of conducting the litigation in an attritional manner that stretches and perhaps breaks the resources of the opponent.

Without paragraph 38 of Lord Woolf’s judgment in 2002, some of the early ground-breaking cases might have been the first and the last. Amelans’ early triumph in Callery ?v Grey might have been held up as an example to ward off others. My own contribution to the CFA test cases in 2003 might never have happened.

In Pratt v Bull (Sub nom Hollins v Russell) [2003] EWCA Civ 718 a substantive road traffic accident claim that settled for compensation of £40,000 produced costs of a quarter of that sum. Yet, the costs generated by the appeal first to a circuit judge, then to the Court of Appeal and the subsequent journey through the Supreme Court Costs Office almost to a High Court judge appeal were to generate more than ten times the value of the costs in the main action (even after compromise).

I don’t recall any question of proportionality because it was plain that the expense had been generated at the choice of the insurer pursuing a test case which – subject to the protection bestowed by Lownds – they were entitled to do.

Strategic litigation

Insurers and other financially strong defendants will continue to pursue strategic litigation in the future. When they raise the stakes significantly, are those without a big pile of chips on the other side of the table going to be obliged to fold and leave the game?

In his speech to the Law Society at the end of May, the Master of the Rolls ?referred to “the failure effectively to ?implement proportionality”. He says that Jackson “rightly identified the fault at ?the heart of this as being... to follow the old approach of allowing costs which were considered to be reasonable and necessary to the ?litigation”.

Lord Neuberger quotes Jackson saying that “disproportionate costs, whether ?necessarily or reasonably incurred [my emphasis] should not be recoverable from the ?paying party”.

“Reference to necessity,” says Lord Neuberger, “can be said to be positively misleading as it suggests necessary to achieve justice on the merits: substantive justice” [my emphasis again].

The recommendation of the Jackson report was that the court should first make an assessment of reasonable costs, having regard to the individual items in the bill and other factors in CPR44.5 but then stand back, consider whether the total figure is proportionate and if not make an appropriate reduction.

It is hard to see that approach as anything other than imposing a cap. The only issue that remains is that of how the maximum figure is to be calculated.

Optimistic outlook

At this point there is a glimmer of comfort for the crusaders, which comes in the form of the proposed new wording of rule 44.4(5) as set out in paragraph 7 of Lord Neuberger’s lecture:

“44.4(5) costs incurred are proportionate if they bear a reasonable relationship to:

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) any additional work generated by the conduct of the paying party; and

(e) any wider factors involved in the proceedings such as reputation or public importance.”

Will the third to fifth paragraphs, particularly sub-paragraph (d) become the codification of Lownds paragraph 38? Some will hope so. Those who do will derive further optimism from the Master of the Rolls’ refusal to give any sort of specific or detailed guidance, saying “the law on proportionate costs will have to be developed on a case-by-case basis. This may mean a degree of satellite litigation while the courts work out the law, but we should be ready for that, and I hope it will involve relatively few cases”.

Further, he has said “the amount of money involved will normally be a very significant factor but it will not be determinative”.

Some whose interests are aligned with those of regular paying parties such as liability insurers will see this as a lost opportunity. They would no doubt prefer to have seen the lid bolted down within the – even secondary – legislation at a time where liability insurers appear to hold sway in Whitehall.

Irrespective of business interests and loyalties, an objective observer might well regard it as a lifeline for access to justice. Whereas that precious concept retained its supremacy ten years ago, the approach in the last 18 months seems to many to have been that justice is all very well, but only at the right price.

That in turn may not seem so repugnant until one reflects on the clear ability of major players within the market to manipulate and fix that price. Recent events in the banking sector demonstrate that such concerns are only too real.

Costs-shifting generally faces an un-precedented assault in current times, led by those with financial muscle for whom litigation is everyday business and an unwelcome overhead. The assurances that this campaign is ultimately for the benefit of the insured in the street ring hollow against sustained returns and aspirations of shareholders and boards alike.

The onus now rests with our judiciary to ensure that deep pockets do not guarantee results and that justice remains accessible to all.

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