Litigation | Everything in proportion

The terms of reference for Lord Justice Jackson's costs review was to "consider whether changes in process and/or procedure could bring about more proportionate costs".

A key recommendation of the final report was a new proportionality test to replace that set out in Lownds v Home Office [2002] EWCA Civ 365. This has been done with amendments to the Civil Procedure Rules: "Where the amount of costs is to be assessed on the standard basis, the court will only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred."

Now that we are several months into the new regime, what does this mean in practice? In the words of leading legal commentator Professor Dominic Regan: "No one has a clue."

More worryingly, there appears to be a clear conflict of views emerging from the senior judiciary. Mr Justice Ramsey, the judge in charge of implementation of the Jackson reforms, told the audience at a recent conference on the reforms that: "In a £500,000 case, say if each party spent £1m, and this was assessed to £900,000.

"On that basis, it is impossible for a costs judge to say, actually, that's disproportionate, you should only recover £300,000. What costs management does, is to start at the other end, and say what is an appropriate budget for the litigation".

It does not appear that he meant no more than costs may still be proportionate if they exceed 60 per cent of the amount at stake. If that was what was intended, it would have been helpful if we were told what would be an appropriate percentage. Rather, it seems to be suggested that costs judges should not arbitrarily reduce costs below those properly assessed simply to make the final figure proportionate.

This appears to fly in the face of the wording of the new rules and Lord Justice Jackson's own views on the new powers of costs judges: "The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR rule 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction." Does the judge tasked with implementing Jackson disagree with Jackson on this issue?

Mr Justice Ramsey's view, based on the above quote, appears to be that setting a cap on the level of costs that are to be deemed proportionate and recoverable should only be done at the outset of the claim through budgeting, rather than at the end through assessment.

The first problem with this is that if, in the example he gives, the level of costs reasonably and necessarily required to properly run the litigation to conclusion is £900,000, it is no more logical or fair to place a cap of £300,000 at the outset through budgeting that at the end through assessment. The only thing to be said in favour of this approach is that at least the parties have the opportunity to decide the case is uneconomic to run; although this may be of limited consolation to a defendant told they have been given a budget too small to successfully defend a matter.

Secondly, early experience seems to suggest that a large number of courts are not routinely making costs management orders setting costs budgets. If proportionality is not to be achieved by the courts setting budgets at the outset, and costs judges do not have the power to ensure proportionality at the end, where does that leave a key element of the Jackson ?reforms? SJ