Proportionality rule is a tough pill to swallow

‘As yet, there is little by way of authoritative guidance as to how this new test is to be applied,’ said Master O’Hare earlier this month, in a ruling that shows how tough the new proportionality rule can be.

Lord Justice Jackson explained it in his report thus: ‘In an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, [regarding] the individual items in the bill, the time reasonably spent on those items, and the other factors listed in [what is now Civil Procedure Rule (CPR) 44.4(3)] and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction.’

Jackson reforms

To most, allowing proportionality to trump reasonableness is one of the harshest aspects of the Jackson reforms, but that is ?where we now are. It creates, ?for the first time, a great deal of uncertainty in the outcome of an assessment of costs, and creates ?a real problem in providing meaningful quantum advice ?to clients.

O’Hare was ruling in Hobbs ?v Guy’s And St Thomas’ NHS Foundation Trust [2015] ?EWHC B20 (Costs), where the substantive case over a delay in treatment settled for £3,500. The claimant sought costs of £32,329, which O’Hare reduced on provisional assessment, first on the grounds of reasonableness and then proportionality, to £9,879, plus the £1,694 costs of the assessment (all including VAT). The claimant’s solicitors requested a hearing.

O’Hare had provisionally assessed reasonable costs at more than £11,000 plus VAT in order to obtain medical records and appropriate expert evidence, send a letter of claim, and settle it pre-issue.

‘I next considered whether the sum allowed as reasonable was also proportionate. The answer would be yes if I were to apply the test propounded by [Justice] Leggatt [in Kazakhstan Kagazy PLC v Zhunus [2015] EWHC 404 (Comm)]: I had already assessed what was the lowest amount which the claimant could reasonably have been expected to spend in order to have this case conducted and presented proficiently, having regard to all the relevant circumstances.

‘However, I do not think that test applies in cases such as this, where the amount of reasonable costs will inevitably exceed the value of the claim. Kazakhstan Kagazy PLC was a case where the sums in issue bore no relation to the costs, however high they were. However, the amount of the sums in issue is one of the factors ?I have to take into account here and, indeed, it is the first factor listed in CPR 44.3.

‘I provisionally ruled that the sum I had allowed as reasonable was not proportionate. In doing so, I had regard to the factors listed in CPR 44.3(5) (especially ?(a) and (c)).’

O’Hare said that when ?deciding what reduction ?to make on grounds of proportionality, he decided against ‘chopping off a slice ?of all of the costs I had just found to be reasonable’; it was better ?to target particular items of work where he thought the costs were disproportionate in the circumstances of the case. ?As a result, he disallowed the £1,200 combined cost of three items ‘which now appear, with hindsight, to be inconsistent with the true value of the claim’.

He said: ‘In my judgment, although it was reasonable for the claimant’s solicitors to incur these costs, it is unfair to expect the defendant to pay for these items.’ The rule against the use of hindsight in costs assessment was based upon reasonableness, he added, ‘which today is trumped by proportionality’.

Though the costs he had provisionally allowed were still high in respect of a claim which settled pre-issue for £3,500, ?these were not deemed disproportionate. O’Hare said: ?‘I did not think it right to disallow the expenditure on medical records or expert reports. Even in modest value clinical negligence claims it is necessary to incur costs on these items. I did not allow these items of costs on grounds of necessity since that is trumped by proportionality.

‘I allowed them having regard to the fact that clinical negligence claims have more complexity and involve more work than do other claims of similar value.’

Trivial application

This is a difficult and uncertain pill to find, let alone swallow, for receiving parties. For damages ?of £3,500, costs of £11,000 are reasonable and necessary but disproportionate, whereas £9,879 is proportionate. The difference between these two figures is surprisingly close on comparison (being 314 per cent and 282 per cent respectively), rendering the application of proportionality arguably trivial. It seems unlikely that such percentages could be applied across the board and we have to take each case as it comes. However, there is some comfort for claimants that costs at a multiple of damages remain proportionate despite the uncertainty of the level.

We await, with some urgency, definitive Court of Appeal guidance on proportionality. ?For now, lawyers are in the uncomfortable position of not knowing if they will get paid? for what they are doing, however reasonable or necessary it may be.

Francis Kendall is a council member of the Association of Costs Lawyers @CostsLawyers www.associationofcostslawyers.co.uk