Tangled up

27 Jun 2011Feature

Simon Gibbs tackles the proportionality riddle

To paraphrase Humpty Dumpty, 'proportionality means just what I choose it to mean '“ neither more nor less'.

Until recently, we thought we knew where we were with the application of proportionality in legal costs. The starting point is CPR 44.4(2): 'Where the amount of costs is to be assessed on the standard basis, the court will '“ (a) only allow costs which are proportionate to the matters in issue.'

The approach to this issue was indentified by the Court of Appeal in Lownds v Home Office [2002] EWCA Civ 365: 'What is required is a two-stage approach.There has to be a global approach and an item-by-item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which part 44.5(3) states are relevant.

'If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable.'

Lord Justice Jackson has been heavily critical of this approach, saying: 'Disproportionate costs do not become proportionate because they were necessary. If the level of costs incurred is out of proportion to the circumstances of the case, they cannot become proportionate simply because they were 'necessary' in order to bring or defend the claim.'

And a recent report by three costs judges from the Senior Courts Costs Office stated: 'In practice, the distinction between costs reasonably incurred and costs necessarily incurred is so thin that it is almost invisible since if it was reasonable to incur a cost, invariably it was also necessary to do so.'

These criticisms aside, at least we had a clear principle:

1. If the costs overall are deemed to be proportionate, individual items will be allowed if they were reasonable even if not necessary.

2. If the costs overall are deemed to be disproportionate, individual items will be allowed if they were both reasonable and necessary.

~~Muddying the water~~

Matters began to become muddied with Morland J's judgment in Giambrone v JMC Holidays [2002] EWHC 2932 (QB): 'For my part I do not accept that if a costs judge has ruled at the outset of a detailed assessment that the bill as a whole is not dispropor-tionate he is precluded from deciding that an item or a number of items are or appear disproportionate having regard to the 'matters in issue'.'

So, we then had the situation whereby:

1. If the costs overall are deemed to be proportionate, individual items will be allowed if they were reasonable even if not necessary, unless the court decides that individual items are dispropor-tionate, in which case they may be disallowed if they are reasonable but not necessary.

2. If the costs overall are deemed to be disproportionate, individual items will be allowed if they were both reasonable and necessary.

Now we have had the decision of senior costs judge Master Hurst in Motto & Ors v Trafigura Ltd & Anor [2011] EWHC 90201 (Costs). This takes the issue into Alice Through the Looking Glass territory.

Relying on the passage quoted above from Giambrone, he held: 'Therefore, in my view, there is no reason why a costs judge, having found at the outset on a global view, that the costs have the appearance of being disproportionate, should be precluded from deciding that an item or number of items are in fact proportionate, and thus that the test of necessity should not apply to them.'

So we now, apparently, have the situation whereby:

2. If the costs overall are deemed to be disproportionate, individual items will be allowed if they were both reasonable and necessary, unless the court decides that the individual items are proportionate, in which case they may be allowed if they are reasonable but not necessary.

At this stage you may want to have a quiet lie down in a dark room. If a costs judge can allow or disallow individual items depending on whether they are individually deemed to be proportionate or disproportionate, what is the point of the global approach, as required by the Lownds judgment, at the outset of the detailed assessment? The courts have progressively managed to render the concept of proportionality entirely meaningless.