Proportionality

Posted on Friday, April 28th, 2017

Picture of Lee Whitehead a Costs Draftsman at Paramount Legal CostsProportionality remains an extremely important topic in the world of costs, and barely a week seems goes by without new case law coming to our attention on the subject.

Since the “new” proportionality test into play in April 2013, costs have been subject to two proportionality tests, with the costs incurred before that time being subjected to the test laid out in Home Office –v- Lownds [2002] EWCA Civ 365, and the subsequent costs incurred after April 2013 being governed by the amendments to CPR 44.3.  This was a fundamental and hugely significant change.  Where the “Lownds test” put the emphasis on the necessity of the work before considering whether it was proportionate, the new rule removes the question of necessity and focuses solely on whether the costs incurred are proportionate, which as CPR 44.3(2)(a) puts it “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.”

This has led to a number of cases, some of which have been dealt with in previous Paramount newsletters, where costs have been severely reduced by the Court at the conclusion of assessment hearings, after the reasonable costs have been assessed in the traditional manor, solely on the grounds of proportionality.  However, as is so often the case in costs, some recent decisions have both clarified and muddied the issue.

In Murrells –v- Cambridge University NHS Foundation Trust [2017] EWHC B2 (Costs), Mater Brown assessed a bill of costs that straddled April 2013, with Part 1 subject to the “old” rules and Part 2 the “new”.  Master Brown, having applied the “Lowndes test” to Part 1, reduced the costs claimed in Part 1 by half, from around £32,000.00 to around £16,000.00.  In Part 2 of the bill, Master Brown reduced the costs in the standard way to those reasonably incurred, to the sum of “and then applied the “new” test, which brought the costs down considerably.

In their submissions, the Defendant argued that the Court should take additional liabilities into account when considering proportionality, as Master Gordon-Saker had done in BNM –v- MGN Limited [2016] EWHC B13 (Costs), however, Master Brown “respectfully disagreed” with his colleague and specifically excluded both VAT and additional liabilities from his calculations when considering the proportionality of the costs, meaning that only base profit costs and disbursements were relevant.

This is, potentially, a very important ruling and should be used by receiving parties as an important weapon in their defence when paying parties use such faulty reasoning as justification for swingeing reductions.

By way of contrast, in Mather –v- Doncaster & Bassetlaw Hospitals NHS Foundation Trust, Regional Costs Judge Beresford, sitting in Hull County Court, ruled that the “new” proportionality test should be applied to the whole of a bill that straddled both pre and post-April 2013, though he did concur with Master Brown’s opinion that the additional liabilities should be excluded from the calculations.

In doing so, DJ Beresford agreed with Master O’Hare’s ruling in Hobbs v Guy’s And St Thomas’ NHS Foundation Trust [2015] EWHC B20 (Costs), reasoning that “It would be a selective exercise if the court was to ignore what could be a significant pre-April 2013 amount of costs. This is particularly pertinent given that there are likely to be ‘split’ bills going forward for a number of years”

“Further support for the proposition of looking at the total costs can be taken from the manner in which the court assesses a proportionate budget. When setting budgets, the court takes into account costs incurred before the date of the budget. Incurred costs does not distinguish between pre and post-April 2013 costs…it would in my judgment be inconsistent to have regard to pre-April costs on budgeting, only then to ignore them when considering proportionality on conclusion.”

This raises an important point about the drafting Precedent H costs budgets, which is a subject for another time, but this decision shows just how inconsistent and contradictory the Courts can be on the issue of proportionality, but, there is no escaping the message running through all these cases: proportionality should be at the front and centre of every fee earner’s mind when running a case.  Necessity may be the mother of invention, but proportionality is the daddy when it comes to costs.

If you have any questions about this article please contact Lee here.

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