A New ‘New’ Proportionality Test?

The Court of Appeal has provided some guidance on the ‘new’ proportionality test, introduced back in April 2013, in the relatively recent case of West & Demouilpied v Stockport NHS Foundation Trust.

Whilst any guidance which provides an element of consistency in the manner in which proportionality is applied is welcome, what impact does this Judgment actually have on the approach to proportionality in practical terms and does it go far enough.

What is the ‘new’ proportionality test?

Coming into force back in April 2013 the ‘new’ proportionality test, in effect, reversed the approach previously taken in Lownds by maintaining that necessity does not render costs proportionate.

As to its application the guidance provided by Sir Rupert Jackson described the following:

‘. . . 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, 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.”

One of the key changes was this concept of the Costs Judge ‘stepping back’ and making a further global reduction. As this additional reduction was to be applied purely at the Judge’s discretion it has been particularly difficult, if not impossible, to provide any concrete advice or guidance on cases where proportionality has been a particularly live issue. Instead it has been a matter of acknowledging what is a largely unquantifiable risk, both in terms of the likelihood of a global reduction and the extent of any such reduction, with the outcome unknown unless taken to an assessment, be that either Provisional or Detailed, with often wildly differing results.

There has been a whole host of satellite litigation following the introduction of the new proportionality test which has provided limited guidance however the idea of ‘stepping back’ and making a global reduction has persisted, even as recently as the case of Malmsten v Bohinc this year.

So what has now changed with the case of West?

In the Court of Appeal’s Judgment in West it was determined that, whilst it was not the intention to restrict or force judges to follow inflexible or overly complex rules, a consistent approach to proportionality and costs assessment was much needed.

As such the Judgment provided the following guidance:

“First, the judge should go through the bill line-by-line, assessing the reasonableness of each item of cost. If the judge considers it possible, appropriate and convenient when undertaking that exercise, he or she may also address the proportionality of any particular item at the same time. That is because, although reasonableness and proportionality are conceptually distinct, there can be an overlap between them, not least because reasonableness may be a necessary condition of proportionality: see Rogers at paragraph 104. This will be a matter for the judge. It will apply, for example, when the judge considers an item to be clearly disproportionate, irrespective of the final figures.

At the conclusion of the line-by-line exercise, there will be a total figure which the judge considers to be reasonable (and which may, as indicated, also take into account at least some aspects of proportionality). That total figure will have involved an assessment of every item of cost, including court fees, the ATE premium and the like.

The proportionality of that total figure must be assessed by reference to both r.44.3(5) and r.44.4(1). If that total figure is found to be proportionate, then no further assessment is required. If the judge regards the overall figure as disproportionate, then a further assessment is required. That should not be line-by-line, but should instead consider various categories of cost, such as disclosure or expert's reports, or specific periods where particular costs were incurred, or particular parts of the profit costs.

At that stage, however, any reductions for proportionality should exclude those elements of costs which are properly regarded as unavoidable, such as court fees, the reasonable element of the ATE premium in clinical negligence cases, and the like. Specifically, therefore, if the ATE premium is assessed as reasonable, it will not fall to be reduced by any further assessment of proportionality.

The judge will undertake the proportionality assessment by looking at the different categories of costs (excluding the unavoidable items noted above) and considering, in respect of each such category, whether the costs incurred were disproportionate. If yes, then the judge will make such reduction as is appropriate. In that way, reductions for proportionality will be clear and transparent for both sides.

Once any further reductions have been made, the resulting figure will be the final amount of the costs assessment. There would be no further stage of standing back and, if necessary, undertaking a yet further review by reference to proportionality. That would introduce the risk of double-counting.”

The first key change is that any proportionality assessment must now make reference not only to the factors contained within CPR 44.3(5) but also to the wider circumstances provided in CPR 44.4(1).

Secondly, should the court deem that an additional assessment on the basis of proportionality is required, that assessment is not undertaken on a fully global basis but instead with reference to ‘categories’ of costs, with no additional ‘stepping back’ once that assessment has been undertaken.

Finally, with regards to any additional assessment, the costs which are to be assessed exclude not only VAT but also costs ‘which are fixed and unavoidable, or which have an irreducible minimum’.

Conclusion

Whilst the Judgment in West is certainly welcome and provides further guidance and clarity, it is unclear as this stage as to the practical implications and whether additional guidance is required in the future. 

The guidance provided represents a significant shift from the approach of ‘stepping back’ and potentially making a further global reduction. Now if a Costs Judge makes further global reductions, they will have to do so with reference to categories, which should provide at least some level of transparency. It should hopefully no longer be the case that a dramatic global reduction is made to what would appear to be an arbitrary figure, without any reasoning needing to be provided. However, what is uncertain is how this new approach will actually be undertaken and what impact it may have on both assessments and the manner in which the parties make submissions.

For example, what constitutes a ‘category’? The Judgment refers to phases but also references ‘specific periods where particular costs were incurred’ and ‘particular parts of the profit costs’. In addition, if phases are deemed to be categories, does that now negate the need for a further global assessment of proportionality, as referred to in the case of Harrison. Namely, if a party is within their Costs Budget, does any further global assessment in that respect only apply to the incurred costs or phases in which there are incurred costs? Finally, if parties do not know prior to the assessment what will be deemed as a ‘category’, how will they make submissions on the same within Precedent G.

With regards to certain costs now being excluded, whilst the Judgment provides the examples of additional liabilities and court fees in what would be deemed to be ‘fixed and unavoidable’ costs, what additional items does this term extend to? Are medical records fees to be included? Is there even an argument that experts fees should be excluded? In many instances such fees would be certainly deemed as ‘unavoidable’ in principle if not entirely ‘fixed’.

Ultimately whilst we may now have further guidance on how the proportionality test will be applied, although it seems likely that satellite litigation on the finer details will follow, the overarching issue remains, that being that proportionality is still based purely on discretion and is still therefore largely unpredictable. What is proportionate to one Judge might not be to another and as a result, the wildly differing results will likely continue.

This article was written by Nick Bailey, who brings to the Truro office his extensive experience in costs, acting for both Claimants and Defendants dealing with complex, high-value claims. He has particular expertise in personal injury  cases, including industrial disease and clinical negligence along with substantial experience across a broad spectrum of areas, including commercial and professional disputes, Court of Protection  and family legal aid.