The Proportionality Pendulum

Posted by Michelle Barron on 20th February, 2018 in Opinion and categorised in .

One wonders what the original expectations were when “proportionality” was introduced with the Civil Procedure Rules back in 1999. Whatever these were, it is unlikely that observers imagined what has come to pass.

The “final” determination of the satellite litigation which this emotive word generated with its introduction, was originally decided in the case of Home Office-v-Lownds [2002] EWCA Civ 365, when the Court of Appeal examined what proportionality meant. The approach was characterised in practice by becoming known as the “Necessity Test”, since the Court of Appeal stated:

“31. In other words 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. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This is turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner.”

In my experience, this test always worked effectively at assessment. In other words, unnecessary work was disallowed if the overall costs were considered disproportionate and, if necessary, only costs that were reasonable on the standard basis were allowed.

In contrast, LJ Jackson in his Final Report of his Review into Civil Litigation Costs - less than eight years after Lownds - made no secret of his dislike of Court of Appeal decisions:

“5.10 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…5.11 At the time when Lownds was decided, it seemed to myself and others that this decision was a neat way of applying the proportionality test, which would bring costs under proper control.  Experience, however, has taught otherwise.  In my view, the time has now come to say that the guidance given by the Court of Appeal in Lownds is not satisfactory, essentially for the reasons given by the President of the QBD at the Cardiff seminar.  The effect of Lownds was to insert the Victorian test of necessity into the modern concept of proportionality.”

This was not just a rejection of tests of necessity, but turns the whole approach on its head. LJ Jackson summarises this when he says in his Final Report:

“5.12…If a judge assessing costs concludes that the total figure, alternatively some element within that total figure, was disproportionate, the judge should say so.  It then follows from the provisions of CPR rule 44.4(3) that the disproportionate element of costs should be disallowed in any assessment on the standard basis.  In my view, that disproportionate element of the costs cannot be saved, even if the individual items within it were both reasonable and necessary…5.13 In other words, I propose that 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. There is already a precedent for this approach in relation to the assessment of legal aid costs in criminal proceedings: see R v Supreme Court Taxing Office ex p John Singh and Co [1997] 1 Costs LR 49."

Now proportionality is considered at the end and not at the beginning as in Lownds, so we have an item-by-item assessment, where proportionality can be applied to individual items. At the end, a further reduction can be made because the overall total is regarded as disproportionate, even though the costs assessed have been found to be reasonably incurred and reasonable in amount.

This is a seismic shift in approach, since despite referring more than once to CPR 44.5(3) (Now CPR 44.4(3), which we all lovingly know as the “Seven Pillars of Wisdom” being the “Factors to be taken into account in deciding the amount of costs”), LJ Jackson makes clear that proportionality should now trump reasonableness on a standard basis assessment of costs.

The “Pillars of Wisdom” have been at the centre of assessing costs since they were introduced, and in fact quoting from what many regard as the ’Costs Bible‘, namely “Cook on Costs”, the current edition states under “The Seven Pillars of Wisdom” at page 549:

“The phrase “seven pillars of wisdom” comes originally from the Book of Proverbs and there is something almost biblical about the way it has stood firm against attempts to bring those pillars down over time. The seven pillars contained in Order 62 of the Rules of the Supreme Court were revised by the CPR to include the issue of conduct, which lay centrally in the Woolf Reforms that led to the CPR.”

Conduct does indeed feature heavily and in several places in the CPR, not least within CPR 44.3(5), which states that:

“(5) Costs incurred are proportionate if they bear a reasonable relationship to –

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) any additional work generated by the conduct of the paying party; and

(e) any wider factors involved in the proceedings, such as reputation or public importance.”

It is surely of particular note that not only is conduct mentioned as a CPR addition to the “Pillars”, but also the two other pillars of value and complexity.

The whole post-Jackson proportionality approach has been, in this author’s view, somewhat bizarre. Initially it was clear to many that the courts were shying away from a decision that would fetter the application of the new Jackson approach. It was not until 2016 that we had any significant decisions on proportionality, namely BNM v MGN Limited [2016] EWHC B13 (Costs) and May & May v Wavell Group PLC & Bizarri [2016] EWHC B16.

LJ Jackson stated in keynote address at a costs conference on 7 March 2017 regarding “The Review of Fixed Recoverable Costs” that "costs management is now working much better. It applies the new proportionality rule to the circumstances of each individual case." It was difficult at the time, and certainly is now, to rationalise the use of the word “new” to a test, which at the time of this speech had been around for one month short of four years. Adding to the sense of bewilderment was the fact that only in the few preceding months to this speech did we have the BNM and May decisions.

So where are we now? Ironically both the above decisions have been appealed. In BNM, the decision of the Senior Costs Judge was leapfrogged to the Court of Appeal, where BNM persuaded the Court of Appeal that the Senior Costs Judge was wrong to hold that the new test of proportionality applies to still recoverable additional liabilities. The Court of Appeal unanimously held that the transitional provisions in CPR 48, combined with the definition of “costs” applicable since 1 April 2013  (that omits any reference to “additional liabilities”), acted to preserve the former Costs Rules, applying the Practice Directions, to the assessment of costs that include additional liabilities. In addition, MGN succeeded on their cross-appeal, resulting in the Senior Costs Judge having to reconsider the question of whether it was reasonable to issue proceedings without notice.

In May, the decision of Master Rowley was also successfully appealed. This was a nuisance claim where damages were accepted of £25,000. At first Instance, the costs claimed at a total of £208,236.54 were assessed at total £99,655.74 and then reduced on grounds of proportionality to £35,000 plus VAT. Before HHJ Dight, with Master Whalan, it was decided that costs should be awarded in the sum of £75,000, stating:

“I respectfully disagree with the learned master insofar if it is right that he used his description of the new proportionality test as a blunt instrument as a reason to make a substantial reduction in the reasonable costs to bring them down to a rough and ready but proportionate amount…The rules, difficult as they may be to apply in practice, require the specific factors in CPR 44.3(5) to be focused on and a determination to be made as to whether there is a reasonable relationship between them. I doubt that the rules committee intended that a costs judge could or should bypass an item by item assessment and simply impose what he or she believed to be a proportionate global figure.”

The final remark of HHJ Dight in the above paragraph is at odds with LJ Jackson’s intention that proportionality should prevail over reasonableness. Despite referring to them, HHJ Dight moves further away from the Jackson objectives when he states:

“In my judgment, the tests of reasonableness and proportionality are intended to work together, each with their specified role, but with the intention of achieving what is fair having regard to the policy objectives [laid out in the Jackson report].”

But in this writer’s view, HHJ Dight is right and he sums up his views, saying in his judgment:

“Further, it seems to me that the word proportionate is intended to have a consistent interpretation across rule 44.3(2), rule 44.3(5) and 44.4, which means that in considering proportionality, the court is to have regard to all the circumstances (see CPR 44.4) which includes, but is not limited to, the further factors specified in CPR 44.4(3) even though they are not specifically referred to in CPR 44.3.”

The saying ’if it isn’t broke, don’t fix it‘ applies here since, in the arena of costs assessment, the CPR has only been adding considerably to the inherent costs of the assessment process and generated a cottage industry in satellite litigation. As with much surrounding the Jackson reforms, the early hope that the courts would not become embroiled in an interpretation of proportionality and instead adopt a sensible approach by using the rules at their disposal has been dashed by the first instance decisions in BNM and May and now partially restored by the decision of HHJ Dight.

Long live the seven pillars of wisdom which should continue to hold up the judicial heavens above the world of costs assessment!