Examining the proportionality test

Examining the proportionality test

James Laughland, barrister at Temple Garden Chambers, explores the practical implications of the decision in May v Wavell Group and scrutinises the impact of the proportionality test when assessing costs.

What are the practical implications of this case for practitioners?

It has taken three years but fundamental change is now afoot. We knew that proportionality was to trump reasonableness and even necessity, but now we see it in action. In May v Wavell costs incurred were just under £210,000. Costs deemed reasonably incurred after line-by-line assessment were just under £100,000. Costs ordered to be paid by the defendant as the proportionate costs allowed were £35,000 plus VAT.

The practical implications are profound. Whereas previously one could advise a client that if the case was successful the opponent would pay the costs incurred, subject to assessment, with probably about 75–80% of the whole recovered, such certainty—such as it was—no longer applies. The key factor now is that a successful party will only be allowed to recover costs that are proportionate to the matters in issue—here, principally determined by the fact that damages of £25,000 had been recovered. As Master Rowley explained, this will require legal representatives to explain to their clients that, even if successful, they will receive no more than a contribution to the costs that will be incurred.

How was the costs proportionality requirement applied?

Key to this was the attention paid to the factors highlighted in CPR 44.3(5) that help assess whether costs are proportionate. Costs are proportionate if they bear a reasonable relationship to:

  • the sums in issue in the proceedings
  • the value of any non-monetary relief in issue in the proceedings
  • the complexity of the litigation
  • any additional work generated by the conduct of the paying party, and
  • any wider factors involved in the proceedings, such as reputation or public importance

The test of proportionality is now to be considered after an assessment on an item-by-item basis that determines what costs were reasonably or necessarily incurred.

The Master considered, but rejected, the argument that achieving justice at proportionate cost would mean allowing for the recovery of at least the minimum cost involved in bringing the case to a successful hearing. Such a formulation was not appropriate, he felt, in cases where the amount of reasonable costs will inevitably exceed the value of the claim.

Moreover, this description of the minimum necessary costs being recoverable from the losing party, and the excess being a matter between the solicitor and client, tallies with the general—but now previous—notion of costs recoverable on the standard basis.

The sum now to be recovered from the losing party is the sum that is appropriate for the paying party to pay by reference to the five factors identified in CPR 44.3(5). It is not the amount required to achieve justice in the eyes of the receiving party, but only a contribution to that receiving party’s costs in many modest cases.

Does celebrity status equate to public interest?

CPR 44.3(5) sets out factors to consider when determining if costs are proportionate. Costs can be proportionate if they bear a reasonable relationship to, amongst other things, any wider factors involved in the proceedings, such as reputation or public importance.

The claimants here were Dr Brian May, otherwise known as the lead guitarist of the rock band Queen and his actress wife, Anita Dobson. Their claim though was classified, rightly, as a private nuisance claim concerned with a neighbour’s ‘mega-basement’ plans. Although they had been able to use their celebrity status to generate publicity for their concerns, all parties agreed that this did not, of itself, equate to any form of public interest.

Is the test in Lownds still relevant?

The Lownds test is no longer relevant for costs incurred after 1 April 2013. Even costs necessarily incurred may not be recovered if they form part of costs otherwise to be regarded as disproportionate.

Moreover, proportionality is the final fail-safe control mechanism to be applied even after the reasonableness of costs has been determined. If the costs reasonably and necessarily incurred are still disproportionate then they can, and probably will, be reduced even further.

This shift in emphasis on proportionality as the overriding consideration to determine the costs that may be recovered from a paying party is also likely to receive greater emphasis as the implications of this decision filter through to costs management hearings. As long ago as May 2012, with the fifteenth implementation lecture relating to the Jackson Reforms, Lord Neuberger was advocating that decisions would have to be taken when budgeting expenditure for a case as to whether such was proportionate, even if that meant that such costs would not be recovered from the opponent.

Interviewed by Susan Ghaiwal. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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