Ignore proportionality at your peril

Ignore proportionality at your peril

Practitioners should heed the High Court's warning and ensure that proportionality is considered when incurring costs in pursuing litigation, especially in regard to partner's costs.  In Savoye & Savoye v Spicers, the claimant suffered when seeking to recover costs, in seemingly ignoring issues of proportionality when pursuing its case, recovering less than 50%.

While a party can incur whatever costs they like when pursuing litigation, costs will not be recoverable when it comes to costs assessment if they are not proportionate.  Akenhead J was robust in his application of proportionality, especially in terms of the partner's costs which he reduced from 111 hours to just 20 hours. While this case concerned the enforcement of an adjudicator's decision, there are lessons to be learnt for all dispute resolution practitioners when it comes to what the courts will consider to be proportionate.

Practical implications

The reform of civil costs and the implementation of proportionality during assessment has now been with us for nearly two years (Jackson Reforms, April 2013). However, the court is continually seeing cost cases where the concept of proportionality seems to have been completely ignored. What the judgments do not tell us is whether the practitioners simply fail to take into account proportionality when determining strategy and the day to day work or their clients have authorised any overspend knowing they are unlikely to recover it. While some would argue that the concept of proportionality is difficult to apply, it is very clear from this judgment when the line is overstepped.

Consider things such as:

the appropriate level of solicitor to undertake the work?

should the partner simply have a supervisory role or should they undertake specific work content?

how many people are required to attend a hearing?

does the case cover ground already dealt with in other matters? eg arising out of an adjudication or where there are concurrent court and arbitration proceedings covering the same ground.

Facts

The claimants (Savoye) sought to enforce an adjudication decision by a summary judgment application. The defendant (Spicer) argued that the adjudicator did not have jurisdiction to hear the dispute as it was not concerned with a construction operation as defined by s 105 of the HGCRA 1996 – this was essentially a factual dispute.

There were three summary judgment applications. The first in which evidence was presented, the second where Spicer was granted permission to adduce further evidence and the third where the application was refused. At that point Akenhead J pursued a site visit and expedited trial with oral evidence, a trial which Savoye won.

Savoye sought indemnity costs. Spicer took the position that indemnity costs were not appropriate and that the summary judgment application had been 'misguided' and therefore Spicer should not have to pay either all or a substantial part of the summary judgment application costs.

How should the costs be dealt with?

Akenhead J in holding that was not unreasonable for Savoye to pursue summary judgment or for Spicer to oppose it, decided that indemnity costs were not appropriate.

In this case, evidence collated for the purposes of the applications was also used at trial. The issue of how to deal with costs was one on which the issue of proportionality was pivotal. The following issues were considered:

Both parties used Leading Counsel. The court, though not the parties, had an issue with this. The primary issue was one of fact. The investigations, as seen by the need for a site visit, should have been focused on the factual question. While the wording in the act had been considered in a number of judgments, 20 or more were cited to Akenhead J in this case, the case involved very limited issues of principle and included the extent to which the court should consider the subjective or objective intentions of the parties. He did not consider this sufficient to justify the use of Leading Counsel on this basis:

‘I do not consider that case can be considered as a test case, on which dozens, scores or hundreds of other cases depend. Similarly, whilst this case was of commercial importance to each party, both sides are reasonably substantial commercial entities and there is no hint of suggestion that their commercial existence depended on the outcome of this case.'

The court proceedings here were essentially a re-run of the adjudication; the evidence was primarily the same although it went into greater detail and placed a different emphasis at certain points. This meant that the work involved for the court case, the same solicitors were used in the adjudication and court case as well as the same witnesses, should to a large extent have replicated the adjudication so limiting the costs incurred. In addition, the issue to be determined was not 'particularly complex'. Given that background the costs incurred by Savoye of over £200,000 to enforce a decision worth just under £900,000 were disproportionate. Akenhead J was minded to award 50% of the costs. However, as he was dealing with a summary assessment application there were some factors which he considered should be taken into account:

  • standard assessment ensures the monies payable are reasonable and proportionate with any doubt being resolved in favour of the paying party
  • a substantial sum was claimed, in both hours and time costs, for an experienced construction partner working on the matter; far more than simply supervising a competent solicitor. This was unreasonable and disproportionate. Akenhead J cut the hours from 111 hours to 20 hours at the rate sought
  • the solicitor's time equated to 8-9 weeks work, again unreasonable and disproportionate particularly given the work done for the adjudication. This was reduced by 50%. Examples of disproportionate hours were 150 hours on witness evidence (they were short statements) and no new ground was covered in the court proceedings
  • it was unreasonable for the paying party to pay for a partner and solicitor to attend all four hearings
  • it was unreasonable for 43 hours to be spent on preparing the Claim Form, Particulars of Claim, summary judgment application and witness evidence when the person was an experienced construction lawyer charging high hourly rates
  • the summary judgment application should have been discontinued after receiving the other side’s evidence, particularly when invited to consider moving to an expedited trial process
  • the brief fee was unreasonable at £12,000 given Counsel’s involvement prior to trial. This was reduced by 50%

Taking into account the above, the fees sought were reduced from £201,790.66 to £96,465 ie less than half.

This case provides a salutary warning on costs. Unless you have discussed the issue with your client previously, failure to recover over half the fees incurred from the other side could be a very difficult conversation.

Savoye & Savoye v Spicers [2015] EWHC 33 (TCC)

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.