Despite being introduced in April 2013 the new test of proportionality had not been given much thought by the courts. Then suddenly, two cases in quick succession have been decided in which we finally have some detailed guidance on how the new test of proportionality will be applied.
BNM v MGN Limited [2016] EWHC B13 (Costs) (03 June 2016)
The claim itself concerned a primary school teacher who had a brief relationship with a Premier League footballer. During the course of this relationship she lost her mobile phone, which subsequently ended up in the hands of a national newspaper. The claimant brought proceedings, seeking an injunction to restrain the newspaper from using or publishing confidential information taken from her phone, damages and an order for delivery up of any confidential information.
The newspaper made substantial admissions in the defence and the claim was concluded by a consent order at an early stage in the proceedings. Under the terms of the order the Defendant undertook not to use or disclose the confidential information, and agreed to pay damages of £20,000 plus costs.
The successful claimant submitted a bill of costs totalling £241,817.00. Master Gordon-Saker undertook, in the first instance, a detailed assessment applying ordinary principles of what amounts were reasonable. This led to a reduction of the bill to £167,389.45. This was made up as follows:
| Base profit costs | £46,321.00 |
| Base Counsel’s fees | £14,687.50 |
| Court fees | £1,310.00 |
| Base costs of drawing the bill | £4,530.00 |
| Atkins Thomson’s success fee | £16,780.83 |
| Counsel’s success fee | £4,846.88 |
| ATE premium | £61,480.00 |
| VAT | £17,433.24 |
| Total costs | £167,389.45 |
However, the judge then stood back and concluded that this amount was disproportionate to the issues and amounts at stake and the he reduced the bill by approximately 50% to £83,964.80 made up of the following:
| Base profit costs | £24,000.00 |
| Base Counsel’s fees | £7,300.00 |
| Court fees | £1,310.00 |
| Base costs of drawing the bill | £2,250.00 |
| Atkins Thomson’s success fee | £7,920.00 |
| Counsel’s success fee | £2,409.00 |
| ATE premium | £30,000.00 |
| VAT | £8,775.80 |
| Total costs | £83,964.80 |
The master concluded that on a detailed assessment of costs on the standard basis proportionality should prevail over reasonableness. He then went on to provide some guidance when applying the new test of proportionality.
- The court should first make an assessment of reasonable costs. 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.
- The new test of proportionality applies to additional liabilities which remain recoverable after 1st April 2013.
- A consequence of the reduction of the base costs to a proportionate figure will be that the success fee, a percentage of the base costs, also reduced.
- When applying the new test of proportionality the court need not consider the amount of any additional liability separately from the base costs.
- There will be cases in which the costs bear a reasonable relationship to the sums in issue even though they exceed those costs. Further, it was not intended that the costs should never exceed the sums in issue. The rules do not state that.
- If an insurance premium is reduced on the grounds that it is disproportionate the court should identify the figure allowed.
Dr Brian May -v- Wavell Group Plc [2016] EWHC B16 (Costs)
The case of BNM was shortly followed by the case of Dr Brian May v Wavell Group Plc. In this case the figures were even starker in terms of the reductions applied. The initial assessment, on the basis of reasonableness alone, reduced the bill from £208,236.54 to £99,655.74. The second part of the test, reduced this to £35,000.00 plus VAT. The damages agreed were £25,000.00.
The costs in the case were slightly unusual in that they largely consisted of the fees of leading counsel, who was instructed directly by the Claimant. Master Rowley undertook the detailed assessment. His judgment contained a detailed examination of the principles relating to proportionality. The Master made the following findings:
- The sum accepted (£25,000.00) reflected the sums in issue. There was no evidence that the claim may have been worth more than this and the Claimant did not conduct any negotiation prior to acceptance.
- There was a possibility of a non-monetary aspect to the claim, in the form of an injunction and that issue had to be weighed in the balance.
- The case was neither legally nor factually complicated.
- There was nothing in the defendant’s conduct which caused additional works to be generated.
- There were no wider factors which were relevant to the issue of proportionality. (The fact that the claimants were public figures was not a relevant factor in this case).
Master Rowley reduced the recoverable costs to £35,000 plus VAT. The case was at an early stage when it settled. The proportionate amount of costs is inevitably smaller for a case that settles early than one that reaches a final hearing.
Commentary
The new proportionality test was intended to help provide a degree of predictability as to what costs would be payable if a case was lost for those claims not subject to fixed fees. Parties would know that the total would not be more than was proportionate to the claim. Neither case provides any certainty whatsoever. All that we know a little more about is the correct methodology to be used. However, we are not any closer to being able to predict the final figure. Is the starting point for a damages claim with some non-monetary relief that the total of the “reasonable” costs should be reduced by 50% if the initial total is deemed disproportionate? Is the starting point for a damages claim with some non-monetary relief that costs are proportionate if they are four times the level of damages recovered?
What is abundantly clear from both of these cases is that in circumstances where the level of costs exceed the level of damages by a significant margin, the receiving party can expect a significant reduction to the level of costs that it will recover. What remains to be seen is how the test of proportionality will affect cases where the gap between the level of damages recovered and the level of costs are smaller. The one thing we defiantly do not have is the certainty that Lord Justice Jackson asserted would arise from the new test of proportionality.
It is quite often the case in lower value clinical negligence matters that the level of costs exceed the level of damages. Further, it is also often the case that the Defendant’s conduct at some point during the litigation is less than helpful both to the Claimant and to the overriding objective. There is often non-monetary relief sought in the form of an apology from the Defendant. Finally, it is becoming increasingly common for Defendant’s to state in detailed assessment of costs that the saving of legal costs payable by the NHS is of considerable public importance.
What we also lack is the application of the new rules in relation to proportionality to lower value clinical negligence matters. It will be interesting to see how the issues that arise in clinical negligence claims affect the courts application of the test and if a reduction is to be made whether it will be to the same extent as the two case set out above. How will the court balance the issues that arise on either side? It remains to be seen.
It is clear that the process of recovering your legal costs as a successful receiving party is becoming more and more difficult. You need an expert on your side, fighting your corner, to ensure you get the best possible recovery on each and every case where you are entitled to costs. This is true not just at the end of the case, with the Bill of Costs but also during the lifetime of the case, especially during costs budgeting.