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Proportionality and non-financial matters

In three recent cases, the courts have considered how to apply the proportionality test in CPR 44.3(5) in cases where damages are not the main issue, or where no damages are in issue at all.

CPR 44.3(5) reads:

“(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.”

In Various Claimants v MGN Ltd, the Chief Costs Master dealt with costs and costs management issues in the Daily Mirror hacking litigation, which was not subject to a group litigation order under CPR 19.10 to 19.15, but its structure was similar, with individual costs and common costs. Template costs budgets applied to individual costs and common costs, with the template to follow Precedent H insofar as possible. Two of the claimants applied for an individual bespoke budget.

The main points of interest in the judgment concern proportionality, with the costs judge saying that:

“… when the proportionality factors are put together, the financial value of the claims proves to be relatively unimportant because of the wider factors.”

The costs judge held that, in such cases, reasonable costs will be proportionate.

“22. I do not find it easy to apply a principled approach to proportionality in relation to these budgets. I can infer, for what it is worth, from the parties’ agreement to having bespoke budgets that they consider larger amounts of costs than those in the template budgets will be reasonable and proportionate. It seems to me that the only principled way of applying the test in these cases is to have only very limited regard to the possibility that proportionality may produce a cap that will limit what would otherwise be a reasonable figure. This is what the parties have done in their submissions. To take any other approach in this bespoke litigation risks the court merely applying arbitrary limits because there is no financial reference point for proportionality.

23. It seems to me that the wider factors I have summarised, in particular the public importance and test case factors, will have the effect that if the costs are reasonable they are proportionate. That conclusion chimes with the approach the parties have adopted and avoids the court wielding a concept of uncertain application.”

The other key factors here were the value of the non-monetary relief in issue in the proceedings and the wider factors in the proceedings, such as reputation or public importance (see CPR 44.3(5)(b) and CPR 44.3(5)(e)).

Effectively, the costs judge restored the test in Home Office v Lownds when considering proportionality in cases involving more than just money.

In Various Claimants v MGN Ltd (Costs), the Chief Costs Master was again dealing with costs issues arising out of the Daily Mirror hacking litigation. The court had to consider proportionality without first having carried out an item-by-item assessment as the parties had agreed reasonable costs. Here, the master ruled that none of the agreed reasonable costs were disproportionate. The master recognised that the new proportionality test, since 2013, was intended to bring about a real change in the assessment of costs, as set out in the case of BNM v MGN Ltd, but this case was very different to that one and was not a typical case.

In this case, the master followed the approach adopted in May v Wavell, but had particular regard to the wider factors set out in CPR 44.3(5), and in particular the value of the non-monetary relief sought in this matter.

Financial value is just one of five factors set out in CPR 44.3(5) and there will be cases where, by reason of the four factors other than the financial value of the claim, costs are proportionate even though they exceed the sums in issue. CPR 44.3(5) does not identify any of the five factors as being more important than any of the others.

The claimants did not want just to win damages; they wanted to hold the defendants to account and the value of the non-monetary relief in issue was substantial, and at least as important as the financial sums in issue.

The master said that a “lazy, but arguably foolproof” test of any particular issue, and its complexity and importance, was to consider the amount of time that the court was prepared to devote to it.

In Arjomandkhah v Nasrouallahi (Master Leonard), the Senior Courts Costs Office (SCCO) upheld a detailed assessment of costs which had found that there was no basis for disallowing any costs as disproportionate. The judgment provides guidance on the court’s approach to the new test of proportionality in a claim with limited financial value, but of importance to the parties.

Here, the claimant and defendant had been in a relationship and, after it ended, the claimant obtained an interim judgment against the defendant preventing her from contacting him, or his wife or children, or from showing images of him to anyone else.

The claimant alleged that the defendant had blackmailed him and tried to make the injunction permanent, but he lost and was ordered to pay the defendant’s costs on the standard basis and the reasonable costs were assessed at just under £20,000.

On appeal, Master Leonard in the SCCO rejected the claimant’s submission that proportionality should be judged by reference to a notional financial claim valued at between £3,000 and £5,000, as the particulars of claim sought only a final injunction, rather than damages or costs.

The court held that this ignored the wider criteria in CPR 44.3(5)(e) and CPR 44.4(3)(c) which were much more significant in this case, given the potential effect of the claim on the defendant’s reputation.

The costs master also considered that it was relevant to look at the claimant’s budgeted costs of £60,000 and pointed out that that did not assist his argument that costs assessed at one-third of that figure were disproportionate.

The court also rejected the claimant’s argument that his own disproportionate approach to the litigation was a matter for him and had no bearing on the proportionality of the defendant’s costs, as in the master’s view, it would not be right if the defendant was then left with a debt to her own solicitors that she could not afford, simply because the claimant could afford to conduct the litigation in a disproportionate way.

It should also be noted that the figure in a costs budget is the figure that the party will seek to recover from the other side; it is a standard basis figure and not an indemnity basis figure, which is the basis on which the client pays his own solicitors.

In relation to the difference between reasonableness and proportionality, the court said that CPR 44.3(5) provided that costs were proportionate if they bore a reasonable relationship to specified criteria. That was not the same as whether they were reasonably incurred or reasonable in amount.

Matters such as the defendant’s approach to evidence and settlement had already been considered when the defendant’s costs were assessed as reasonably incurred and reasonable in amount.

Whilst reasonable costs may be disallowed as disproportionate, costs could not be disallowed as disproportionate solely on the basis that they were unreasonable.

Underwoods Solicitors Kerry Underwood

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