Practical Law

Two recent decisions in the SCCO show that the new proportionality rules are being applied robustly and that, in lower value claims, the trumping of necessity by proportionality is having a real impact.

The position prior to 1 April 2013

Before 1 April 2013, when proportionality was governed by the Lownds approach, section 11.2 of the Costs Practice Direction reminded judges that:

“In any proceedings there will be costs which will inevitably be incurred and which are necessary for the successful conduct of the case. Solicitors are not required to conduct litigation at rates which are uneconomic. Thus in a modest claim the proportion of costs is likely to be higher than in a large claim, and may even equal or possibly exceed the amount in dispute”.

Alongside the application of the “necessity” test, that observation was generally thought to mean that proportionate costs would never be less than the minimum amount which it would cost to present a case competently. The repeal of that part of the Costs Practice Direction and the introduction of CPR 44.3(2)(a) mean that that may no longer be the case.

BNM v MGN

In BNM v MGN Ltd, Master Gordon-Saker assessed the costs of a claim for misuse of confidential information. The claimant had – reasonably, as the master held – made an ex parte application for anonymity and had issued proceedings against the defendant without engaging in any pre-action correspondence. The defendant had served a defence admitting liability and the claim had settled, within a year of proceedings being issued, for payment of £20,000, an order for delivery up and an apology.

Master Gordon-Saker determined that the claimant’s reasonable costs were £167,389.45, including success fees for solicitors and counsel and an ATE premium of £61,480, but assessed the proportionate costs at a little under £85,000. In doing so, he approximately halved the base costs for the solicitors and counsel, he allowed the full success fees on those base costs and he reduced the ATE premium to £30,000.

Costs may still be proportionate if they exceed the sums in issue

The master held that, under the new proportionality rules, the court was no longer required to consider the proportionality of additional liabilities separately from base costs. However, despite the repeal of section 11.2 of the Costs Practice Direction, he held that costs could still be proportionate even if they exceeded the sums in issue. In BNM, particular factors which made that so were:

• The application for an anonymity order.
• The use of specialist London solicitors.
• The importance of the case to the claimant.

Nevertheless, the reasonable costs were substantially reduced in the name of proportionality.

May v Wavell Group plc

A similarly robust approach was taken by Master Rowley in May v Wavell Group plc (16 June 2016). In that case, sometime guitarist and astrophysicist Brian May had brought a private nuisance claim against the owner of a neighbouring property, which was developing a “super basement”. After minimal pre-action correspondence, proceedings had been issued and the claim had been settled for £25,000 before a defence was served. The bill of costs totalled £208,236.54, which was reduced to £99,655.74 on the basis of what was reasonable. That was a sum which the master regarded as “undoubtedly disproportionate”. He held that proportionate costs were £35,000 plus VAT.

No touchstone of minimum expenditure

As in BNM, Master Rowley held that, in a low value claim, proportionate costs could in principle exceed the value of the claim, but he expressly rejected an approach to proportionality which took as its touchstone the minimum amount of expenditure to run the case competently. He said (at para 35):

“The amount that can be recovered from the paying party is not the minimum sum necessary to bring or defend the case successfully. It is a sum which it is appropriate for the paying party to pay by reference to the five factors 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.”

Relevance of claim value

The master acknowledged that the approach may be different in high and low value cases. In Kazakhstan Kagazy plc v Zhunus, Legatt J was keen to establish that the fact that a claim was worth many millions of pounds did not mean that any reasonable expenditure on costs was also proportionate. He held (at para 13):

“In a case such as this where very large amounts of money are at stake, it may be entirely reasonable from the point of view of a party incurring costs to spare no expense that might possibly help to influence the result of the proceedings. It does not follow, however, that such expense should be regarded as reasonably or proportionately incurred or reasonable and proportionate in amount when it comes to determining what costs are recoverable from the other party. What is reasonable and proportionate in that context must be judged objectively. The touchstone is not the amount of costs which it was in a party’s best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party’s own account and not recoverable from the other party.”

In May, Master Rowley referred to Kazakhstan Kagazy, but held that, “where the sums in issue are modest, [that] method is still too generous to the receiving party under the new approach”. He also acknowledged that the new approach is necessarily a broad brush one:

“There is only so much finesse that can be employed when using a broadsword rather than a rapier. A concluding global assessment of proportionality as envisaged by the new approach involves the court wielding a blunt instrument rather than a precision tool.”

Change of culture

Although Master Rowley rejected a test of “bare necessity”, in neither BNM nor May could it be said that the sum arrived at by the costs judge was one which made the litigation economically unviable. What both cases do show is that a change of culture may be required in the prosecution of low value claims, so that minimisation of expenditure is at the forefront. As Master Rowley observed in May:

“In cases such as this, it seems to me that the new test of proportionality … will require legal representatives to inform their clients that, even if successful, they will receive no more than a contribution to the costs that will be incurred. It may be that such advice proves to be a driver for the costs to be reduced or for alternative dispute resolution mechanisms to be deployed. It is to be hoped that cases such as this one, which are in a transitional phase of understanding the new proportionality test, will be relatively rare.”

Jamie acted as counsel for the defendants in both BNM v MGN and May.