Proportionality is something that is considered from the pre-action stage, right through to assessment of costs. It has become a term that is familiar to some and feared by many. On 1 April 2013, a new test of proportionality came in to force by virtue of CPR 44.3(2)(a), whereby costs that are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred.
Since then, we have seen how the implementation of proportionality, in its various guises, has been applied to costs incurred from pre-action through to the costs assessment process, whether matters are settled through the fast track or in larger cases, where costs management orders apply and budgets are prepared.
Five years on, we remain in the dark with no definitive guidance on the issue of proportionality. What do the rules actually say? Why is the test described as difficult to apply? These are questions that can only be answered with consideration of the piecemeal common law developments and steadfast guidance.
What we do know is that, whilst the rules do not specifically state that the proportionality test has to be undertaken in two stages, it is likely that this will happen: a line-by-line assessment with a form of cross-checking being undertaken when the total is ascertained to see whether it falls within the range of proportionate totals, leading to an adjustment if it does not. So how should that adjustment take place? How should the final “proportionate” figure be determined?
The case of May v Wavell Group Ltd offers some guidance. The line-by-line assessment led Master Rowley in the Senior Courts Costs Office to reduce the costs claimed from £208,236 to £99,655. He considered that the reduced sum remained disproportionate for a claim which settled pre-trial for £25,000. Master Rowley then took a step back and further reduced the assessed costs down by an unpalatable £65,000 to £35,000 plus VAT.
It was no shock that this decision was swiftly appealed. HHJ Dight, being of the opinion that Master Rowley had misinterpreted and misapplied the new proportionality test, awarded £75,000 plus VAT as proportionate to the sums in issue. He surmised that the new proportionality test was not “a blunt instrument” that a judge could use to make a substantial reduction in the reasonable costs and bring them down to a “rough and ready but proportionate amount”.
Rather, the tests of reasonableness and proportionality were intended to work together, each with their specified role, but with the intention of achieving what was fair having regard to the policy objectives laid out in the Jackson report. The decision tells us that whether the relationship between the specific factors in CPR 44.3(5) is reasonable is a matter of judgment, rather than discretion. It requires a costs judge to attribute weight, and sometimes no weight, to each of the factors.
Notwithstanding the “feel good factor” of this outcome and the attempt to provide some clarity, there remains a lack of certainty in the guidance provided.
So, how long should we reasonably expect this lack of guidance to continue? Judgment was handed down in September 2018 in Sarah Jane Reynolds v One Stop Stores Limited. This was an appeal against a decision on proportionality by DJ Reeves. Similar to that of May v Wavell, costs were assessed at £115,906 in the first instance. DJ Reeves then “stood back” and made a further reduction to £75,000 on the grounds of proportionality.
On appeal, HHJ Auerbach considered whether DJ Reeves was correct to apply the test of proportionality to both incurred and budgeted costs. The judge also considered whether DJ Reeves was correct to adopt his stance, as others had done, when considering the end result of proportionality. HHJ Auerbach concluded that DJ Reeves was right to reject the argument that it would be wrong to apply proportionality to budgeted costs. He also considered that DJ Reeves had given sufficient consideration to the factors in CPR 44.3(5) when arriving at what was a proportionate figure.
His task, he said, was to decide whether DJ Reeves had erred in law in his decision on proportionality. HHJ Auerbach ruled that DJ Reeves had not.
Commentary on this decision suggests that there is a degree of certainty as to what the rules say, but there is still much frustration on how the factors will be applied. HHJ Auerbach made it clear that the court must arrive at a proportionate figure that is not perverse or irrational. It should be based on the reasoning leading up to that figure, but that the court does not have to set out a precise mathematical calculation of how it is reached.
So, here we stand, five years downstream of the great Legal Aid, Sentencing and Punishment of Offenders Act 2012 tide, and it appears we are none the wiser. I fear that over the next five years we will see calls for the court to set out with more precision the mathematics behind the figure at which it arrives. Surely what is to follow is a costs capping exercise in proportionality?
David Bailey-Vella is a costs lawyer at the housing and homelessness charity, Shelter and is a council member of the Association of Costs Lawyers.
