After that proportionality judgment, amidst the celebrations of Paying Party’s solicitors Receiving Party’s solicitors no doubt tipped their hats (or wigs, as it may be), perhaps muttered a congratulatory something and began the wait for the silly furore surrounding proportionality to blow over so that they could get back to business as usual.  But, alas, the wait continues.

In BNM v MGN Limited [2016] EWHC B13 (Costs) Master Gordon-Saker opened Pandora’s legal box when he found that on an assessment of costs on the standard basis, proportionality should prevail over reasonableness.  The Court should first make an assessment of reasonable costs and then stand back and further consider whether the total figure is proportionate.  If the total figure is not proportionate then the Court should make an appropriate reduction.  This is not an exercise in precision but rather more like wielding a blunt object[1]. This judgment signalled the end of parties ignoring the Court’s many warnings that costs of litigation must be proportionate.

It would not be wholly correct to say that BNM came as a surprise.  Kazakhstan Kagazy v Bagian Abdullaevich Zhunus [2015] EWHC 404 (Comm) had been around for more than a year before BNM and that judgment was followed the very next day by Gray v Work [2015] EWHC 834 (Fam), an absurdly Dickensian case where husband and wife walked away from divorce proceedings significantly out of pocket and without the divorce settlement in dispute because they had spent it all on litigation.  Mr. Justice Holman, in making observations on costs and Trial Bundles, reminded the parties of the need to at all times bear in mind the issues before the Court and their duty to assist the Court in deciding those issues, and to avoid peppering litigation with unnecessary and profligate theatrics resulting in the absurd.

On a similar warning note, once a Budget has been approved it would be wise for the parties to stick to it.  In The Dorchester Group Ltd v Kier Construction Limited [2015] EWHC 3051 (TCC) the Defendant lost all sight of the approved figure within the disclosure phase of their Budget and proceeded to incur more than four times as much.  The underlying nature of the case did not change and neither, would it seem did the way in which the Defendant went about the disclosure exercise.  Extensions were sought, disclosure was drip fed and Mr. Justice Coulson was left less than impressed, so much so that he felt it necessary to remind the Defendant’s (no doubt very experienced) legal team of basic principles relating to disclosure.  Happily for the Defendant, further disclosure was allowed but not without a strong warning that parties cannot simply be cavalier about the manner in which they go about it.

In short, Dear Readers, the message is clear: costs must be proportionate to the sum in issue and the work required: Savoye & Savoye v Spicerts Ltd [2015] EWHC 33 (TCC) and CIP Properties (AITP) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 481, and excesses will no longer be tolerated: L (a child) [2015] EWFC 15.

Fast-forward to the most recent judgment on proportionality, May & Anor v Wavell Group plc & Anor [2016] EWHC B16 (Costs), where the Court made good on its word in L (a child).

In that case, the Bill was for just over £208,000.00.  Applying Master Gordon-Saker’s approach to costs assessment in BNM, costs were reduced to £99,655.74 on a line by line assessment on a reasonable basis.  On taking a step back approach to assess whether the total figure was proportionate, he further reduced the figure to £35,000.00 plus VAT.  In doing so, Master Rowley reminded the parties that, as costs had been incurred since 01 April 2013, he was obliged to undertake a two-stage test under the governing provisions of the Civil Procedure Rules, those being CPR 44.3(2)(a) and 44.3(5).

Obviously it is not the case that costs of litigation should never exceed the sums in issue.  If that was what was intended in the Civil Procedure Rules then they would have expressly stated so.  In cases where the sums in issue are modest, it may be difficult for the costs of litigation to bear a resemblance to those sums.  Nevertheless, costs must be reasonable and proportionate.  Indeed, Master Rowley commented that the Kazakhstan method is still too generous to the Receiving Party under the new test of proportionality.  Notably – and take particular note Receiving Parties expecting all of their incurred costs to be paid in all cases – he went on to say that costs are “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”.

With reference to Hobbs v Guy’s and St Thomas’s NHS Foundation Trust, Master Rowley reiterated that in adopting a step back approach, the proportionality of costs will be assessed on a global basis, indeed it will be an unusual case where proportionality will be adjudged by assessing individual items.  That includes the costs of preparing the Bill of Costs.

Where does that leave the world of litigation?  And what do we make of all of this?  Well, to start with, these robust judgments dealing with proportionality are not the work of a singular, over-enthusiastic judge – they are the view of the Supreme Court Costs Office and unlikely to change anytime soon.  If Receiving Parties continue to push the envelope, they may well find Judges pushing back, only with more force.  The overwhelming message aimed at parties is that they simply cannot charge full-steam ahead into litigation and expect to come out at the end unscathed and with their back pockets lined.

And the message to their lawyers?  Quite simply, there is more to being a good lawyer than putting forward the best case on behalf of your client, no matter what the costs.  It goes back to the beginning of the solicitor-client relationship, before proceedings are even commenced.  It is vital that lawyers provide their clients with good, sound advice dealing with the merits of the case, prospects of success, potential costs of litigation, potential recoverability of those costs and viable alternative options to litigation.  If litigation is unavoidable as it sometimes is, then it may be worth considering – and this is radical – working in tandem with the other side to achieve the best, most cost effective outcome for the parties.  Whatever the course that a dispute may take, it is absolutely vital that clients are advised, in the clearest of terms, that they may not be able to recover all costs of litigation inter partes and that some costs may need to be recovered from them.

Of course, this will require some outdated litigation practices to be changed.  Unfortunately, there is no ‘how to’ guide available providing litigators with a quick fix; this is very much a venture into unknown territory (if we ignore the Australian model).  And unfortunately, in some instances change will result in a smaller profit margin.  But the alternative to change is far more terrifying – a damning judgment reducing what was hoped to be recoverable costs to almost nothing or worse yet, eventually going out of business altogether.