The new proportionality test is a hot topic at the moment with decisions in Kazakhstan Kagazy PLC v Zhunus [2015] EWHC 404 (Comm), Savoye v Spicers Ltd [2015 EWHC 33 (TCC), Tim Yeo MP v Times Newspapers Limited [2015] EWHC 209 (QB), among others considering how the ‘new’ proportionality test should be applied.

If these decisions weren’t enough for us all to consider we now have the recent decision of Master Gordon-Saker in BNM v MGN Limited [2016] EWHC B13 (Costs). But all is not lost, ignore the gainsayers it isn’t all bad – honest!

The judgment handed down on the 3 June 2016 was in respect of privacy proceedings but it’s applicable to all cases. The headline of the decision is that the ‘new’ test applies to additional liabilities but that’s not the only thing to look at in this judgment, it’s a clear indicator of how the SCCO is using and applying the ‘new’ test.

The costs claimed were in the sum of £241,817. That included a success fee in respect of the solicitors’ costs of 60%, Counsels’ success fee of 75% and an after the event insurance premium of £58,000 plus insurance premium tax of £3,480 (para 10).

Subject to the outstanding issue of proportionality, the success fees of both solicitors and counsel were allowed at 33% and the after the event insurance premium was allowed as claimed. (para 11). The Senior Master conducted a line by line approach of what was ‘reasonable’ reducing the costs claimed to £167,389.45.

Master Gordon-Saker then considered whether the ‘new’ test applied to additional liabilities, still recoverable post April 2013 and if it does, how it should be applied.

The answer is an unequivocal yes; proportionality applies to additional liabilities still recoverable in a post Jackson world, and are not covered by the ‘saving’ clause of CPR 44.3(7). Not only does it apply, he also found contrary to the ‘old’ section 11.5 of the costs practice direction, additional liabilities are not to be assessed separately.

Master Gordon-Saker accepted that there will be cases in which the costs bear a reasonable relationship to the sums in issue even though they exceed those sums and the present case was one of those, the claim settled for £20,000.00.

Applying the criterion of CPR 44.4(4), Master Gordon-Saker found that the base profit costs of £46,000.00 and base Counsel’s fees of £14,000.00 must be disproportionate under the new test, being over 3 times the amount of agreed damages, and covering work which fell far short of trial. He found that costs of about one half of those figures would be proportionate. The ATE premium of £58,000 excluding IPT is also disproportionate. He concluded that the premium was unreasonable. He found that whilst it was necessary for the Claimant to purchase an ATE premium, costs may be disproportionate even though they were necessary: CPR 44.3(2)(a).

So what is the outcome? Only reasonable and proportionate costs in the case were allowed being assessed at £83,964.80, with a 33% success fee allowed and each of the items being reduced by about one half.

Some gainsayers may say that Master Gordon–Saker has devastated the test of reasonableness and that his decision demonstrates how random and arbitrary the ‘new’ test of proportionality is. However, realistically it demonstrates that the ‘new’ test has teeth, gone are the frustrating days of the ‘old’ test, where small reductions would be made.

We are in the post Jackson World, some may say post-apocalyptic, where costs must be proportionate and reasonable. Who in their right mind would spend nearly £250,000.00 to recover £20,000.00? No one, that’s for certain!

For too long we have had a world where it was okay to incur costs exceptionally higher than the level of monies people were seeking to recover. Master Gordon-Saker accepted that sometimes costs will be higher than damages, but that increase must be fully supported and justified.

What should we learn from this then?

Always bear proportionality and CPR 44.4(3) into consideration throughout a claim. Be able to justify the spend; ask yourself is it proportionate? If it is not, or you question that it is, tell your client. Tell them that if you take that course of action you may not recover the costs inter partes and you may seek the costs from them. This then provides you with protection when recovering and justifying your fees against your client.

We need to look to the future, change is hard for anyone but this isn’t change for change’s sake. The market pre-Jackson wasn’t sustainable in times of austerity and realistically it wouldn’t be anyway. Jurisdictions in Australia have worked under a fixed fee schemes for a long time, often practitioners will tell the client it will cost £100,000.00 to run this case but we can only recover £80,000.00 under the fixed fee. The shortfall will come from you, the client. I’m not advocating fixed fees but there are lessons to be learnt.

The change has happened and now we must learn to deal with it. Those that embrace it are the ones that will succeed. So ignore those gainsayers and look to the future. Here are a few pointers on what you can do now:

Make Good Offers, a well-pitched Part 36 offers that stands a real chance of being beaten, attracting indemnity costs continues to increase, means you escape Proportionality.

If your case has been budgeted, monitor the budget and comply with it, and use the budget as the yard-stick of what is proportionate.

Keep a record of all the ways your opponent’s conduct has served to increase costs (it doesn’t have to be bad conduct, it can be any) and tell them when their course of action is going to increase your costs.

Record on each occasion that you spend time in relation to issues that you did not expect to have to deal with, or where the time required is above and beyond what you would ordinarily expect.

Written by:

Faith Cosgrove 

Deputy Practice Manager of A&M Bacon Limited