The defendant costs specialists

New costs proportionality test

By on Mar 24, 2014 | 12 comments

Mr Justice Ramsey, speaking at the IBC Solicitors’ Costs Conference, suggested that under the new proportionality test parties should bear in mind that combined costs should not normally exceed the sum in dispute.

We have been waiting for some helpful guidance on the new test and now we have it. If we assume that the ratio between claimants’ costs and defendant’s costs is roughly 60/40 in favour of claimants, we now have a simple formula for calculating the maximum cap that should be allowed when setting budgets or undertaking assessment under the new test:

• Claimant’s costs capped at 60% of the realistic valuation of the claim when setting a budget or 60% of the damages recovered when assessing costs.

• Defendant’s costs capped at 40% of the realistic valuation of the claim when setting a budget or 40% of the damages recovered when assessing costs.

There are some arguments as to whether the defendant’s costs should be capped at the level of the pleaded case rather than the likely or actual damages, but you get the general idea.

The need for detailed assessment will disappear in a large number of lower value cases as it will be obvious the cap will bite.

    12 Comments

  1. How does that square with fixed costs, which in a low value claim will exceed the amount in dispute?

    Surely if the intention of the new proportionality was to limit the costs to the amount of damages or x% of the damages the rule should have been so drafted?

    domthedrafty

    24th March 2014

  2. This is all well and good in fairy land, where trees are made of chocolate and people can live forever.

    But the reality is rather different, as we all know.

    I fail to see how it can be right for Claimant’s to be denied access to justice when stingy Defendants can delay delay and prevaricate in the knowledge of this absurd new test and rule i.e. 60% of damages.

    Show me any Defendant person that can say with a straight face that this rule is just and I will show you someone who is lying through their teeth.

    Truly Eminent Costs Professional

    24th March 2014

  3. Neither Proportionality nor Budgeting is a cap, Simon, and if this is the “test” then CoA here we come again!

    Also, would you kindly explain where you get your proportions from? Is this an admission that Defendants have been so far been deliberately understating their costs, given in virtually every statement of costs I have seen from Defendants at Allocation, Listing, Trial, and in Cost Budgets (“yes, my costs are really under £25k so I’m only completing Page 1, Sir”), Defendant would have us believe their costs are minimal??

    I have also heard tale that some Judges are adding the budgets together to see how they compare to the sums in issue – and they are told they are wrong in so doing

    Anonymous

    24th March 2014

  4. Thank you Simon for reporting on this useful guidance from Mr Justice Ramsey. Especially helpful given the absence of any other guidance in the CPR or otherwise.

    Thank you also for giving your opinion on the application of this guidance.

    I do agree there is a disconnect for low value claims, but we do have the Claims Portal with fixed costs now.

    Interesting comments about defendants lying… Why is it so hard to believe that defendants can conduct the defence of claims economically for under £25k in total?

    I understand your use of the term cap. If the budget is agreed/approved and the defendant wants to claim more at the end of the matter, they would have to justify the surplus?

    Anonymous

    24th March 2014

  5. Great post, sparking Claimant fury it seems! I assume at least some part of the tongue must have been placed in the cheek when posting this. Claimant people, fear not! ;o)

    Nameless Costs Lawyer

    24th March 2014

  6. not bad if the claimant’s claim is worth 2 million and the budget is 500,000 – not bad at all. Shall just submit that we should be getting at least 1 million.

    anonymous

    24th March 2014

  7. I also read the post as tongue in cheek

    Why is it hard to believe that Def’s will conduct claims under £25K?

    well a lot of the Defendant budgets I see are poor (putting it politely)- they simply miss entire tranches of work – is defendant really going to go to a 5-day trial and not attend on 3 experts in conference? pure nonsense

    Further, people I know who do Defendant work will discuss with me – their clients do put pressure on to “drive the budget down” for strategic reasons

    Another known issue – using the lower rates on a Discounted CCFA – just to make claimant’s look bad

    I was also in court the other week and during an off the record chat whereby the tape was firmly off the chap from the otherside, who did both Claimant and Defendant work, conceded to the Judge that they were aware that some insurers were deliberately ensuring that their Budgets were low

    Anonymous

    24th March 2014

  8. Cannot see what all the fuss is about, everyone knows you just lop off a 1/3 of costs to get the true result. Now its just a 1/3 of the damages..

    AMCL

    25th March 2014

  9. By phase 60/40 isn’t bad.
    C/D
    PA 80/20
    Issue 70/30
    CMC 60/40
    Disc 40/60
    Wit 50/50
    Exp 50/50
    PTR – 50/50
    TP – 50/50
    TRIAL 50/50
    ADR 60/40

    56/44

    Notwithstanding that – Ramsey J is wrong.

    Professor Costs

    26th March 2014

  10. I always went along with the old DJs adage ‘red sky at night, cost lawyers delight….’

    xyz

    26th March 2014

  11. “Professor Costs on March 26th, 2014 2:12 pm”

    Adding the percentages assumes that each phase is worth the same…

    Charles Wheatcroft

    27th March 2014

  12. The idea both parties costs should be considered when deciding if costs are disproportionate to damages sort of makes sense in an abstract way from a narrow sighted Judge’s perspective but only when considering costs at the budgeting stage when both parties’ costs are considered.

    However only one party is actually awarded (generally). The perspective for proportionality should surely be that of the receiving party. If I am a claimant the costs I incur should be proportionate to the damages I am pursuing. Why should my otherwise reasonable costs be reduced because a defendant has incurred costs in unjustifiably defending a claim or vice versa?

    Short sighted ideas abnout adding parties costs together aside, the real reason proportionality is now going to bite is because costs are considered to trial at the budgeting stage. 90% plus of litigated cases settle before trial. Proportionality was therefore previously considered in terms of – do costs do exceed damages at the time the case settles – even though the case settled before the first CMC and costs would have dwarfed damages had the case got anywhere near trial.

    The issue is now are costs proportionate to trial at the budgeting stage which is a far harsher test regardless of the new stricter rules (assuming the level of damages has not been exaggerated at the budgeting stage, which creates anotehr set of problems).

    'king costs

    27th March 2014

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