Applying the new costs proportionality test

Costs Law Reports’ latest Costs Bulletin contains some interesting comments on the new proportionality test.

Giving the background to the previous approach:

“Hitherto, there are rules and a body of case law which enable matters such as hourly rates, success fees and the indemnity principle to be predicted with a degree of certainty. In this way, the outcome of the line by line assessment can be calculated closely enough to enable decisions to be taken on Part 36 offers etc with confidence.”

I have some doubts that the position was ever quite this rosy such that a decision could be made with “confidence”.  An experienced costs lawyer or law costs draftsman could certainly predict the likely outcome, within a certain range, of what would be allowed by the average judge on detailed assessment.  Regrettably, not all judges behaved in a predictable way.  One might be 90% confident that the hourly rates for a routine low value claim would be limited to Grade C rates, but that was of little comfort when faced with a judge who was happy allowed Grade A rates.  Matters were obviously complicated by normally not knowing in advance whether a matter would be listed before an experienced judge or before a deputy district judge who possibly had no knowledge of even the basics of costs law.  A practitioner who has never walked out of court shell-shocked by how generous/harsh a judge has been is almost certainly a practitioner who rarely walks into court in the first place.

It was certainly possible to recommend acceptance of a “generous” Part 36 that would give a fairly clear windfall to one’s client if accepted.    Equally, it was possible to pitch an offer that was sufficiently “generous” to give excellent protection, but such offers were also likely to give the other side a windfall if accepted.  The difficulty was advising on offers that placed the client at potential risk but which were anything but generous.

Commenting on the new proportionality test, the Costs Bulletin states:

“Costs lawyers are experts in costs. In the same way that they have developed expertise in working out what a bill is likely to be worth at detailed assessment, a new skill is now open to them: by how much, if at all, will the bill as assessed, be further reduced when the court stands back at the end of the detailed assessment and applies the new proportionality test? Suppose, for example, the receiving party recovers £1m in damages and is charged £250,000 by his solicitors. No issue is likely to arise about the proportionality of such costs. Contrast that with damages recovered of £250,000 and costs incurred of £250,000. Proportionality will be at the forefront of any challenge by the paying party and it will be for the skilled costs lawyer to advise by how much the reasonable and necessary costs as assessed will be cut down further when the proportionality test is applied. Not all doom and gloom by any means.”

But by what route will this new “skill” emerge?

If judges start to apply the new proportionality test in a consistent manner, the new “skill” will not be difficult to acquire and it will not be, in real terms, much of a skill.  If judges routinely start to limit proportionate costs for ordinary litigation to 50% of the amount in dispute (or 75% or 100% or whatever), it will easily become predictable what will be allowed, but this will not be a skill that costs lawyers (or law costs draftsmen or costs counsel) will be able to lay any particular claim to.

It may that there will be consistent inconsistency.  In other words, Costs Judge X will normally allow X% of damages, District Judge Y will normally allow Y% of damages and County Court Z will normally allow Z% of damages.  Gaining the relevant knowledge of what is allowed in certain courts before certain judges is a skill of sorts – perhaps akin to knowing that certain judges always allow Grade A rates regardless of how routine the matter is and other judges never allow 100% success fees regardless of how risky a case is – although not a great reflection of the judicial system if proportionality is to be reduced to a postcode lottery and still leaves the problem that often one does not know which judge will be assessing matters (and very rarely does in provisional assessment matters) in advance of the actual day of assessment.  Being able to guess 30 minutes before a hearing starts whether one is going to do well or badly is a skill of limited value.

The more likely outcome is that judicial decisions on the new proportionality test will be random and arbitrary.  In such circumstances the “skilled” costs lawyer will be of no more value than the novice one.