Legal Cost Specialists

Proportionality after West v Stockport NHS Foundation Trust

This is the second look at the guidance given on the new proportionality test by the Court of Appeal in West v Stockport NHS Foundation Trust [2019] EWCA Civ 1220.

The previous post explored how the Court dealt a fatal blow to the new rule by introducing a test as to whether work was “unavoidable expenditure” (in which case it was to be allowed) and pretended that this was logically different to the “necessarily incurred” test under Lownds.

The problem with this judgment does not end there.

Remember how the new test was meant to work?

The current version of the White Book states at 44.3.3:

“The general practice on detailed assessment is to consider the reasonableness of each item that has been challenged and then to consider whether the total sum that would be allowed on that basis is proportionate or not.  If it is not proportionate, the court will then reduce the total figure to a sum which is proportionate.  That is the approach suggested by Jackson LJ in the Review of Civil Litigation Costs: Final Report (December 2010) Pt 1, Ch.3, para.5.13, and endorsed by Lord Neuberger (then Master of the Rolls) in the 15th implementation lecture on the Jackson reforms, entitled Proportionate Costs and given on 29 May 2012.”

At the lecture referred to, Lord Neuberger summarised the aim of the new test as:

“effectively reversing the approach taken in Lownds. In this way, as Sir Rupert said, disproportionate costs, whether necessarily or reasonably incurred, should not be recoverable from the paying party. To put the point quite simply: necessity does not render costs proportionate.”

The practical effect of this would be:

“As such it seems likely that, as the courts develop the law, the approach will be as Sir Rupert described it:

‘. . . in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR rule 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction.”

The architect of these reforms (Jackson) and the previous Master of the Rolls therefore both approved the initial line-by-line approach followed by a global reduction, if necessary, to produce a final proportionate figure.

This approach appeared to have been given the blessing of the Court of Appeal in Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792:

“I add that where, as here, a costs judge on detailed assessment will be assessing incurred costs in the usual way and also will be considering budgeted costs (and not departing from such budgeted costs in the absence of “good reason”) the costs judge ordinarily will still, as I see it, ultimately have to look at matters in the round and consider whether the resulting aggregate figure is proportionate [emphases added], having regard to CPR 44.3 (2)(a) and (5): a further potential  safeguard, therefore, for the paying party.” 

In BNM v MGN Limited [2016] EWHC B13 (Costs), the Senior Costs Judge Master Gordon-Saker followed this approach.  The line-by-line assessment produced a figure of £167,389.45.  He then stood back and made a global reduction to £83,964.80 to produce a proportionate figure.

Costs judge Master Rowley adopted a similar approach in May v Wavell Group Plc [2016] EWHC B16 (Costs).  The initial assessment, on the basis of reasonableness alone, reduced the bill from £208,236.54 to £99,655.74.  The second part of the test, the “Jackson reduction”, reduced this to £35,000 plus VAT.  This was, on appeal, overturned with a figure of £75,000 plus VAT substituted for £35,000 plus VAT.  Although the appeal judgment makes some passing reference to having “revisited the elements of the bill”, it is not obvious that the figure of £75,000 was arrived at with any express reference to the constituent parts of the bill.  Rather, one relatively arbitrary figure was replaced with another.

As against that background, and the lengthy Jackson consultations with the whole legal profession, including the senior judiciary, three judges in the Court of Appeal have decided that, in truth, it was a terrible idea to simply apply a global reduction to the final figure.  They ruled:

“At the conclusion of the line-by-line exercise, there will be a total figure which the judge considers to be reasonable (and which may, as indicated, also take into account at least some aspects of proportionality). …

The proportionality of that total figure must be assessed by reference to both r.44.3(5) and r.44.4(1). If that total figure is found to be proportionate, then no further assessment is required. If the judge regards the overall figure as disproportionate, then a further assessment is required. That should not be line-by-line, but should instead consider various categories of cost, such as disclosure or expert’s reports, or specific periods where particular costs were incurred, or particular parts of the profit costs.

The judge will undertake the proportionality assessment by looking at the different categories of costs (excluding the unavoidable items noted above) and considering, in respect of each such category, whether the costs incurred were disproportionate. If yes, then the judge will make such reduction as is appropriate. In that way, reductions for proportionality will be clear and transparent for both sides.

Once any further reductions have been made, the resulting figure will be the final amount of the costs assessment. There would be no further stage of standing back and, if necessary, undertaking a yet further review by reference to proportionality. That would introduce the risk of double-counting.”

This is a complete mess from both a theoretical and practical perspective.

The reductions to be applied under the proportionality cross-check are now not meant to be undertaken with a view to the global figure this will produce, but by looking at “different categories of costs” or “specific periods where particular costs were incurred” or “particular parts of the profit costs”.  Once these further reductions have been applied, it then matters not one jot whether the resultant global figure is still plainly disproportionate.

Even from a theoretical perspective, it is difficult to discern the logic behind this approach.  One of the key aims of proportionality in costs is to ensure that excessive costs are not loaded onto unsuccessful litigants (thus deterring meritorious claims from being brought or meritorious defences being run).  However, the unsuccessful litigant is ultimately only concerned with the total costs they may have to pay to the other side.  It is no consultation to the paying party faced with a disproportionate total to be informed that the constituent parts of the bill had all been reduced to a proportionate amount.

Take, for example, a routine personal injury claim that settles for £50,000.  It might be relatively common ground that it would be disproportionate to incur costs of £250,000 to successfully bring that claim.  But what if that £250,000 is conveniently split equally between the 10 phases of an electronic bill?  It is rather less obvious that £25,000 is disproportionate to incur on the Witness Statement phase, Expert Reports phase, Trial phase or any other phase.  The global figure is logically reduceable to a proportionate amount (even if there is plenty of scope for disagreement as to what that proportionate amount should be).  How though is proportionality to be measured in relation to discrete phases of the bill?  If the court is not meant to be concerned with what impact the further individual reductions will have on the total amount (because the resulting global figure is apparently sacrosanct) what is the measure to be?

Even on a theoretical level, how is the further reduction to be calculated?  The initial line-by-line assessment will have produced a figure that the judge considers “reasonable”.  If a judge has considered it reasonable to have incurred costs of £25,000 in relation to preparing witness statements, what is to be the reference point for making a further reduction to that figure?  The judge is apparently meant to revisit the £25,000 figure because the £250,000 total of the bill is deemed disproportionate but to undertake this exercise in an apparent vacuum as to what impact on the global total will result from reducing the £25,000 figure.

Why is it legitimate to make further reductions for “specific periods where particular costs were incurred” but to not to make further reductions for the whole period costs were incurred?

How is a fairer result achieved by making the proportionality reductions to discrete parts of the bill rather than the total?  It is claimed that the result of this approach is the “reductions for proportionality will be clear and transparent for both sides”.  But how is any greater transparency achieved by making, for example, a 50% reduction to various specific parts of the bill as opposed to a 50% reduction to the total?

Even from a practical perspective, this is a nightmare.  There will be many bills which proceed to assessment which are not drafted by phase.  The judge will need to know what costs were incurred in relation to the various categories/periods/parts before being in a position to consider what further reductions to apply.  As costs counsel Andrew Hogan has noted, the likely consequence of this judgment is that:

“the time spent adding up the bill after the assessment (assuming that it is not digital) and then as part of this process devising categories of costs for arguments sake, has now doubled”

This bizarre judgment is a theoretical, logical and practical dog’s dinner and somehow manages to simultaneously undermine a major plank of the Jackson reforms whilst nevertheless increasing the likely level of costs satellite litigation and increasing the length of any resultant detailed assessment hearings.  So not all bad then.

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