The Senior Costs Judge was wrong to hold that the new test of proportionality applies in cases begun before 1 April 2013 where additional liabilities are still recoverable, the Court of Appeal has ruled.
While describing the ruling as “sensible”, the ACL has expressed its disappointment that the court did not take the opportunity to offer wider guidance on the application of the new test.
In BNM v MGN, a privacy case, the defendant media group agreed to pay damages of £20,000 plus costs.
The claimant sought costs of £241,817, including a 60% success fee for her solicitors, Atkins Thomson, 75% for both counsel, and an after-the-event premium of £58,000 plus insurance premium tax of £3,480 from Temple Legal Protection.
At the detailed assessment, Senior Costs Judge Gordon-Saker (pictured) ruled that, subject to proportionality, all the success fees would be allowed at 33% and the ATE premium allowed as claimed. On the line-by-line assessment, the costs were reduced to £167,389, including base solicitor costs of £46,000 and base counsel fees of £14,000.
Master Gordon-Saker decided that the new proportionality test applied to the additional liabilities and concluded that it demanded that he halve the costs he had allowed.
Giving the unanimous ruling of the court, the Master of the Rolls, Sir Terence Etherton, disagreed with the two principal reasons given by Master Gordon-Saker for his decision.
The master said that had it been intended that the old test of proportionality be applied to additional liabilities which remained recoverable after 1 April 2013, “it could have been achieved quite easily by a further exception in CPR 44.3(7)”.
Sir Terence said: “I respectfully do not agree. It would not have been appropriate to include such a further exception in the new CPR 44.3(7) because that provision creates exceptions from the new CPR 44.3(2)(a) and (5) but those provisions are not capable of catching ‘any additional liability incurred under a funding agreement’ as defined by the old CPR 43.2(1)(k) and (o) since (contrary to the argument on behalf of MGN, which I have rejected) such liability no longer falls within the expression ‘costs’ as defined by the new CPR 44.1(1).”
Master Gordon-Saker’s second reason was that the old test in the old CPR 44.4(2) was not a provision relating to funding arrangements within CPR 48.1, as borne out by its absence from paragraph 1.4 of PD 48.
Sir Terence continued: “Again, I respectfully disagree. The provisions in paragraph 1.4 are those where the expression ‘funding arrangements’ is expressly mentioned. They are introduced by wording which states that what follows is inclusive and not exhaustive.
“The old CPR 44.4(2), which contained the old proportionality test, applied to costs as defined in the old CPR 43.2(1)(a). The latter is expressly mentioned in paragraph 3.1 of the new PD 48 and so the old CPR 44.4(2) is itself a provision relating to funding within that paragraph even though it was not itself expressly mentioned in paragraph 4.1 of PD 48.”
He also rejected MGN’s argument that ATE insurance premiums were ‘expenses’ rather than ‘costs’ under the definition of costs in the new CPR 44.1(1).
The judge continued: “Standing back from the minutiae, it seems perfectly clear that the reference to ‘any additional liability incurred under a funding arrangement’ was deliberately omitted from the definition of ‘costs’ in the new CPR 44.1(1) because, subject to specific saving and transitional provisions in the 2012 Act, the recoverability of success fees and ATE insurance premiums in an order for costs was abolished by the 2012 Act and, where they remain recoverable by virtue of those saving and transitional provisions, they are recoverable in accordance with the old costs rules, including those relating to proportionality, reasonableness and assessment.
“If it had been intended that the new proportionality test was to apply to funding arrangements to which the statutory saving and transitional provisions applied, that would have been made clear in the statutory provisions or the new costs rules or both and it was not.”
The decision backs the ruling of Master Rowley, who expressly disagreed with Master Gordon-Saker in the King v Basildon case.
The court remitted the case to the Senior Costs Judge to consider the proportionality of the costs again.
It also partially upheld MGN’s cross-appeal over whether it was reasonable for BNM to issue the proceedings without giving prior notice; the media group said it could have reached agreement without the need to issue and increase the costs.
Master Gordon-Saker found it was, but the Court of Appeal said there were certain factors he had not taken into account in reaching that decision.
But Sir Terence said: “The Senior Costs Judge is highly experienced. Notwithstanding the points I have mentioned, I do not consider that it would be right for us to say on the appeal that there is only one answer to the question [of whether BNM acted reasonably].
“I consider that the appropriate course would be to remit the matter to the Senior Costs Judge to re-consider the issue of prematurity, making it explicit that he has taken the matters I have mentioned into account.”
ACL vice-chairman Francis Kendall commented: “The Court of Appeal has reached the sensible conclusion that retainers which began before LASPO came into force on 1 April 2013 should be subject to the rules that were in place at that time. Even now, four years on, it is a decision that will impact a significant number of cases.
“It is disappointing that the court chose not to give any guidance on the application of the new proportionality test, but we understand that three conjoined cases are set to come before the court shortly that will hopefully be a vehicle for such guidance. The disputes caused by the continuing uncertainty are not helpful and we urge the Court of Appeal to give the profession the strong steer it needs.”
Simon Browne QC and James Laughland of Temple Garden Chambers, instructed by Atkins Thomson, acted for the claimant, with Alexander Hutton QC and Jamie Carpenter of Hailsham Chambers, instructed by Reynolds Porter Chamberlain, for the defendant.