The Court of Appeal has, after a six-year wait, finally provided some much-needed guidance on the application of the ‘new’ proportionality rules which were ushered in by the Jackson Reforms in 2013.
Echoing what the costs profession has known for many years, the Court of Appeal conceded in West –v- Stockport NHS Foundation Trust & Demouilpied –v- Stockport NHS Foundation Trust [2019] EWCA Civ 1220 that there was an absence of consistency in the way in which bills of costs are assessed.
The wider ruling attracted significant attention as the culmination of the lengthy dispute between NHS Resolution and the ATE insurers over clinical negligence premiums, however it is the decisions on proportionality which will have a more widespread practical impact.
Post Jackson the courts have been assessing costs on the standard basis with regards to CPR r44.3(2) and (5); only permitting the recovery of costs which are proportionate to the matters in issue, with costs reasonably or necessarily incurred potentially disallowed due to proportionality. To escape such disallowance, the costs would have to bear a reasonable relationship to a variety of factors ranging from the sums in issue in the proceedings and the complexity of the litigation to the reputational importance of the matter to the parties. After assessing what was reasonable in respect of each item in a bill a further assessment of proportionality would follow, with an appropriate reduction if the total figure thereafter is disproportionate.
This naturally has given rise to wide ranges of interpretation and has led to unpredictable assessments with outcomes turning on the vagaries of the court in question.
In West, the court gave guidance as to the approach which should be adopted when assessing proportionality. Firstly, all fixed and unavoidable costs are to be excluded from any assessment of proportionality. Thus VAT, court fees and recoverable block rated ATE premiums would not be reduced, save for the usual application of the test of reasonableness. Costs will thereafter be subject to a line-by-line assessment of the reasonableness of each item. Proportionality can, if appropriate, be assessed in respect of each item at the same time.
The proportionality of the resulting total figure following this line-by-line assessment will be assessed in line with CPR r 44.3(5) & CPR r44.4(1). If this total figure is deemed to be disproportionate, a further assessment is to be conducted. This is not to be line-by-line, nor to the total costs in aggregate, but to ‘categories of costs’. Examples given include disclosure, expert’s reports or specific periods where particular costs were incurred. Once any further reductions are made there will be no further stage of ‘standing back’ and referencing proportionality to this new figure.
This is undoubtedly a significant departure from the 2013 Jackson test. The old two stage proportionality assessment of a global aggregate figure seems to be dead and replaced by a much more nuanced approach.
Any firm guidance reducing the potential for wildly unpredictable reductions and providing wider consistency is always to be welcomed. A volatile assessment environment with speculative arguments does no party any favours. It is certainly the hope of the Association of Costs Lawyers that West will bring a degree of order and stability to the system. But as always with landmark decisions new questions arise where old ones were resolved.
In this brave new world of refined proportionality assessments, the courts will have to decide how they will square this different approach with the wider assessment regime. How this will relate to key authorities such as Harrison –v- University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792 on costs budgeting is unclear. The potential for devising innumerable categories of costs to vary the width of any proportionality assessment is considerable. How will the courts police this and fit these ‘new’ categories in with the existing budgeting phases which have bedded in over the past six years? This is especially pertinent when the receiving party will be subject to a costs management order of costs deemed to be proportionate at the CCMC. How this long-awaited guidance will be applied is something that all litigants should observe carefully.
This is not to take anything away from the significance of the Court of Appeal’s recent decision however. The inevitable uncertainties that arise from West are eclipsed by the utility of having some firm guidance on the application of proportionality in all lower courts. Let us just hope that it does not taken another six years before the fallout questions are resolved!
Adam Grant is a Costs Lawyer at Pure Legal Costs Consultants and is a Council Member of the Association of Costs Lawyers.
This article first appeared in the New Law Journal on 6 September 2019