Proportionality – further clarification on application of the new proportionality test.

​Rehan Mujaddadi, Costs Lawyer and London Office Manager considers the recent Appeal decision on May & May v Wavell & Bizarri [2016] EWHC B16 (Costs).

Master Rowley first provided Judgment in 2016, which was held by many as the defining case on application of the CPR proportionality test as defined in CPR 44.3 (2) (a). This rule stipulates the court will "only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred"

To apply this test, Courts have been undertaking a line-by-line assessment and then considering whether to reduce costs further on the basis of proportionality.

The claim, which was a nuisance claim brought by Dr May against a neighbour, settled for £25,000.Following settlement, Dr May submitted a Bill of Costs totalling £208,236.54.Parties failed to agree costs and the matter proceeded to assessment before Master Rowley who, applying the two-stage test above, assessed them at £99,655.74 on a line-by-line basis and further reduced them to £35,000 plus VAT on the basis of proportionality.

In reaching his decision Master Rowley gave consideration to the five factors listed in CPR 44.3(5) and, in particular, CPR 44.3(5)(a) – the sums in issue in the proceedings.He stated:

"In summary, this is a case worth in the region of £25,000 and for which there was a modest prospect of an injunction at least early in the case. There was no noteworthy complexity in the litigation of either a legal or factual nature. There were no additional costs caused by the defendant's conduct nor were there any wider factors to be considered. In these circumstances the reasonable costs allowed of £99,655.74 are undoubtedly disproportionate".

Based on this leading Judgment many Paying Party representatives adopted the approach of arguing reductions to costs based on proportionality, by reviewing and comparing the level of agreed/awarded damages and the first stage assessed costs.

Deep Blue Costs had long thought this was not the definition of "sums in issue", we took the approach that had the factor of consideration been the level of damages, then that is exactly was the rules would have stipulated. Our interpretation was that the "sums in issue" must be derived from the claim value on the Claim Form and also from the level of negotiation offers.

This issue was specifically considered on Appeal by HHJ Dight CBE and Master Whalan.

Although the costs were still found to be disproportionate, the Appeal decision confirms that "a settlement figure might provide some indication of the former battle ground but it is the battle ground which is to be identified when looking at the "sums in issue" and not the final figure which brought the battle to an end."

The decision also provided that CPR 44.3(5)(a) is only one of the five factors to be considered when deciding whether or not costs are proportionate, and made specific reference to CPR 44.3(5)(c) – the complexity of the litigation.Master Rowley also addressed the issue of the stage at which settlement is reached.

Whilst Master Rowley had held that, where a case concluded early, proportionate costs would be lower than if the case reached a final hearing, at appeal HHJ Dight disagreed.Further, it was held that a global reduction to the costs was a misapplication of the Rules, and that consideration must be given to all of the factors in CPR 44.3(5), with a specific explanation being made in support of each of those factors which results in the assessed sum.It was also found that Master Rowley had undervalued the sums in dispute, given insufficient weight to the complexity of the litigation and wrongly reduced the costs because of early settlement.

Upon giving consideration to the four issues in dispute and taking all matters into account, the Court of Appeal considered that a proportionate figure was £75,000 (plus VAT).

This judgment will come as a second blow to the Paying Party wishing to raise the issue of proportionality. It was only a few months ago when the Court of Appeal decided that, in BNM v MGN Ltd [2017] EWCA Civ 1767, the additional liabilities were not to be included in the global sum for consideration when applying the proportionality test.

I'm glad this issue has finally been clarified, as it is often the case that the final settlement sum is not reflective of the sums being sought. It is fair to say the guidance is slowly but surely being provided on the application of the new proportionality test which came into effect in April 2013.