Proportionality is now at the centre of the new costs rules. It takes its place firmly within the overriding objective which states that the court ought to deal with cases justly and at proportionate cost. Proportionality now ranks so highly that many argue it sits equal to doing justice, it least in the eyes of the court. The important principle in Lownds v Home Office has been disposed of as necessity no longer trumps proportionality.
Dealing with the case justly and at proportionate cost means dealing with cases in ways which are proportionate to the amount of money involved, having regard to the importance of the case, the complexity of the issues and the financial position of each party. CPR44.3(2) expressly states that the court, when assessing costs on a standard basis, will only allow costs which are proportionate to the matters in issue and those which are disproportionate may be disallowed or reduced, even if reasonably or necessarily incurred.
Costs are proportionate if they bear a reasonable relationship to the sums in issue, the value of any non-monetary relief in the proceedings, the complexity in the case, any additional work generated by the conduct of the paying party and other factors such as if the case has public importance. It is unclear whether a reasonable relationship means that costs should not exceed damages or should not exceed part of the damages or not be in excess of damages up to a certain point.
According to Jackson LJ the court should first make an assessment of reasonable costs having regard to the bill and the time reasonably spent as well as the factors listed above and should then stand back and consider whether the total figure is proportionate. If it is not proportionate, the court should make the appropriate reduction. This test seems rather arbitrary and it took time to see how it would be applied in practice. However, we now have a number of decided cases in which the test has been applied.
In Vitol Bahrain v Nasdec General Trading the successful party sought £165,000 in costs where the action was worth over $100 million. Despite being considerably less than the value of the claim, the court held the costs disproportionate and reduced them by nearly half. The opponent’s costs massively exceeded the costs of the successful party, but this did not afford any protection to the receiving party. The above case confirms that the underlying value of the claim is not necessarily enough to justify high costs on assessment.
In Savoye & Savoye v Spicers Limited the costs were just over £200,000 in a claim worth nearly £1 million, but there was only one issue in dispute and the costs were considered unreasonable and disproportionate as a result. The bill was assessed in accordance with the sums claimed for various elements of the case and reduced accordingly.
In Yeo v Times Newspapers the judge said that during costs budgeting it was necessary to have regard to the hours of work proposed and the hourly rates claimed depending on the facts of the case. The impression given was that the court will seek to address costs at the earliest opportunity in order to keep control. Indeed in Kazakhstan Kagasy Plc v Zhunus (not reported) the Judge said that it was important to consider not the best interests of the client when incurring costs, but the lowest amount which would be reasonably expected to present the case proficiently.
In CIP Properties v Galliford Try it was held that in a case worth many millions of pounds, the value is a less important factor than its complexity and if all parties’ total costs equal the value of the claim it will be at the upper level of what was proportionate.
The courts are doing their level best to minimise recoverable costs. Parties therefore ought to think about making realistic Part 36 Offers early on the basis that if the offer is beaten and indemnity costs are awarded then proportionality does not apply. Further, if the conduct of the paying party has increased costs to disproportionate levels then arguably those should be recoverable. Finally, Jackson LJ stressed the importance of project management in litigation. If the costs are high then the receiving party might seek to blame this on the failure of the paying party to exercise proper control in devising a proportionate strategy for the litigation overall.