Proportionality: How to Keep Legal Costs Proportionate

Proportionality sits at the heart of modern costs law. Even where work has been reasonably undertaken, legal costs may still be reduced if they are not proportionate to the matters in dispute. Understanding proportionality legal costs principles is therefore essential for solicitors, costs professionals, and parties involved in litigation.

From our experience, many costs disputes do not turn on whether work was necessary, but whether the overall level of costs represents a proportionate cost in light of the case as a whole. ARC Costs explains the current approach to proportionality, how courts apply it in practice, and what can be done to manage risk.

Proportionality Rules Under CPR 44.3

The starting point is CPR 44.3, which governs the court’s discretion on costs. Following the Jackson reforms, proportionality is not simply a secondary consideration but a standalone test.

Under CPR 44.3(5), costs are proportionate if they bear a reasonable relationship to:

• the sums in issue,
• the complexity of the litigation,
• any additional work generated by the conduct of the paying party,
• the wider factors involved, such as reputation or public importance, and
• any non-monetary relief sought.

This means that even reasonably incurred costs may be reduced if, viewed globally, they are out of proportion to the case.

The Test of Proportionality in Practice

The test of proportionality is applied after the court has considered reasonableness. This is a critical distinction.

At cost assessment, the court will typically:

1. consider whether costs were reasonably incurred and reasonable in amount; and
2. stand back and assess whether the total figure is proportionate.

If the answer to the second question is “no”, the court may impose a further reduction, even if individual items appeared reasonable when viewed in isolation.

This “stand back” exercise has become central to both detailed assessments and negotiated settlements.

Guidance from the Court of Appeal

The modern approach has been shaped by guidance from the Court of Appeal.

In West v Stockport NHS, the court confirmed that proportionality requires a global assessment and that costs should not be allowed to escalate simply because work was technically reasonable.

That position was reinforced in Demouilpied v Stockport NHS Foundation Trust, where the Court of Appeal made clear that proportionality is not a mechanical exercise. The court must look at the overall picture, including the value and importance of the claim.

These authorities underline that proportionality is not achieved through a purely mathematical comparison, but through judgment.

Line by Line Assessment vs Global Proportionality

A common misconception is that proportionality is determined through a line by line assessment. In reality, proportionality operates at a different level.

While individual items are considered for reasonableness, the proportionality test allows the court to reduce costs globally, without revisiting every item at the same time. This is particularly important where the cumulative effect of reasonable decisions has produced an excessive overall figure.

From a strategic perspective, this means that even well-drafted Bills of Costs remain vulnerable if the total figure is difficult to justify against the CPR 44.3 factors.

The Role of Conduct

One of the most important (and often misunderstood) factors is whether costs were generated by the conduct of the paying party.

Courts will look closely at:

• late amendments,
• unnecessary interlocutory applications,
• failure to engage in settlement discussions, and
• unreasonable resistance to sensible proposals.

Where costs have increased due to the conduct of the paying party, this can justify a higher overall figure and mitigate proportionality concerns. Conversely, poor conduct by the receiving party may justify significant reductions.

Complexity, Value, and Wider Factors

The complexity of the litigation remains a key driver of proportionality, but complexity alone is not enough. Courts will weigh complexity against the sums in issue, asking whether the level of expenditure was justified by the potential outcome.

Importantly, value is not the only metric. Cases involving issues of reputation or public importance, regulatory consequences, or wider implications may properly attract higher costs, even where damages are modest.

This is an area where careful explanation can make a significant difference, both in negotiations and at assessment.

Proportionality at Detailed Assessment

At detailed assessments, costs judges increasingly focus on proportionality as an early issue. Where a Bill appears excessive at first glance, the court may signal its concerns before undertaking a full analysis.

This makes early strategic decisions crucial. A receiving party who can clearly explain why the costs incurred were justified by the case’s demands is in a far stronger position than one who relies solely on itemised reasonableness.

Managing Proportionality Risk

Keeping costs proportionate requires active management throughout the case, not just at the end. Practical steps include:

• monitoring costs against the value and objectives of the claim,
• ensuring senior fee earner involvement is justified,
• recording reasons for work arising from opponent conduct, and
• reviewing strategy when costs begin to escalate.

Proportionality should be treated as a live issue, not a retrospective problem.

The Paying Party Perspective

For the paying party, proportionality provides a powerful tool. Even where individual challenges are weak, a well-argued proportionality case can result in substantial reductions.

However, proportionality arguments must be properly evidenced and tied back to the CPR 44.3 factors. Generic assertions that costs are “too high” are unlikely to succeed without analysis.

How Can ARC Costs Assist?

ARC Costs provides specialist advice on proportionality at every stage of litigation. We help parties assess whether legal costs remain proportionate to the sums in issue, the complexity of the litigation, and the wider factors involved. Our team supports solicitors and clients with strategic costs management, drafting and defending Bills of Costs, and advancing or resisting proportionality arguments at detailed assessment. By identifying proportionality risks early and aligning costs with CPR 44.3 principles, ARC Costs helps protect recoverability and achieve commercially sensible outcomes.