The concept of disproportionate costs in litigation is addressed under Civil Procedure Rule (CPR) 44. This rule is part of the framework that governs how costs are handled in civil litigation and aims to ensure that the costs incurred in a case are proportionate to the matters at stake.

On a standard basis assessment, disproportionate costs will not be recoverable between the parties, and factors as set out in CPR 44.3(5) detail considerations that will be given as to whether costs are considered proportionate or not.

It is also enshrined in the overriding objective under CPR 1.1 (2)(b) and (c) that parties should seek to save expense and conduct litigation in a proportionate manner.

This is further re-enforced under CPR 44 PD 9.10 which stipulates in relation to approval of costs agreements that:

“The court will not give its approval to disproportionate or unreasonable costs. When the amount of the costs to be paid has been agreed between the parties the order for costs must state that the order is by consent.”

Disproportionate Costs: An Overview

Proportionality principle:

Costs which are incurred in bringing or defending a claim should be proportionate to the sums in issue, the value of the claim, the complexity of the litigation, its importance to the parties, and the financial position of each party.

Assessment of Costs:

When assessing costs on the standard basis, the court will only allow costs which are proportionate to the matters in issue. This is determined by considering whether the costs 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, and any wider factors involved in the proceedings, such as reputation or public importance.

Disproportionate Costs:

Costs are considered disproportionate if they exceed what is reasonable in handling the claim, despite being necessarily incurred. Proportionality limits recovery, and costs which are disproportionate may be disallowed or reduced, even if they were reasonably or necessarily incurred.

The factors as set out in CPR 44.3(5) stress that proportionality is not simply considered in relation to the issue of the value of a claim, though this is a factor.  The factors taken into account include:

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) any additional work generated by the conduct of the paying party,

(e) any wider factors involved in the proceedings, such as reputation or public importance; and

(f) any additional work undertaken or expense incurred due to the vulnerability of a party or any witness.

The Two-Stage Test for Disproportionate Costs

The Courts apply a two-stage approach when assessing costs:

• First, they consider whether the costs incurred were necessary on a line-by-line assessment of any bill.
• Then, they assess whether the sum of any categories of costs is proportionate on conclusion of the line-by-line assessment, focusing on the relationship between the costs and the factors outlined above. 

Judges have considerable discretion in applying these rules and may adjust costs awards based on their assessment of what is proportional to the case’s circumstances.

The application of CPR 44 aims to prevent the legal costs from overshadowing the substantive issues of the case, thus maintaining fairness and efficiency in legal proceedings. The rule serves as a check against excessive legal spending relative to the importance and complexity of the issues at stake.

West v Stockport NHS Foundation Trust and Demouilpied v Stockport NHS Foundation Trust

In these linked appeals, the Court of Appeal reversed a decision to reduce ATE insurance premiums deemed disproportionate at first instance. This case is pivotal as it emphasised the need for a consistent and flexible approach to assessing proportionality, providing guidance on how judges should assess costs line by line while considering broader factors like the complexity and value of the claim​.

These matters currently provide the most authoritative guidance on the proportionality test as it stands to date, and provides a thorough guide on how Courts should approach the proportionality assessment process.

How can ARC Costs Assist?

ARC Costs are an experienced and independent team of specialised Costs Draftsmen and Costs Lawyers. We assist both paying and receiving parties in resolving costs disputes, and are adept at preparing Costs Budgets and Bill of Costs for receiving parties, as well as providing legal costs negotiations services and preparing Points of Reply. For paying parties, we are adept at preparing Points of Dispute, and ensuring that a proportionate level of costs is recovered. Proportionality is a subjective issue, and it is therefore important you have the right legal costs representative on your side during detailed assessment to ensure you make the most persuasive submissions on the issue.  Should you require any assistance or free initial advice, please call us on 01204 397302, or email one of our costs experts direct on info@arccosts.co.uk.