A recent decision offers a detailed illustration of how proportionality in costs assessment proceedings is operating in practice.  The decision, handed down by the Senior Courts Costs Office (SCCO), highlights once again the scrutiny applied to internal communications in bills of costs.

For both paying and receiving parties, this judgment underscores the need to pay close attention to the recording and justification of internal communications within a bill of costs.

What is Proportionality in Costs Assessment Proceedings?

This is unfortunately, not a straight forward answer.  The test used be based on the case of Lownds, involving a broad brush assessment initially to determine if costs were overall proportionate or not, and subsequently a line by line assessment if costs were found to be disproportionate and needed to be scrutinised further.

From 2013 onwards, post-Jackson reforms, a new test came into force where proportionality was always at the fore of considerations as to costs, further to it being factored into the overriding objective under CPR 1.1.

The implementation of the new test was eventually settled in practice by the Court of Appeal in West v Stockport NHS Foundation Trust & Demouilpied v Stockport NHS Foundation Trust [2019] EWCA Civ 1220.

Essentially a line-by-line assessment is always to be completed on costs on assessment, and if on conclusion it is felt the costs remain too high based on consideration of all the factors, then further reductions can be applied broad brush by the assessing officer to categories of costs.

Background to the Case of XX & Anor v Young & Anor

The personal injury case that preceded and informed XX & Anor v Young & Anor was a road traffic accident where a vulnerable Claimant suffered serious injuries. The litigation spanned several years, with proceedings conducted in the multi-track, reflecting the complexity of the issues and the value of the claim.

The case concerned a bill of costs totalling a significant amount of £517,985, served with a Notice of Commencement. The claim was broken down as follows:

• Profit costs: £349,826.92
• Counsel’s fees: £39,638.54
• Other disbursements: £43,783.05
• VAT: £84,736.49

When excluding the costs of assessment (i.e. preparing and checking the Bill of Costs), the profit costs element amounted to £294,237.92.  This indicated an uplift of almost £50,000 for preparing the Bill, which would have constituted roughly 17% of the profit costs claimed, which on first blush seems very high.

Outcome of Initial Detailed Assessment

Following a detailed, line-by-line assessment, the overall bill was reduced to £339,565.16 – a 34.4% reduction.

The reductions included:

• Profit costs: reduced from £349,826.92 to £222,519.05 (36.4%)
• Profit costs excluding assessment: reduced from £294,237.92 to £182,481.15 (38%)

Costs Judge Nagalingam observed that reductions of around one-third are not unusual following a full SCCO assessment.

The Proportionality Challenge

The Defendant had advanced a proportionality argument which remained to be settled and which was the subject of this judgment.  Contrasting the claimed costs against the damages pleaded (which fell into the broad bracket of £149,000 to £2 million), and relying on general submissions citing Jackson LJ’s Final Report on Civil Litigation Costs and the Court of Appeal’s decision in West v Stockport NHS Foundation Trust [2019] EWCA Civ 1220, the Defendant sought a further blanket reduction on costs.

Judge Nagalingam emphasised that proportionality is not a prospective exercise. The correct approach is that the court must first complete the line-by-line assessment and then “stand back” to consider whether the resultant figure remains disproportionate.

What Factors are Taken Into Account to Determine Proportionality?

CPR 44.3(5) sets out the relevant factors of proportionality as follows:

(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.

Interpretation of these factors is often argued between the parties in assessment proceedings, and it requires consideration on a case by case basis.  Though the most common approach for a Paying Party is to compare the base costs incurred as against the damages recovered, it is not always as clear cut as this.

Back to  XX & Anor – Internal communications – Further Reductions

Despite significant reductions already achieved, the Judge concluded that the assessed figure remained disproportionate. He turned to internal communications, which had been reduced from £27,724.50 plus VAT to £22,946.15 plus VAT during the initial assessment.

On a broad-brush basis, Judge Nagalingam reduced this figure further to £10,000 plus VAT, stating this allowed for a reasonable but proportionate level of internal communication.

The net effect was to reduce:

• Profit costs (excluding assessment): £169,534.99
• Final assessed bill total: £324,029.77

The Judge held that these figures represented a proportionate outcome in all the circumstances.

Key takeaways from the case

This decision underscores several practical lessons for practitioners:

• Line-by-line reductions are not the end – Even where a bill is cut by a third, the court may still find the result disproportionate and apply further broad reductions.
• Internal communications remain highly vulnerable – This case shows the court is prepared to apply sweeping reductions where this category of costs appears excessive.
• Proportionality is fact-sensitive – The Judge carefully examined each limb of CPR 44.3(5), considering sums in issue, conduct, and claimant vulnerability.
• Conduct and surveillance arguments must be pursued in the substantive action – They cannot be retrospectively re-run at the assessment stage.

Judge Nagalingam’s decision is a strong demonstration of how the principle of proportionality is applied in practice within the Senior Courts Costs Office (SCCO). Even after significant reductions through detailed assessment, costs can face further cuts where the overall figure is deemed disproportionate.

How can ARC Costs Assist?

At ARC Costs, we provide specialist support to help parties manage costs effectively and achieve the most favourable outcomes.

We are independent costs experts, and can assist either Paying or Receiving Parties, ensuring our expertise reflects a balanced view of expectations of both sides, and assisting us in securing an amicable resolution to costs disputes, irrespective of which side we represent.

For Receiving Parties, we assist in preparing accurate bills of costs, ensuring that all work is clearly documented and justified. Our team can also review bills before submission to identify areas that may be vulnerable to reduction and advise on strategies to ensure the overall costs remain reasonable and proportionate.

In addition, for Paying Parties, ARC Costs offers guidance on proportionality, helping parties assess whether the costs claimed are reasonable in relation to the value of the matter and the complexity of the work. We can support the preparation of points of dispute or reply, ensuring that arguments are clear and structured.

We also provide strategic advice on any follow-on issues that may arise during the detailed assessment process, assisting parties in resolving disputes efficiently.

If you would like more information on any of our services or wish to speak to a member of our expert costs team about your legal costs, then please do not hesitate to contact us. Please call one of our independent experts at 01204 397302, or email one of our costs experts directly on info@arccosts.co.uk.

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