Introduction

West v Stockport NHS Foundation Trust & Demouilpied v Stockport NHS Foundation Trust [2019] EWCA Civ 1220 has hit the headlines recently in respect of ATE premiums, but it also sets out some very interesting guidance on proportionality.

The Lownds Test

The Pre-April 2013 Lownds test set-out that if global costs were not considered prima-facie proportionate, that an item-by-item necessity test would be completed to determine a proportionate outcome.

The New Test

The Jackson Reforms adjusted the parameters of proportionality.  Even if costs were reduced under a reasonableness/necessity basis, a further reduction could be applied to costs post-assessment to instill a proportionate outcome.

The determination of what was considered ‘proportionate’ however, has been debated for years with significant inconsistency.

The most recent example of this cut and slash approach, which was widely praised as a paying party success, was in the matter of Malmsten v Bohinc [2019] EWHC 1386.  Costs of £62,500 (net of VAT) were reduced on assessment to £47,500 (again net of VAT).  Subsequently on Appeal, the further ‘stand-back’ approach in respect of proportionality ultimately led to a costs award of only £15,000 net of VAT being allowed.

From an objective point of view however, this does not seem an unreasonable outcome.  Considering the facts as a whole, the costs were claimed in respect of the work done for a shareholder dispute and in preparation for and attending a 30 minute hearing.

Such an approach was however, a somewhat dramatic departure from a matter such as the low-value clinical negligence matter of Rezek-Clarke v Moorfields Eye Hospital NHS Foundation Trust (2017) EWHC B5, in which damages of £3,250 for a just-issued claim resulted in costs ultimately being allowed in the sum of £24,604.40 (though the Bill was initially drawn in the sum of £72,320.85).

Refined Guidance

Section 9 of Demouilpied (Paragraphs 70 – 86) fortunately sets out some refined guidance.  Firstly, whilst it is stated that the typical factors of CPR 44.3(5) (costs are proportionate if they bear a reasonable relationship to certain factors) should be considered for proportionality, the wider factors within the context of CPR 44.4(1) (deciding the amount of costs) should also be borne in mind.

It was clearly stated that the previous Lownds test was now redundant to determining proportionality.  It was stressed however, that “We consider that, when the judge comes to consider proportionality, there are some elements of costs which should be left out of account.”

Such items to be excluded from proportionality reductions were those considered to be “fixed and unavoidable”, such as Court fees, VAT and costs of drawing the Bill.

It is thereafter specifically stated that the fees of the Solicitor and Counsel were precisely the sort of costs that were designed to be controlled by the new proportionality test.

How do we Proceed from Here?

Further helpful guidance is given in Demouilpied (Section 10) as to how to approach proportionality in assessment:

1. A line by line assessment of disputed items of costs should be undertaken.  If the remaining total figure is proportionate, no further action is necessary
2. If further consideration as to proportionality is required, from the remaining total figure, unavoidable costs should be removed (Court fees, VAT, costs of preparing the Bill, ATE).  These removed items are not to be disturbed further (save for re-calculation of VAT on any reduced costs).
3. Categories of costs should thereafter be considered (categories being the phases of costs such as disclosure, or expert reports) and reductions made to ensure proportionality is instilled.
4. The resulting amalgamation of the resultant proportionate phases, and unavoidable costs, will form the assessment outcome.  It is stressed there should be no further standing back and reduction of costs further on a global basis, as this would introduce a risk of double-counting.

Whilst this Court of Appeal decision brings some clarity as to proportionality, the ambiguity still remains as to what amount of Solicitor and Counsel fees (potentially avoidable costs) would be construed as proportionate to any particular claim.  Demouilpied has atleast, reduced the areas of contention somewhat, but this remaining area to dispute proportionality is likely to be set out in common law decisions in the years to come.

The ARC Costs team are always happy to help and the author can be contacted via email at info@arccosts.co.uk, or by telephone on 01204 397302.

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