Litigation costs update – Proportionality: The Post-Jackson Test Considered
With the introduction of the Civil Procedure Rules came a new test for the assessment of costs – proportionality. The seminal case of Lownds v Home Office stated that if the overall costs appeared disproportionate, then the Court could only allow costs that were reasonable and necessary.
However, since the 1 April 2013 the Lownds test no longer applies. CPR 44.3 (2) states that
“where the amount of costs is to be assessed on the standard basis, the court will only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred”.
The practical effect of this was set is Jackson’s Review of Civil Litigation Costs: Final Report which stated;
“in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in [what is now CPR 44.4(3)] and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction.”
To date, there has been no real authority on exactly how this new proportionality test is to be applied but it has recently been considered by the Senior Courts Costs Office in Hobbs v Guy’s And St Thomas’ NHS Foundation Trust  EWHC B20 (Costs) (02 November 2015).
The Claimant had successfully pursued a clinical negligence claim and recovered, pre-issue, the sum of £3,500 in damages. The Claimant’s solicitors subsequently served a Bill of Costs in the sum of £32,329.12.
Proportionality, necessity or reasonableness?
Having regard for CPR 44.3 (2) and (5), Master O’Hare initially assessed the Bill of Costs by applying the test of reasonableness only and arrived at a figure of £11,000 plus VAT. However, Master O’Hare then considered whether the figure of £11,000 was still disproportionate, and if so, what reductions should be applied.
He found that for a straightforward clinical negligence claim, that attracted only a modest figure for damages and settled pre-issue, the figure was still disproportionate and therefore a further reduction was required. Master O’Hare went on to say.
“When considering what reduction to make on grounds of proportionality I decided against chopping off a slice of all of the costs I had just found to be reasonable. In my view it is better to target particular items of work which it was disproportionate to do in the particular circumstances of the case in hand. In the result I disallowed the costs of three items which now appear, with hindsight, to be inconsistent with the true value of the claim”.
These items were costs in respect of one of the experts, the costs associated with the Part 36 offer and a discount in the notional hourly rates allowed. In making these reductions, Master O’Hare noted that “although it was reasonable for the Claimant’s solicitors to incur these costs, it is unfair to expect the Defendant to pay for these items.
The effect of this further reduction was to reduce the Bill of Costs by a further £1,200 plus VAT for reasons of proportionality alone.
This is the first time a senior Court has given consideration to the practical effects of proportionality. It is clear that even if costs incurred are both reasonable and necessary, the receiving party will not be immune from further reductions. However, it seems for the time being that these reductions should only apply to those specific costs that can be easily identifiable as disproportionate, rather than a sweeping reduction to the total figure.