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June’s second SCCO proportionality ruling: now, almost two thirds of reasonable costs disallowed

Posted by Toby Moreton on Jun 24 - 2016

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Earlier this month, in BNM v MGN Limited [2016] EWHC B13 (Costs), Master Gordon-Saker slashed a claimant’s incurred costs of £241,817 to £167,389.45 on the grounds of reasonableness, and then to just £83,964.80 on the basis of proportionality.

Hot on the tail of that, Master Rowley has handed down an even more extreme proportionality-based costs decision: in May & Anor v Wavell Group Plc & Anor [2016] EWHC B16 (Costs) (16 June 2016). In this case Master Rowley first cut the successful claimants’ recoverable costs from the £208,236.54 including VAT sought to £99,655.74 on the grounds of reasonableness. He then reduced it further on grounds of proportionality to a mere £35,000 plus VAT.

There is understandable concern on the part of claimant solicitors at the increasing gulf between what the courts deem reasonable and necessary and what they deem proportionate.

Like the earlier BNM v MGN decision, May & Anor v Wavell Group Plc & Anor involved a relatively low-value dispute which was nevertheless very important to the claimants. The claimants, Brian and Anita May of Queen and EastEnders fame, bought a case for private nuisance in relation to a neighbour’s basement development. The dispute did not progress far before the claimants accepted the defendants’ Part 36 offer of £25,000. At the time this figure was agreed, the defendants had not even submitted their defence.

In deciding to cut the claimant’s recoverable costs by almost two thirds, Master Rowley took account of the post-Jackson proportionality considerations, as set out in CPR 44.3 (5), for all of the claimants’ legal work undertaken after 1 April 2013. Having evaluated each of these five considerations individually Master Rowley concluded, in paragraph 43 of his judgment, that “in these circumstances, the reasonable costs allowed of £99,655.74 are undoubtedly disproportionate”.

In deciding that it would only be proportionate for the claimants to recover costs of £35,000 plus VAT, Master Rowley declined to provide a detailed breakdown of the financial basis for his ruling – refusing even to separately evaluate the costs associated in the main proceedings from those of the detailed assessment, saying:

“A concluding global assessment of proportionality as envisaged by the new approach involves the court wielding a blunt instrument rather than a precision tool” 

“There is only so much finesse that can be employed when using a broadsword rather than a rapier”

However, Master Rowley did make a more general observation regarding proportionality, in light of the earlier decision of Leggatt J in Kazakhstan Kagazy PLC v Zhunus [2015] EWHC 404 (Comm). In this previous case, Leggatt J had said: “The touchstone is not the amount of costs which it was in a party's best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party's own account and not recoverable from the other party.” In this current dispute, Master Rowley said (paragraph 35) that the Kazakhstan approach to costs “is still too generous to the receiving party under the new approach.

In reference to Kazakhstan, the Master said:

“The amount that can be recovered from the paying party is not the minimum sum necessary to bring or defend the case successfully”

He continued that, rather:

“it is a sum which it is appropriate for the paying party to pay by reference to the five factors in CPR 44.3(5). It is not the amount required to achieve justice in the eyes of the receiving party but only a contribution to that receiving party's costs in many modest cases.”

Master Rowley also stated that – in his view – the new proportionality test would require legal representatives to inform their clients that, even if they succeeded, they would receive:

no more than a contribution to the costs that will be incurred”.

This might, he suggested, prove to be a driver for costs to be reduced, or for alternative dispute resolution mechanisms to be explored.

In this particular case, the claimants – who instructed Simon Farrell QC on a direct access basis – had not been given an estimated cost for the entire case (paragraph 42). Rather, the barristers’ client care letters had specifically been intended to define costs by reference to discrete pieces of work. However, Master Rowley insisted in his costs judgment that the “reasonableness and proportionality of the recoverable costs cannot depend on the method of representation

Another proportionality consideration which Master Rowley considered relevant was the stage at which the claimants accepted the defendants’ Part 36 offer. Here, Master Rowley decided that:

“proportionate costs must invariably be smaller for a case which concludes early than one which reaches a final hearing”

We consider this explanation surprising. The whole point of Part 36 is to encourage early settlement, and to give a costs advantage to the claimant when such an offer is accepted. It is therefore difficult to understand why, following Master Rowley’s decision in this case, claimants who agree to an early settlement should then be prevented from recovering a substantial majority of their reasonably-incurred costs on the grounds of proportionality for that very reason.

In reaching his decision in this dispute, Master Rowley expressed a hope that:

“cases such as this one, which are in the transitional phase of understanding the new proportionality test, will be relatively rare.”

This is an aspiration that we have doubts will be realised. In just one month, we have now seen one set of reasonably incurred costs cut by half following a detailed, line-by-line analysis on grounds of proportionality in BNM v MGN Limited, followed by this latest case, in which reasonably incurred costs were cut by two thirds, in a ruling where no detailed explanation of the financial basis for the proportionality reduction was offered. Between them, these varied judgments are not a recipe for costs clarity. Indeed, they make us question the necessity of having a line by line assessment in the first place. This increasingly significant windfall available to paying parties in many cases can surely serve only to discourage sensible settlement attempts and increase the number of costs assessment hearings.

Kerry Underwood provides an insightful analysis of this decision concluding that it "shows the hopeless confusion and uncertainty that is the nonsensical law in relation to proportionality".

We have to agree.

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