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Senior Costs Judge halves "reasonable" claim for costs on grounds of proportionality

Posted by Toby Moreton on Jun 09 - 2016

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The recently handed-down decision of Master Gordon-Saker in BNM v MGN Limited [2016] EWHC B13 (Costs) has bought some clarity to the post-Jackson relationship between “reasonable” legal costs and “proportionate” legal costs.

Unfortunately, the clarity which Master Gordon-Saker offered in his 3 June judgment is not good news for those lawyers involved in this particular case. Giving full effect to Post-Jackson CPR 44.3, which states that “costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred”, Master Gordon-Saker initially decided that it would be reasonable for the claimant to receive £167,389.45 in costs, following a line-by-line assessment. However, the amount of costs actually recoverable was then slashed to just £83,964.80 on the grounds of proportionality.

The costs dispute involved a privacy claim bought by a primary school teacher against the publishers of the Sunday People newspaper, which was intended to prevent the defendant from using or publishing confidential information from her phone. The claimant, who had previously been in a relationship with a “successful premiership footballer”, had lost her phone in March 2011. Shortly afterwards, a journalist working for the defendant contacted the claimant, making enquiries about the nature of the relationship between the claimant and the footballer. After the claimant’s father complained to the defendant, the phone was returned– with all data deleted – in May 2011. And, although no information relating to the claimant was published in the two years after their phone was returned, the claimant nevertheless commenced proceedings against the defendant on 31 July 2013. Just under a year later, and before the first case management hearing, the defendant made a “substantial admission” and also undertook not to use or disclose any confidential information. The defendant also agreed to pay damages of £20,000, plus costs.

Although the case settled long before trial, the claimant initially sought costs of £241,817. This proposed figure included a success fee of 60 per cent of her solicitors’ costs, a success fee of 75 per cent for two counsel, and an ATE premium of £58,000 plus premium tax of £3,480. At detailed assessment, a figure of £167,389.45 was deemed “reasonable” by Master Gordon-Saker following a line by line analysis of the bill– subject to the outstanding issue of proportionality. This included a solicitors’ success fee of £16,780.83, allowed at 33 per cent, counsel’s success fee of £4,846.88, also allowed at 33 per cent, and the ATE premium allowed in full. However, at the hearing, the defendant argued that these sums were still disproportionate, and should be reduced further.

In deciding to cut the claimant’s recoverable costs by half on the grounds of proportionately, Master Gordon-Saker made a number of observations regarding how the principle should work in in practice – starting with the comment that the post-Jackson version of the proportionality test was “intended to bring about a real change in the assessment of costs”.

Firstly, he decided that existing rules relating to the recoverability of additional liabilities would be preserved in relation to those additional liabilities which remained recoverable after 1 April 2013. However, he also decided that the old test of proportionality – which, many would say, rarely had a significant material impact on assessment – had not been preserved. Instead, those additional liabilities would be governed by the new rules governing proportionality. And, having decided that the claimant’s recoverable base costs should fall from £46,321 to just £24,000 for reasons explained later, he then concluded that the accompanying success fees – which were calculated as a percentage of base costs – should also be cut. “It would be absurd and unworkable to apply the new test of proportionality to the base costs, but the old test of proportionality to the success fee,” he said, explaining his decision. Ring-fencing and excluding additional liabilities from the new proportionality test would provide a “significance hindrance” to the court’s ability to comply its proportionality obligations under CPR 44 (3) (2) (a), he added.

Secondly, Master Gordon-Saker explained that, when applying the new test of proportionality, the court was not obliged to consider the amount of any additional liability separately. That idea, previously contained in CPR 44.5, had not survived the April 1 2013 changes, he asserted. However, on this occasion, he only opted to consider the proportionality of the ATE premium on an individual basis. Here, having noted that – from the outset – the claimant’s prospects of success were ‘significantly in excess of 50/50”, he concluded that a £58,000 premium at the stage the claim settled “cannot be said to bear a reasonable relationship to a claim which settles for £20,000, where there was no substantial claim for non-monetary relief, which was not particularly complex, where no significant additional work was generated by the paying party and where there were no wider factors involved.” For that reason, he cut the permitted recoverable ATE premium from a reasonable £62,318.50 to a “proportionate” £30,000.

Finally, he considered whether the costs allowed on a line-by-line assessment were disproportionate, noting that there is “presently little guidance on how the test of proportionality should be applied”. He first dismissed a number of proportionality decisions made in relation to costs budgeting, asserting that they were of “little assistance to the presence case.” He then rejected the notion that costs should never exceed the sums at issue, noting that if it had been intended that such an approach should be followed “the rule could have easily stated that”. Instead, he made a number of observations based on the facts of this dispute, including that it was not a “particularly complex case”, that “little additional work was generated by the conduct of the defendant”, and that “the scope of the evidence of would be very limited”.

In light of these facts, Master Gordon-Saker concluded that both the solicitors’ base profit costs of £46,000 and base counsel’s fees of £14,000 were disproportionate under the new test, given that they amounted to more than three times the amount agreed damages, and covering work which fell far short of trial. “In my judgment”, he concluded, “about one half of those costs would be proportionate.” And, as stated above, this reduction of these base costs then had the effect of also reducing the success fees of both the solicitors’ firm and counsel – down from £16,780.83 to just £7,920 in the case of the former, and down from £4,846.88 to just £2409 in the case of the latter.

Comment

Whilst we fully respect this decision, which is line with the new "post-Jackson" approach to costs assessment, we question the justice of it. Whilst the figures in question in this case do seem undoubtedly high, especially given the relatively early stage at which settlement was achieved, these had already been determined, after a careful line by line assessment by the senior costs judge addressed by two senior counsel, to have been reasonably incurred. It must be assumed therefore that the work that was done needed to be done. Every aspect of the bill, from hourly rates to additional liabilities, had already been adjudicated upon and reduced, where applicable, to a "reasonable" level. One might ask in what other profession the courts would refuse to allow a professional tradesman to recover the true cost of work reasonably and necessarily carried out to complete a job. One might also question whether the line by line assessment was even necessary in the first place.

It's not all bad news for claimants though. Some highly relevant factors in the decision were:

  • The sum in issue ... was always going to be modest (para 42) 
  • The value of the non-monetary relief claimed ... was not substantial (para 43)
  • Nor was it a particularly complex case (para 45)
  • Little additional work was generated by the conduct of the Defendant (para 46)
  • Nor ... were any wider factors involved in these proceedings (para 47)
  • Th[e] claim settled at a relatively early stage ... before the first case management hearing, before disclosure of documents or exchange of witness statements (para 48).

It is also relevant to note that a very significant portion of the costs claim in this case and a major focus of the assessment was the claim for additional liabilities. Such claims will of course become less and less commonplace. 

Stop Press

Perhaps unsurprisingly, this decision is being appealed with the backing of the ATE provider, Temple Legal Protection. Steve Ruffle of TLP ...

“My deepest concern is that this judgment will be used by well-resourced defendants, who can afford not to recover all of their costs, to run up their legal spend knowing full well that a claimant would not be able to match this and, therefore, could only recover a level of costs in line with their damages... This flies in the face of the recent judgment in Miller v Associated Newspapers Limited where the Judge found that ‘ATE provides a legitimate social purpose’ and that the ‘burden imposed by the ATE premium scheme is not so large and not so lacking in appropriate controls as to amount to a disproportionate inference in their right to freedom of expression’"

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