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The Court bares its teeth – Proportionality trumps necessity

The Court bares its teeth – Proportionality trumps necessity

There has been much debate as to how the revised proportionality test would be applied in practice. Questions were raised in many seminars where Costs Judges were speaking and it is probably fair to say that the fog didn’t really become much clearer. However, 18 months on, in the recent case of Hobbs v Guy’s and Saint Thomas NHS Foundation Trust [2015] EWHC B20 (Costs), Master O’Hare gave his interpretation and it is stark indeed.

The object of the Jackson reforms was, of course, to bring fixed costs to the Fast-track and meaningful proportionality to Multi-track claims. Hobbs is the latest attempt in a very long list to demonstrate how to achieve a proportionate Civil Justice System; however, the current state of affairs was not always the case and before April 1986 one needed to look no further than the wise words of the then Vice Chancellor, Sir Richard Malins, in Smith v Buller LR 19 EQ 473 1875:

“It is of great importance to litigants who are unsuccessful that they should not be oppressed by having to pay an excessive amount of costs and I think he ought to bear no more than the necessary costs. I adhere to the rule which has ready be laid down, that the costs chargeable under a taxation as between a party and party are all that are necessary to enable the adverse party to conduct the litigation, and no more. Any charges merely for conducting litigation more conveniently may be called luxuries and must be paid by the party incurring them. The Plaintiff is the attacking party, and has failed, and he must therefore pay all charges necessary to the litigation. But if the Defendant gives greater facilities for the conduct of the case than are strictly necessary, they ought not to be allowed to throw them upon the Plaintiff”

Thus was the test of “necessary and proper for the attainment of justice” born and for many years a proportionate Civil Justice system was enjoyed by all; however, in April 1986 along came the “Standard basis” (RSC O.62 Rule 12 (1)) which re-defined party and party costs as effectively “reasonable” and the search for a proportionate Civil Justice system began.

The necessity test was therefore lost to the system for many years, but found new life in the landmark case of Lownds v Home Office [2002] EWCA Civ 365, where Lord Woolf addressed the problems encountered by the proportionality test introduced in his 1999 reforms:

“Because of the central role that proportionality should have in the resolution of civil litigation, it is essential that courts should attach the appropriate significance to the requirement of proportionality when making orders the costs and when assessing the amount of costs. What has, however, caused practitioners and the members of the judiciary who have to assess costs difficulty is how to give effect to requirements of proportionality. In particular there is uncertainty as to the relationship between the requirement of reasonableness and the requirement of proportionality. Where there is a conflict between reasonableness and proportionality does one requirement prevail over the other and, if so, which requirement is it that takes precedence? There is also the question of whether the proportionality test is to be applied globally or on an item by item basis, or both globally and on an item by item basis.”

Relying heavily on section 11.2 of the Costs Practice Direction, he found the answer to the question in the words “which are necessary”. If the appropriate conduct of the proceedings made costs necessary, then the requirement of proportionality did not prevent all the costs being recovered either on an item by item approach or on a global approach. Where an item of costs was necessarily incurred, then a reasonable amount for the item should normally be allowed. Thus, the Court was first to determine whether or not the costs appeared proportionate and if not, the necessity basis test should be applied. That test was higher than the reasonableness test, but the danger of setting too high a standard with the benefit of hindsight was expressly warned against such that it was a standard that a competent practitioner should be able to achieve without undue difficulty.


A clinical negligence claim which settled for £3,500.00 pre-issue; the Claimant subsequently presented a Bill of Costs in the sum of £32,329.00. On Provisional Assessment Master O’Hare reduced the Bill to £9,879.00, firstly as being reasonable and then as being proportionate. The Claimant’s Solicitors requested a Hearing.

The new proportionality test, referred to by Master O’Hare, as the “Jackson test” is found at CPR Rule 44.3 (5).

“Costs incurred are proportionate if they bear a reasonable relationship to –

  1. The sums in issue in the Proceedings;

  2. The value of any non-monetary relief in issue in the Proceedings;

  3. The complexity of the Litigation;

  4. Any additional work generated by the conduct of the paying party;

  5. Any wider factors involved in the Proceedings, such as reputation or public importance”

Rule 44.3 (2) states

“Where the amount of costs is to be assessed on the Standard Basis… costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred…”

Master O’Hare made reference to the very limited guidance thus far as to how the new proportionality test was to be applied. Inter alia, Master O’Hare referred to the adjudication of Leggatt J in Kazakhstan Kagazy PLC v Zhumus (2015) EWHC 404.

The Learned Master stated that he initially assessed what was reasonable for the Claimant to incur to obtain medical records and appropriate expert evidence, send a letter of claim and settle pre-issue.

Having concluded that “It was reasonable for the Claimant to incur costs exceeding £11,000.00 + VAT” the Learned Master then considered the effect of CPR Part 44.3 (2&5):

“I next considered whether the sum allowed as reasonable was also proportionate. The answer would be yes if I were to apply the test propounded by Leggatt J: I had already assessed what was the lowest amount which the Claimant could reasonably have been expected to spend in order to have this case conducted and presented proficiently, having regard to all the relevant circumstances. However, I do not think that test applies in cases such as this where the amount of reasonable costs will inevitably exceed the value of the claim. Kazakhstan Kagazy Plc was a case where the sums in issue bore no relation to the costs however high they were. However the amount of the sums in issue is one of the factors I have to take into account here, and indeed it is the first factor listed in CPR 44.3. I provisionally ruled that the sum I had allowed as reasonable was not proportionate. In doing so, I had regard to the factors listed in CPR 44.3 (5) (especially) (a) &(c)).

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 3 items which now appear, with hindsight, to be inconsistent with the true value of the claim.”

In paragraph 34, Master O’Hare concluded: “In my Judgement, although it was reasonable for the Claimant’s Solicitors to incur these costs it is unfair to expect the Defendant to pay for these costs”

Whilst it is fully appreciated that the approaches adopted where very substantially and necessarily different, one can only marvel at the almost uniform conclusions of Master O’Hare and Sir Richard Malins. The difficulty however, is that Master O’Hare has gone beyond that which is “necessary” whereas Sir Richard Malins drew the line there.

The rationale in Hobbs is there for all to see, but what happens now?

The answer is perfectly simple – It may be necessary, but the paying party shall not pay for it! The results may be considered by many to be grossly unfair. It certainly means that forecasting the outcome of any assessment becomes far more difficult and proceeding to assessment should only be done once a comprehensive review of the potential risks has been undertaken.

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