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In a decision destined to send shockwaves through the profession, the Senior Costs Judge, Master Gordon-Saker has applied his interpretation of the meaning of the new proportionality rules to dramatic effect. In BNM v MGN Ltd [2016] EWHC B13 (costs) he undertook an assessment of a bill claiming £241,817 and over 2 days on a “line by line” assessment reduced that on the grounds of reasonableness to £167,389.45. The matter was then adjourned to a fresh hearing date for the question of proportionality to be determined. At the conclusion of that hearing, the allowed costs had been reduced to £84,855.80.

He accepted that other than in some cases dealing with Budgets, there was little guidance on how the new proportionality test should be applied. However, he noted from the various lectures prior to implementation of the new rules that the new test was introduced because “the old test did not promote access to justice at proportionate cost”. He reflected on various comments made in relation to the “necessity” test and commented that it rarely had an impact on assessments. His conclusion was that “it is clear that the new test of proportionality was intended to bring about a real change in the assessment of costs”.

His guiding light therefore was taken from Sir Rupert Jackson’s final report in which it was said:

“I propose that 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 CPR rule 44.5 (3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction.”

He identified the issues in this case as follows:

  1. does the new test of proportionality apply to additional liabilities

  2. if it does, should it be applied to additional liabilities separately, rather than on a global basis?

  3. are the costs allowed on the line by line assessment disproportionate?

In relation to the first point he reviewed the rules which preserved those earlier rules relating to funding arrangements prior to the changes in April 2013 and seems to have come to the conclusion that unless the previous rules specifically related to funding arrangement they would not necessarily survive the transitional arrangements. He found:

“It seems to me that the intention was that the rules as to the recoverability of additional liabilities would be preserved in relation to those additional liabilities which remain recoverable after 1 April 2013. However the old test of proportionality was not preserved in relation to those additional liabilities. Had that been intended it could have been achieved quite easily by a further exception in CPR 44.3 (7)”

He commented, surely reasonably, that it would be absurd to reduce base costs on the grounds of proportionality but then not alter the success fee and thus the success fee would be reduced such that the same percentage as was allowed on the assessment for the success fee would simply be applied to the base costs at their reduced level.

On the 2nd point, he found that the Court need not apply the test separately rather than on a global basis and that the position now was therefore the reverse of that which had previously applied by virtue of section 11 of the Costs Practice Direction. However, here, he considered the ATE premium separately.

On the final point, he considered all the circumstances but laid particular emphasis on the financial value. In this case, he found that it was a case of modest financial value and that the non-monetary relief was not substantial. He found that it was not particularly complex, but was more complex than a run-of-the-mill case and was properly deserving of specialist London solicitors. Serious allegations had been made against the Defendant and it was reasonable for proceedings to have been issued. However, little additional work had been created by the conduct of the Defendant and there were no wider factors at play. The matter settled at a relatively early stage before the first CMC. The scope of the evidence was limited and the matter was not factually or legally complex.

By the application of these principles, he noted that costs can exceed the financial value and still bear a reasonable relationship to it. However, the base profit costs of the Solicitors and Counsel combined were 3 times the damages agreed and for a matter which settled well short of trial those base costs must be disproportionate under the new test. He determined that a proportionate amount would be about half that which had been allowed on the line by line assessment on the reasonableness basis.

In relation to the ATE premium this had been allowed in full on a reasonableness basis. However, the premium broadly matched the base profit costs and Counsels fees combined. The claimant’s prospects of success in his view were always significantly more than 50/50 and did not reduce as the matter progressed and therefore the premium did not bear a reasonable relationship to the financial value and again this was reduced by about half.

This decision being from the Senior Costs Judge, it is inevitable that it will become widely relied upon in assessments and, no doubt, to the forefront of the mind of District Judges undertaking assessments, particularly where there is a paucity of authority on how to apply the proportionality test. It remains incredibly difficult to accurately forecast how a particular Judge will apply the test in any individual case, but practitioners will certainly have to weigh the risk of considerable further reductions on the grounds of proportionality, particularly in lower value matters, prior to proceeding to assessment.

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