PROPORTIONALITY AND ADDITIONAL LIABILITIES – IS BNM DEAD IN THE WATER?
A second Master in the Senior Courts Costs Office has declined to follow the approach of the Senior Costs Judge, Master Gordon Saker in the latter’s decision in BNM v MGN Ltd in relation to the determination of proportionality. In BNM, the Senior Costs Judge found that he was entitled to aggregate base costs and additional liabilities and then consider the total sum of the “reasonable” costs for the purposes of determining whether that total sum was proportionate.
In Savings Advice Ltd and Zinc Consumer Ltd v EDF Energy Customers PLC  EWHC B1 (Costs)Master Haworth preferred and adopted the approach of Master Rowley in the case of King v Basildon and Rick University Hospital NHS Foundation Trust and so determined that base costs and additional liabilities should not be aggregated, but rather considered separately, for the purposes of applying the proportionality test:
“I adopt his reasoning in particular the following paragraphs:
“20. In my view, the reforms arising from the reports of Sir Rupert Jackson, enshrined in LASPO 2012 and the recasting of CPR as of April 2013, sought to produce a completely new regime from that date. No longer would success fees and ATE premiums be recoverable from the opponent save for very limited cases such as in BNM itself. Costs incurred by the parties would be subject to the more stringent proportionality test and elsewhere in the rules, cases would be subject prospective cost control through budgeting. Part 48 sought to preserve, as if in aspic, the pre-April 2013 regime for cases which had begun before that date until such cases concluded.
Furthermore, the purpose of the Jackson reforms in initiating sea change could have resulted in Parliament disallowing the recoverability of success fees and ATE premiums from 1 April 2013. But it did not do so and has allowed the run off of recoverable success fees and premiums in the main and the continued recovery of success fees or premiums in particular instances. It seems to me that the fact that additional liabilities are still allowed for by the provisions of CPR Rule 48.1 simply means that they remain in existence. It does not mean that they have to be assessed in aggregate with the base fees using a test which has no recognition of additional liabilities. This is particularly so when aggregation will render those additional liabilities effectively irrecoverable in practice.”
The decision in King was published after the hearing in Savings Advice but before Master Haworth handed down his judgment. The decision in BNM is the subject of an Appeal in any event, but with two Masters now having published decisions which contradict the approach in BNM, there is considerable ammunition for receiving parties to counter the objections from paying parties in this regard. It is possible that Courts may leave the decision pending the Appeal or extend time for any Appeal against a decision, but the weight of the argument in favour of the approach of Masters Rowley and Haworth may well lead to outright success for receiving parties on this point.
Of further interest in the case of Savings Advice is that the Master found that even if he was incorrect in that approach, he would still have found the premiums proportionate.
The case before the Master was limited to the amount recoverable for ATE premiums for each of the Claimants. The case had settled for £400,000 and costs other than the premiums had been agreed at £218,500. The 2 premiums sought to be recovered were claimed in the total sum of £255,975.95.
The Master found that where he had not had the luxury of undertaking a line by line assessment of all of the costs it would be unfair and unjust for him to try and deal with proportionality on a piecemeal basis and that, crucially, he had not been provided with any evidence from the Defendant as to the level of alternative policies or why they should be regarded as disproportionate. The objections from the Defendant were purely legal arguments.
The Defendant had also argued that the premiums had been calculated based upon information provided in the course of a mediation which should have been treated as confidential and privileged. However, the Master found:
“The whole purpose of the mediation was to achieve a settlement. In those circumstances any costs information given in mediation is and must be admissible in order to work out the consequence of any subsequent settlement. In that sense in my judgment, costs information in the form of statements of facts can be separated out from documents or other information that comes into the domain of either party for the purposes of negotiating a settlement of the substantive claim”.
The Defendant also contended that the calculations underpinning the premium sought were inappropriate. The policy operated in such a way that the premium was to be calculated based upon the amount which the opponent may have sought to recover in the litigation. In these policies it is necessary to request details of the proposed costs from the opponent in order to calculate the premium. Where a case has been budgeted, this may be a straightforward task, but if that is not the case then the opponent has to be asked for details of the costs which they would have sought to recover. The Master identified the risk in such circumstances that a self-serving estimate of costs may be provided which would seek to diminish the level of costs which would have been sought and thus minimise the resultant premium. The policy provided that if the opponent refused to provide details then the insurer was entitled to undertake an approximation.
In this case, the Defendant provided details of the actual costs incurred but would not provide details of the future costs which might have been incurred after settlement actually occurred had the matter proceeded to trial. The Master found that it was reasonable in those circumstances for an approximation to be undertaken. It was clear that the approximation had been undertaken on the basis of various sources and was not simply a doubling of the actual costs incurred (which is what the Defendant argued had happened). The Defendant continued to fail to provide the details even in the assessment proceedings and therefore had no evidence to counter that of the witness evidence from the insurer. The Master therefore declined to interfere with the figures so calculated.
It seems to us that this case serves to demonstrate some pitfalls in the approach to assessment. The Defendant has been criticised for failing to advance evidence in relation to both the level of alternative premiums and the method of calculation. The Master clearly felt that it would have been helpful to the Defendant if they had pleaded a case in the alternative to their primary position. Therefore, whilst perhaps the main point from the Judgment may be regarded as that in relation to the approach on proportionality, there are other lessons to be learned from this.