The Court of Appeal has handed down its long-awaited judgment in the case of BNM v MGN Ltd [2017] EWCA Civ 1767 dealing with the issue of whether additional liabilities (success fees and AT E premiums) were subject to the “old” test under CPR 44.4 (2) as it then was or the new test under CPR 44.3 (2) and (5).

Claimant Solicitors will be much relieved to find that the Court of Appeal’s view is that the old test applies and therefore success fees will have to be considered separately for the purposes of consideration of proportionality rather than being lumped in together with base costs and a view taken as against the whole of those costs as to what it would be proportionate to allow.

The Appeal arose from a finding from the Senior Costs Judge, Master Gordon-Saker (“the Master”)that they were subject to the new test. By applying that test, he reduced the costs which he had found to be reasonably incurred and reasonable in amount of £163,389.45 down to £83,964.30.

The Master found that the old test was not identified in 1.4PD 48 as continuing in relation to funding arrangements after 1 April 2013. Therefore, whilst the old rules in relation to recovery of additional liabilities were preserved, the situation in relation to proportionality was not and if it had been intended to do so, it would have been easy to add a further exception within CPR 44.3 (7). The proportionality test was not specifically a provision in relation to funding arrangements and therefore CPR 44.4 (2) did not survive beyond 1 April 2013.

He further found that it would be absurd to have to apply the new test on proportionality to base costs but the old test to additional liabilities and that this would lead to a significant hindrance on the court’s ability to allow only proportionate costs.

In dismissing the Appeal, the Master of the Rolls, Sir Terence Etherton, dealt with the Master’s arguments succinctly. In relation to the point that an exception could have been provided for if intended he said:

“I respectfully do not agree. It would not have been appropriate to include such a further exception in the new CPR 44.3(7) because that provision creates exceptions from the new CPR 44.3(2)(a) and (5) but those provisions are not capable of catching “any additional liability incurred under a funding agreement” as defined by the old CPR 43.2(1)(k) and (o) since (contrary to the argument on behalf of MGN, which I have rejected) such liability no longer falls within the expression “costs” as defined by the new CPR 44.1(1)”

And in relation to the argument that the old proportionality test was not a provision relating to funding arrangements he said:

“Again, I respectfully disagree. The provisions in paragraph 1.4 are those where the expression “funding arrangements” is expressly mentioned. They are introduced by Judgment Approved by the court for handing down. BNM -v- MGN wording which states that what follows is inclusive and not exhaustive. The old CPR 44.4(2), which contained the old proportionality test, applied to costs as defined in the old CPR 43.2(1)(a). The latter is expressly mentioned in paragraph 3.1 of the new PD 48 and so the old CPR 44.4(2) is itself a provision relating to funding within that paragraph even though it was not itself expressly mentioned in paragraph 4.1 of PD 48.”

He went on that this was entirely consistent with the intention for the old regime to continue to apply to these additional liabilities and made specific reference to CPR 48.1 importing not only the old rules, but also the old Costs Practice Direction into play. The Practice Direction had a specific provision as to the treatment of additional liabilities at 11.9 – a percentage increase would not be reduced simply on the ground that, when added to base costs which were reasonable and (where relevant) proportionate, the total appeared disproportionate.

As a complete reverse of the Master’s view, the Master of the Rolls felt that if it had been intended to apply the new proportionality test then the rules would have so provided.

Therefore he found:

“I would hold that that the Senior Costs Judge’s discretion in subjecting both the base cost and additional liabilities to the new proportionality rule was wrong in principle”.

The decision will come as a great relief to those pursuing the recovery of additional liabilities (or who will be doing so) on detailed assessment. It reflects many decisions reached since the Master’s judgment and will strike many as being a common sense outcome. By contrasting solely base costs with the financial value, the costs will always appear to be more proportionate than would be the case if the base costs and additional liabilities were combined for such a comparison and so such swingeing reductions as occurred in BNM should now be avoided.

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