Proportionality – further clarity on “sums in issue”

The doctrine of proportionality and it is application is one which has vexed many a paying and receiving party, together with the courts alike since the inception of the Civil Procedure Rules.

In its latest incarnation following the Jackson reforms in April 2013, the approach to determining whether costs were considered proportionate was clarified as a two-stage test, comprising initially an item by item assessment of any costs claimed to determine a sum considered reasonable for the litigation, and thereafter for the assessing judge to “step back” and consider whether, having undertaken this exercise, the reasonable figure was also a proportionate one.

In considering this second stage, the court must have regard to the following factors as set out at CPR 44.3(5) which provides that

"(5) Costs incurred are proportionate if they bear a reasonable relationship to -

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) any additional work generated by the conduct of the paying party; and

(e) any wider factors involved in the proceedings, such as reputation or public importance."

and it is the first of these criteria which has, perhaps, proven the most challenging in its interpretation. Is it simply a comparison between damages and costs? Should those costs include additional liabilities and VAT? Should the comparison figure for damages be those recovered or should the value of the claim be calculated by some other method? These were just a few of the questions most frequently asked, and less frequently answered.

The issue of whether or not recoverable additional liabilities should be considered in any such comparison was, in fairly early course, disposed of within the Practice Direction supplementing the former CPR 44.5, which noted

"11.5 In deciding whether the costs claimed are reasonable and (on a standard basis assessment) proportionate, the court will consider the amount of any additional liability separately from the base costs.

...

11.9 A percentage increase will not be reduced simply on the ground that, when added to the base costs which are reasonable and (where relevant) proportionate, the total appears disproportionate."

and it is fair to say that this issue has largely fallen by the wayside since the latest, substantial reforms came into play post April 2013 when the recoverability of additional liabilities between the parties (with a few notable exceptions) were abolished. However, this did not dispose of the underlying problem of defining what, in fact, “sums in issue” were intended to include.

There have, of course, been many rulings since April 2013 dealing with the issue of proportionality (and indeed readers of this blog are encouraged to look back at our previous articles under the proportionality tag for details of the same), but most if not all have dealt either with the procedure by which the doctrine of proportionality ought to be applied, or have applied proportionality to the specific facts of a given matter, and sometimes been criticised for their approach.

It is therefore considerably refreshing when, rather than seeking to focus purely either on a procedural or case specific approach, the courts provide more general guidance as to the application of the rules.

One such matter is the latest ruling in a series of cases arising out of the hacking litigation against Mirror Group Newspapers Ltd, the latest tranche or “Wave 2” involving some 10 claimants including the actor Nigel Havers and musician Jackson Scott, in which the Senior Costs Judge, Master Gordon-Saker sought to provide further guidance in relation to what should constitute the “sums in issue” when considering proportionality.

In handing down his judgement, the Senior Costs Judge acknowledged that the term “sums in issue” was a much wider concept than simply the amount awarded or agreed. The latest tranche were among some 65 settled claims against Mirror Group Newspapers Ltd in which, with a couple of exceptions, reasonable and proportionate common costs of claim settled after issue had been agreed, but in these 10 matters, an overall proportionate cost figure could not be agreed.

In these 10 matters, the damages agreed ranged from £30,000 to £85,000, with agreed common base costs of £7716 each. However, reasonable costs ranged from between £17,000 to £71,000 with the defendant offering only between £14,000 and £16,000 each in relation to total proportionate base costs.

Following a preceding ruling regarding the interplay between sums in issue and the value of any nonmonetary relief, and substantially following his previous decision on 10 cases in the first wave of litigation that “…anything said about proportionality, at whatever judicial level, is subjected to anxious scrutiny…” and further that, when other factors in the matter are taken into account, they can “…“justify the conclusion that the costs can be proportionate even though they exceed the damages”, the Master opined that “…it seems to me that the court should take into account also the value of the non-monetary relief in issue, the complexity and the wider factors”.

Rejecting the Defendant’s arguments, the Senior Costs Judge noted that

“The difficulty with the defendant’s argument that the sums in issue is the difference between the parties, is that in any case there is a point when nothing is in issue (judgment or settlement).

“There is also a point when everything that is being claimed is potentially in issue (before the claim is first responded to). The difference between the parties will vary over the life of the claim.

“It seems to me that the purpose of the words ‘sums in issue’ is to reflect the value of the claim as viewed by the parties during the currency of the claim. It is intentionally not as narrow as the sum awarded or agreed.”

ultimately ruling that the costs claimed in each matter were not disproportionate.

Whilst this latest ruling will, doubtless, be welcomed by all parties, both paying and receiving, for providing further much needed guidance, the writer suspects that this will not be the final word on the matter and that arguments as to what may or may not be proportionate will likely continue for many months, if not years to come.