Latest Guidance on Proportionality
ERNST MALMSTEN v LARA BOHINC  EWHC 1386 (Ch)
In this Commercial matter the Judgement of The Honourable Mr Justice Marcus Smith provides further guidance on the application of proportionality when assessing between the parties costs.
The case further confirms that VAT and the costs of drawing the bill for Detailed Assessment should be excluded when considering proportionality. The proportionality test to be applied when considering the amount to be allowed is helpfully summarised at paragraph 69 of the Judgement:
“I consider that the sum of £47,500 should be reduced to a sum of £15,000 (plus, obviously, VAT). My reasons for reaching this figure or – to put it another way – for reducing the sum of £47,500 by some £32,500 are as follows:
(1) I consider that the approach a court must take when considering proportionality is well-put in Friston:
"What still remains a relative mystery, however, is how the adjustment ought to be made. Whilst no more than his own thoughts on the matter (which could well be wrong), the editor believes that it is no coincidence that those factors that are listed in CPR 44.3(5) are precisely those factors that would be of especial importance to clients of legal services providers. Clients do not care about reasonableness, necessity, time spent and other such niceties; indeed, they are often aghast at the so-called reasonable fees that their legal services providers charge. They care about more fundamental – usually commercial – matters, such as the amount at stake, how difficult the litigation is, how badly (or well) their opponents are behaving, etc. These are the factors that are listed in CPR 44.3(5) and are the factors that will tend to govern the extent to which clients are prepared to put their hands in their pockets. If this is right, then – by analogy with other tests that govern the amount of costs – the test could well be the amount that a hypothetical reasonable litigant of adequate but not extravagant means would, in all the relevant circumstances, regards as bearing a "reasonable relationship" to the factors in CPR 44.3(5). Conceptually, this is not a difficult test to apply because – whilst an oversimplification – it boils down to a very simple question: "Focusing on what really mattered to the litigants, what would a reasonable client have been prepared to pay in all of the relevant circumstances?""
(2) It is, however, necessary to sound a warning against too client-centric an approach to proportionality. The law is, unfortunately, both complex and complex to navigate: that is why clients need lawyers in the first place, and it is necessary to appreciate that the costs figure arising out of a detailed assessment or even in a summary assessment cannot simply be disregarded. The costs appearing in such an assessment have been professionally compiled and must be given due weight. The position is a fortiori when there is an approved or agreed costs budget in place.
(3) So, as it seems to me, the starting point for the proportionality assessment will be the figure put forward by the legal representative, after an item-by-item review if this has occurred. Thereafter, it is a question of the extent to which – knowing the way lawyers charge, and the fact that, to at least some extent, the client will have been informed of this – this figure fails the proportionality test. A judge assessing such figures may have regard to "like" cases and to what the other side has charged its client, but at the end of the day the application of the proportionality criterion is intended not as a test for ensuring that the costs are indeed reasonable or even necessary, but as a separate and self-standing control.
(4) The costs for the section 306 application made by Ms Bohinc are, without any doubt, excessive. That is, no doubt, in part because the Master included as recoverable costs which, so I have found, fell outwith the costs order made by the Registrar. It may well be that such costs represent services to Ms Bohinc that were valuable to her in terms of general advice regarding the company of which she was majority shareholder, but these were certainly not costs that Mr Malmsten should pay, as I have found. Aside from that, I find that there is no justification for the extent to which counsel was consulted nor for the number of hours spent by Ms Bohinc's solicitors. These costs were entirely disproportionate given the nature and complexity of the application.
(5) I accept that these proceedings were of importance to Ms Bohinc and, to be clear, I am certainly not envisaging any discount because her solicitors went to experienced (and expensive) counsel versed in corporate law. I also accept that Mr Malmsten was not a co-operative litigant: partly, that may be due to his status as a litigant in person, but I am also quite prepared to accept the Master's finding that Mr Malmsten was trying to be awkward. Indeed, that conclusion is rather supported by the very late attempt by Mr Malmsten to re-open the Registrar's order, a matter I have described in Section C above. However, I consider that – perhaps more by luck than judgment – Mr Malmsten's conduct in this case did not actually have an effect on the level of costs, as I have already noted.
(6) In reaching a figure of £15,000, I have been cautious to err on the side of generosity to Ms Bohinc. My initial reaction to the costs for the section 306 application was that it would be difficult to justify costs in excess of £12,000 inclusive of VAT. But I am conscious that I am applying a broad-brush test at the end of a detailed assessment which I have not carried out, and have therefore concluded that the sum of £15,000 plus VAT is the appropriate figure to set.”
The full judgement can be found here: