PROPORTIONALITY: A LITIGATOR’S SURVIVAL GUIDE VIII: PROPORTIONALITY LEADS TO BASE COSTS BEING REDUCED FROM £115,906.00 TO £75,000

I am grateful to my colleague Robin Dunne for sending me a copy of the decision of HHJ Auerbach in Reynolds -v- One Stop Limited (21st September 2018). A copy of the judgment is available A79YM916 Reynolds v One Stop Stores Limited – Appeal. It is an example of proportionality being applied on assessment to reduce a claimant’s costs. That reduction was upheld on appeal. The Circuit Judge’s observations on proportionality are of general interest.

“The fact that the Court, when conducting a detailed costs assessment, may bring proportionality to bear on all of the costs, does not, in my view, mean that there is a form of double counting, by the Court as it were further cutting down for proportionality, costs which may have already been cut down for proportionality. Rather, the Court is simply applying, and then later reapplying, the same filter at two different stages. At the assessment stage it does so with the benefit of different information, and bringing hindsight to bear, which it is entitled to do.”

THE CASE

The claimant was injured at work.  Shortly after the claim was notified the defendant made an offer of £35,000. The offer was not accepted, proceedings were issued and the litigation went on for a further three years. The matter was listed for trial for three days with numerous experts due to attend.  Settlement was reached at the door of the court with the claimant accepting £50,000. The defendant was to pay the claimant’s costs.

The schedule to the Tomlin order, which recorded the settlement, stated

“UPON it being agreed: i that the court has previously recorded that the totality of the Claimant’s budget appears disproportionate
ii that the recovery of £50,000 in damages is less than the amendment of the value of the claim, pursuant to the order dated 12 April 2017, to increase the statement of value on the Claim Form to not exceeding £300,000;
iii that the costs associated with and consequent to Dr Munglani’s report dated 3 October 2017 and Dr Spencer’s report dated 25 September 2017 and the update Schedule of Loss dated 18 October 2017 shall not be payable by the Defendant.”

THE ASSESSMENT OF COSTS

After completing a line by line assessment of costs the district judge reached a figure for base costs of £115,906.09.  Having heard submissions and made a decision on proportionality they base costs figure was reduced to £75,000.  An additional liability was added to that figure. The defendant was awarded the costs of the assessment.

THE CLAIMANT’S APPEAL

The Circuit Judge refused the claimant’s appeal.

THE JUDGE’S GENERAL OBSERVATIONS ON PROPORTIONALITY, COSTS BUDGETING AND THE ASSESSMENT OF COSTS

The Circuit Judge made some general observations in relation to proportionality and assessment.
51 I start with some observations about the relevant rules.
52 First, the wording of Rule 44 does not prescribe at what stage or stages in the conduct of a detailed assessment the Court should address proportionality. However, Sir Rupert Jackson, in his final report, envisaged that, under the new regime, the impact of proportionality would be determined only after the detailed assessment by reference to reasonableness had been completed. The assessing Judge could then consider whether the total figure is proportionate, “alternatively some element within that total figure.”2 That is also the approach envisaged in the passage from the Harrison case, that DJ Reeves cited in his decision.
53 Further, as Sir Rupert Jackson envisaged, the Court may, in a given case, focus on the proportionality of one or more elements of the overall costs, or it may consider the proportionality of the overall provisional total, taken as a whole. The rule leaves it open to 1 In Costs and Funding Following the Civil Justice Reforms: Questions and Answers (4th Edition, 2018). 2 Review of Civil Litigation Costs: Final Report (December 2009) chapter 3, paragraphs 5.12 and 5.13. 11 the assessing Judge to decide, given the nature of the issues in the particular case, what approach (or mixture of approaches) is more apposite.
54 Secondly, proportionality, at the detailed assessment stage, applies to all of the costs under assessment, both those which were, at the costs budgeting hearing, incurred costs and those which were budgeted costs. That is, I think, clear from the language of Rule 44. It does not restrict the application of the proportionality principle to any particular element of the costs submitted. The observations in Harrison at paragraph 52 are also to that effect; and, in particular, the budgeted costs are susceptible to proportionality review, notwithstanding that, upon initial consideration, the Court will not depart from the budget without good reason.
55 This does not, however, mean that the distinction between incurred and budgeted costs, and/or what happened at the case management stage in a given case, are irrelevant at the assessment stage. Rule 3.15(4) provides that, whether or not the Court makes a costs management order “it may record on the face of any case management order any comments it has about the incurred costs which are to be taken into account in any subsequent assessment proceedings.”
56 Practice Direction 3E, concerning costs management, includes the following:
7.3 If the budgeted costs or incurred costs are agreed between all parties, the court will record the extent of such agreement. In so far as the budgeted costs are not agreed, the court will review them and, after making any appropriate revisions, record its approval of those budgeted costs. The court’s approval will relate only to the total figures for budgeted costs of each phase of the proceedings, although in the course of its review the court may have regard to the constituent elements of each total figure. When reviewing budgeted costs, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.
7.4 As part of the costs management process the court may not approve costs incurred before the date of any costs management hearing. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all budgeted costs.
57 Rule 3.18 then provides that, when assessing costs on the standard basis, the Court will have regard to the last approved or budgeted costs, not depart from them unless there is good reason to do so, but also take into account any comments recorded on the order pursuant to Rule 3.15(4) or paragraph 7.4 of PD3E.
58 The Judge conducting the detailed assessment may not know precisely what impact proportionality had on the approved budgeted amount, but will know that it will (or, at any rate, should) have been considered. Further, although the case managing Judge cannot approve incurred costs, they must take them into account when considering the (reasonableness and) proportionality of the budgeted costs. And any comments of the case managing Judge, touching on the proportionality of incurred costs, must be taken into account by the assessing Judge, although they do not fetter what the assessing Judge may do. 
59 The fact that the Court, when conducting a detailed costs assessment, may bring proportionality to bear on all of the costs, does not, in my view, mean that there is a form of double counting, by the Court as it were further cutting down for proportionality, costs which may have already been cut down for proportionality. Rather, the Court is simply applying, and then later reapplying, the same filter at two different stages. At the assessment stage it does so with the benefit of different information, and bringing hindsight to bear, which it is entitled to do.
60 To what extent does Rule 44 in any other way prescribe how the assessing Judge should approach the reaching of a decision on proportionality?
61 First, in accordance with Rule 44.3(2)(a) the Court “will” – therefore must – only allow costs which are proportionate. The fact that this provision goes on to say that costs which are disproportionate “may be disallowed or reduced” does not mean that the Court has a discretion to award disproportionate costs. The whole phrase is: “may be disallowed or reduced even if they were reasonably or necessarily incurred.” The purpose is surely to reinforce the message of the first sentence, that under the new regime proportionality overrides everything else – “may be” meaning, here: “are liable to be”. Accordingly, the assessing Judge must decide whether the costs are proportionate or disproportionate, and, if the latter, must either disallow them wholly, or substitute an amount which is proportionate.
62 Secondly, Rule 44.3(5) expands on the meaning of “proportionate”, and an assessing Judge will certainly err if they do not engage with it. Further, even though the sub-rule does not, as well as saying: “if”, add: “but only if”3 , the list of factors in (a) – (e) is, on its face, exhaustive, and designated as being matters which the Court should take into account, or to which it should have regard.
63 That said, the list does not set a series of discrete hurdles, each to be considered in turn, and in isolation from the others. Rather, the Court must decide whether the costs bear a reasonable relationship to these factors, viewed in the round. The Court must still, in my judgment, consider the salience of each of them in the given case, but it only then decides on proportionality by looking at the overall picture which they paint, taken together. So, for example, costs which might look worryingly disparate when compared, in isolation, to the sums in issue, might ultimately be found proportionate, once the implications of the complexity of the particular litigation have also been factored in.
64 Mr Hogan submitted that this process does not involve the exercise of a discretion, but, as he put it, the making of a judgment. Further, to apply the rule correctly in law, he argued, the Judge must decide what weight to attach to each of the factors in the Rule 44.3(5) list, and thereby arrive at a particular figure for a reduction of the provisional total in some mathematically-reasoned way. 3 As Sir Rupert Jackson’s suggested draft rule provided: ibid., paragraph 5.15. 13
65 Mr Dunne disagreed. He submitted that the correct construction of the words of the rule – or parts of it, is a question of law. But the rule itself confers a discretion on the assessing Judge. It does not require a mathematical process to be followed, nor could it: a judgment about proportionality is inherently qualitative, though it must find its expression as a numerical result. Nor, similarly, does the rule require the Judge to identify and attach a particular numerical weighting to each of the Rule 44.3(5) factors.
66 I, broadly speaking, agree with Mr Dunne, and disagree with Mr Hogan. More specifically, my reasons are as follows.
67 Firstly, while it is correct that the construction and meaning of the words of the rules, or parts of them, is a question of law, or what Mr Hogan called “judgment”, and indeed I have already set out some propositions of law about that, it does not follow merely from this that the rules cannot and do not also confer a discretion on the Judge who applies them.
68 Secondly, in my view it is plain that Rules 44.3 and 44.4 do indeed confer a discretion on the Judge who is called upon to apply them, in the sense that it cannot be said that a given set of underlying facts and figures will necessary point to only one legally correct costs award, as would be the case in a fixed costs regime. These rules allow for, indeed necessitate, the Judge who applies them exercising a measure of discretion, or (which to my mind is, in this context, another way of saying the same thing) making a value judgment.
69 That is clear, I think, from a number of features.
70 First, neither Rule 44.3(5), nor any other part of the rule, requires the Judge to apply any particular mathematical formula or algorithm. It simply contains none. It does not do so where it could have – for example it could have provided that costs are not proportionate to the extent that they exceed a certain multiple of the sums in issue; but it also refers to factors which are not inherently quantitative, such as complexity and public importance, and which simply could not be amenable to the application of a rigid formula. It plainly cannot be right that, on a given set of facts, or underlying figures, a particular proportionality impact (whether in absolute or percentage terms) must necessarily follow.
71 Further, the overriding requirement is that the costs “bear a reasonable relationship” to the Rule 44.3(5) factors. This masterly choice of phrase itself confers a degree of latitude on the assessing Judge in coming to a discretionary value judgment. It is designed, it seems to me, to provide a temper to the rigours of the “trump card” status of proportionality, and  I am inclined to think this is reinforced by the provision in Rule 44.2(1) that the Court “has discretion as to (a) whether costs are payable by one party to another; (b) the amount of those costs; and (c) when they are to be paid.” (My emphasis). I acknowledge, however, that the rest of that sub-Rule is effectively concerned with (a), and the reference in (b) could be said to point merely to the options of summarily assessing or directing a detailed assessment. But even if Rule 44.2(1)(b) does not reinforce it, my conclusion would be the same. 14 its role as a safeguard for payers, so that, without detracting from that, it need not bear oppressively on payees.
72 Further, while the list of matters in Rule 44.3(5) is, as such, exhaustive, and the Court has to correctly construe what each of them means, in judging whether the costs in question bear a reasonable relationship to them, the Court does not decide this in a vacuum, but in all the relevant circumstances. That, it seems to me, is both unavoidable, and in any event is contemplated by Rule 44.4(1), which refers to proportionality as well as to reasonableness. Indeed, it seems to me that the items in the list at 44.4(3) potentially come in to the general picture as well, although some of them may be seen as more relevant to reasonableness, and others to proportionality, and there is also a degree of overlap with Rule 44.3(5).
73 That does not, of course, mean that the Judge can come up with any figure they like, without applying any form of reasoning. All discretions conferred on Judges must be exercised judicially: in a reasoned and not an arbitrary fashion, taking account of relevant considerations, and not taking account of irrelevant considerations; and, of course, by applying the overriding objective. Further, I have already identified the framework created by these rules, within which the assessing Judge must come to their assessment or value judgment.
74 In particular, the need to engage with the 44.3(5) factors, and then to come to a holistic view of whether the costs bear a reasonable relationship to them, requires the Court, in my judgment, to identify any particular features of the case in hand that are thought to be pertinent in respect of each of them – or to identify if there are none; and to convey its view of how they interact or work in harness in the given case, so as to inform its overall conclusion on proportionality. In going through this process, the Court must apply a correct understanding of what each of these factors actually means. The Court should also indicate any wider background or circumstantial features which have contributed to its view of how those factors play out in the instant case.
75 However, whilst the Court needs to consider the significance that it attaches to those factors that it finds are salient in the given case, and how they interact, it must do so in a qualitative or value-judgment sense. It is not required to do so by assigning each factor a precise numerical weighting, scoring it in some way, or performing any other kind of mathematical calculation. Further, where the Court is applying proportionality to a global provisional total, rather than to an individual element, it is bound, inevitably, to paint with a somewhat broader brush.
76 In presenting its decision, in order that the parties have a sufficient understanding of its reasons, the Court must demonstrate that it has engaged with the rule in the required manner, and followed the above approach. If the provisional total is found disproportionate, and a different final figure found proportionate, the final figure must be one that can be seen to be in keeping with the Court’s reasoning leading up to it, and not  perverse or irrational. But the Court does not have to set out a precise mathematical calculation by which it is reached.
77 I add this. The reference, in Rule 44.3(2)(a), to costs being reduced, is simply to the mechanism by which the Court replaces a disproportionate figure with a proportionate one. It does not mean that the Court has to come up with a formula to reduce it, in order to then discover what the proportionate figure is. Rather, it has to decide what figure is proportionate – either the provisional amount or, if not, then some other, lower, amount. It must only allow costs which are proportionate (Rule 44.5(2)(a)), which is perhaps why Rule 44.3(5) states when costs are proportionate, rather than when they are disproportionate. Or, as Sir Rupert Jackson put it, the process of applying the test of reasonableness will usually also result in a figure which is proportionate. “However, if the process … results in a figure which is not ‘proportionate’, then the receiving party’s entitlement to costs will be limited to such sum as is proportionate.”

APPLYING THOSE PRINCIPLES TO THE FACTS OF THIS CASE

The Circuit Judge rejected each of the claimant’s arguments in relation to the appeal.  He then considered an argument based on a general error by the District Judge.
106 I come to ground 4 – the general approach. As I have already indicated, DJ Reeves did not err in taking proportionality at the end, and in the round, nor in applying it to the whole of the provisional total, that is, to both incurred and budgeted costs. He did not fail to consider each of the 44.3(5) factors in turn, and he properly then turned to draw the threads together, coming to a decision on proportionality in the round. I also consider that he sufficiently conveyed how those factors interacted and fed into his view on proportionality, when giving his oral decision, building on the earlier discussions during the hearing. In short, it is quite clear that he considered that the costs were disproportionate to the sums in issue (about which he took a properly-reasoned view), and that this was not a case where the complexity of the litigation, additional work generated by the paying party’s conduct, nor any other factors in the Rule 44.3(5) list, had a countervailing impact, such as to lead to a different overall conclusion.
107 The learned District Judge was not bound, in addition, to apply some mathematical formula or algorithm, to arrive at the final costs figure. The question I ask myself, on appeal, is whether the figure he arrived at – £75,000 – was consistent with the evaluative conclusion he had come to in his decision thus far. My answer is this.
108 First, DJ Reeves, properly, rejected the argument that it would be wrong to apply proportionality to the budgeted costs. Mr Hogan, however, submitted to me that a relevant consideration, when applying proportionality, was the relative proportions of the costs under assessment attributable respectively to incurred and to budgeted costs. But the breakdown of the budgeted and incurred costs was summarised in the Precedent Q (also in my bundle), and the learned District Judge would have obviously appreciated the picture. Nor do I consider that he was obliged, in his decision, to identify, or separately determine, sub-amounts of his final award, attributable to incurred and to budgeted costs; nor that the relative proportions of incurred and budgeted costs under assessment in this case were such that it was not open to him to make a final award in the amount that he did.
109 The learned District Judge also considered the submission that the Claimant’s budget had been, earlier, subjected to what Mr Foster had called “swingeing” reduction; but he properly concluded that this fact did not of itself make the reduced costs more defensible. He, rather, properly considered, first, whether the provisional total of just under £116,000 costs reached in his assessment was proportionate, but “struggle[d] to say … that they do resemble a reasonable relationship.” He described why he considered the costs to be disproportionate to the sums in issue. The tenor and substance of his overall analysis, naturally pointed, in my judgment, to his conclusion that a significantly lower figure was proportionate in this case. The award of £75,000 was, I conclude, wholly consistent with DJ Reeves’ overall reasoning, and flowed from it.
110 Mr Hogan observed that £75,000 was precisely 1 ½ times the settlement amount and the original claim limit. He said that it rather looked as if the learned District Judge had effectively applied a tariff. But that criticism is in my view not merely speculative but wrong. For reasons I have given, specifically in relation to ground 1, I am satisfied that DJ Reeves did not take a mechanistic approach of that sort. If, however, in arriving at his final figure in this case, he took account of its relation to his view of the reasonable valuation of the underlying sums in issue, there was nothing wrong about that at all, given his view of the overwhelming significance of that to proportionality in this particular case. That does not, however, amount to the application of a tariff. 111 Ground 4 also, therefore, fails.
Outcome
112 Mr Hogan, in the course of argument, submitted that, if the Defendant’s submissions about these rules were right, it would be very hard for parties to litigation in general in multi-track cases to predict the outcome of the proportionality exercise and, hence, to settle costs without taking them to a detailed assessment. That is an empirical question. DJ Reeves’ comments, during the course of the conduct of this assessment, on his own experience, however, suggest otherwise.
113 But, in any event, my task was to decide whether DJ Reeves had erred in law in his decision on proportionality. For all the reasons I have given, he did not, this appeal fails, and the final costs award made by him therefore stands.