WHAT IS MEANT BY "PROPORTIONALITY"? CONSIDERATION BY THE SENIOR COURTS COSTS OFFICE
In Hobbs -v- Guy’s and St Thomas’ NHS Foundation Trust  EWHC B20 (Costs) Master O’Hare considered the question of proportionality in the context of a low value clinical negligence case.
“In my judgment, although it was reasonable for the Claimant’s solicitors to incur these costs it is unfair to expect the Defendant to pay for these items.”
The clinical negligence settled, prior to proceedings, for an agreed sum of £3,500.
- The claimant’s bill was £32,329.12.
- On provisional assessment this was reduced by two-thirds on the grounds of reasonableness.
- A further reduction was then made on the grounds of proportionality.
- The total allowed provisionally was £9,879.34 including VAT, plus the costs of provisional assessment.
- The claimant applied for a post-provisional review (which lasted more than five hours).
- In a case such as this proportionality was more important than necessity.
- The Master reduced the costs after applying the “necessity” test on the grounds that, even after applying that test, the costs were disproportional.
GRADE A RATES
Although distinct from the issue in relation to proportionality the Master made some observations in relation to rates. A Grade A rate was claimed. This was not allowed:
I did not increase the hourly rates I had allowed provisionally. Grade A rates are appropriate only for Grade A fee earners doing Grade A work. I do not accept that this case merited a Grade A fee earner at any stage. To my mind the claim had no complexity worthy of mention and no public importance. In my judgment Mr Harrington’s submissions greatly over-estimated the complexity and importance of this case and substantially under-estimated the abilities of an average middle range Grade B fee earner. A fee earner at Grade B or below would have been entitled to defer to advice received from a more senior practitioner (whether solicitor or counsel) had any points of sufficient complexity arisen in this case. In my judgement the conduct of this case was not of such weight or responsibility which would make comparable the hourly rate applicable for a Grade B fee earner in Central London.
Two tests of proportionality apply in this case. In respect of work done before April 2013 (Parts 1 and 2 of the bill) the test known as the Lowndstest applies. However, no questions arise as to proportionality in these parts of the bill. In respect of work done on or after 1 April 2013 (Parts 3 and 4 of the bill) the test which has come to be known as the Jackson test applies. Rule 44.3(5) states:
“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.”
“Where the amount of costs is to be assessed on the standard basis … Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred …”
As yet there is little by way of authoritative guidance as to how this new test is to be applied. The CPR quoted above implement one of the recommendations made by Sir Rupert Jackson in his Review of Civil Litigation Costs: Final Report (December 2009).
“… in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in [what is now CPR 44.4(3)] and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction. There is already precedent for this approach in relation to the assessment of legal aid costs in criminal proceedings: see R v Supreme Court Taxing Office ex p John Singh and Co  1 Costs LR 49.” (Final Report, para.37).
R v Supreme Court Taxing Office ex p John Singh and Co concerned the assessment of costs in criminal cases and gave rise to what is known there as the “Singh adjustment”. This obliges the court to carry out “what might be called the audit exercise in relation to the individual items on the bill” (see judgment of Latham J., approved by Henry L.J. at p.56). Thereafter, there must be
“a sensible assessment of the consequence of aggregation in the light of the overall complexities of the case and, above all, the experience of the Determining Officer and Taxing Master“.
Further persuasive guidance has been given by Lord Neuberger in a lecture delivered on May 29, 2012.
“… the obvious way of introducing proportionality is that … adopted in the [Final Report], namely by effectively reversing the approach taken in Lownds. In this way, as Sir Rupert said, disproportionate costs, whether necessarily incurred or reasonably incurred, should not be recoverable from the paying party. To put the point quite simply: necessity does not render costs proportionate. Reference to necessity can be said to be positively misleading as it suggests necessary to achieve justice on the merits: substantive justice. A fundamental tenet of both Woolf and Jackson, accepts that that aim must be tempered by the need for economy and efficiency, and, above all proportionality. On one view, once one has a proportionality requirement, necessity may add nothing; on another view, any test which incorporates necessity is one which will all too easily see necessity trump proportionality. However, it may well be that it is right to retain necessity as a requirement, provided that it is borne firmly in mind that it is one of two hurdles which have to be cleared.“(Lord Neuberger MR)
In Kazakhstan Kagazy PLC v Zhunus  EWHC 404 (Comm) Leggatt J gave guidance on the approach to proportionality which should be taken in hard fought litigation, with neither side showing any sense of moderation, where the sums in issue exceeded many millions of pounds.
“ In a case such as this where very large amounts of money are at stake, it may be entirely reasonable from the point of view of a party incurring costs to spare no expense that might possibly help to influence the result of the proceedings. It does not follow, however, that such expense should be regarded as reasonably or proportionately incurred or reasonable and proportionate in amount when it comes to determining what costs are recoverable from the other party. What is reasonable and proportionate in that context must be judged objectively. The touchstone is not the amount of costs which it was in a party’s best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party’s own account and not recoverable from the other party. This approach is first of all fair. It is fair to distinguish between, on the one hand, costs which are reasonably attributable to the other party’s conduct in bringing or contesting the proceeding or otherwise causing costs to be incurred and, on the other hand, costs which are attributable to a party’s own choice about how best to advance its interests. There are also good policy reasons for drawing this distinction, which include discouraging waste and seeking to deter the escalation of costs for the overall benefit for litigants.”
In this case I provisionally assessed that it was reasonable for the Claimant to incur costs exceeding £11,000 plus VAT in order to obtain medical records and appropriate expert evidence, send a letter of claim and settle this claim pre-issue. In my view it is right to take into account Parts 1 and 2 in this calculation even though, if the total is disproportionate, it would be wrong to disallow any costs in Parts 1 and 2 on the basis of the Jackson test of proportionality.
I next considered whether the sum allowed as reasonable was also proportionate. The answer would be yes if I were to apply the test propounded by Leggatt J: I had already assessed what was the lowest amount which the Claimant could reasonably have been expected to spend in order to have this case conducted and presented proficiently, having regard to all the relevant circumstances. However, I do not think that test applies in cases such as this where the amount of reasonable costs will inevitably exceed the value of the claim. Kazakhstan Kagazy PLC was a case where the sums in issue bore no relation to the costs however high they were. However the amount of the sums in issue is one of the factors I have to take into account here and, indeed, it is the first factor listed in CPR 44.3. I provisionally ruled that the sum I had allowed as reasonable was not proportionate. In doing so I had regard to the factors listed in CPR 44.3(5) (especially (a) and (c)).
When considering what reduction to make on grounds of proportionality I decided against chopping off a slice of all of the costs I had just found to be reasonable. In my view it is better to target particular items of work which it was disproportionate to do in the particular circumstances of the case in hand. In the result I disallowed the costs of three items which now appear, with hindsight, to be inconsistent with the true value of the claim.
Costs incurred in respect of Dr D.M. Levy, Consultant Anaesthetist which I notionally valued at £600 plus VAT.
Costs incurred in respect of the Part 36 offer to settle for £10,000 which I notionally valued at £200 plus VAT.
On other profit costs in the relevant period, the difference between the Grade B rate I had allowed and £165, the appropriate rate for a Grade C fee earner: I notionally valued this discount at £400 plus VAT.
In my judgment, although it was reasonable for the Claimant’s solicitors to incur these costs it is unfair to expect the Defendant to pay for these items (cf the view taken by two of the Lords Justices in Medway Primary Care Trust v Marcus  P.I.Q.R. Q4, a case in which the claimant reasonably sought damages exceeding £500,000, necessarily incurred at least £50,000 pre-issue but ultimately won only £2000). The rule against the use of hindsight in costs assessment (Francis v Francis and Dickerson  3 All ER 836) is a rule based upon reasonableness, which, today, is trumped by proportionality (see r.44.3(2), quoted above).
The adjustment I made on grounds of proportionality reduced the total costs provisionally allowed to a figure below £10,000 (including VAT but excluding the costs of the provisional assessment). Whilst such an expenditure is high in respect of a claim of that value which settles pre-issue, I did not think it disproportionate in all the circumstances. I did not think it right to disallow the expenditure on medical records or expert reports. Even in modest value clinical negligence claims it is necessary to incur costs on these items. I did not allow these items of costs on grounds of necessity since that is trumped by proportionality. I allowed them having regard to the fact that clinical negligence claims have more complexity and involve more work than do other claims of similar value.
In the post-provisional assessment, the costs I allowed as reasonable rose by about £800 plus VAT. However this did not cause Mr Regnauld (the advocate for the paying party) to challenge as too small the reduction I had previously made on grounds of proportionality. The only argument I must now rule upon is whether or not the reasonable costs I have allowed are disproportionate.
I did not accept the written submissions filed on behalf of the Claimant which argued that some costs (including probate costs and photocopying) should be excluded from the proportionality test nor that other costs should be excluded on the basis of their absolute necessity.
As to the oral submissions made by Mr Harrington, I did not accept his submissions that this case had public importance which I should take into account under factor (b). I accept that I should have regard to this case as a clinical negligence claim and indeed I did so. I do not accept his submission under factor (d) that the work that was done was additional work generated by the conduct of the Defendant. It is true that the claim would have been avoided if the Defendant had accepted liability and volunteered compensation either in 2011, in response to the complaint then made, or in 2012, in response to the letter from the solicitors which mentioned legal aid and sought medical records. However, the ordinary steps taken by the Defendant in these years do not, in my judgment, amount to conduct which put the solicitors to “additional” work in this case.
Mr Harrington’s final submissions were that I should not take into account VAT or the costs of drawing and checking the bill. At the provisional assessment I did not take VAT into account but did take into account the costs of drawing and checking the bill. I accept Mr Harrington’s submissions on these points. I should calculate the figure of reasonable costs without taking into account VAT or the costs of drawing and checking the bill. This is how proportionality is dealt with in the many cases now subject to costs management under CPR 3.12.
Suitably adjusted the reasonable costs provisionally allowed by me would have been lower by about £1100 excluding VAT. Of the £800 added at the post-provisional hearing, £200 relates to the costs of drawing the bill. Deducting £1100 but adding back £600 makes the post-provisional figure of reasonable costs lower than the provisional figure by about £500 excluding VAT.
In the result I am not persuaded that my provisional assessment that these costs are disproportionate would have been different if I had omitted the costs of drawing and checking the bill. More importantly, now the post-provisional figures are known, I remain of the view that the reasonable costs allowed in this case are disproportionate and should be reduced by £1200 plus VAT as described above.
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