DOES EVERY FIRM NEED A "PROPORTIONALITY" TSAR? PROPORTIONALITY AND SURVIVAL FOR LITIGATORS 3
In January this year I started a series “Proportionality and Survival for Litigators“. I predicted it would be a lengthy series. I want to look at practical ways in which litigators can ensure that costs remain “proportional”. This, most probably, requires a fundamentally different approach to litigation.
“It is therefore time to say, in the clearest terms, that parties and their solicitors can no longer conduct litigation in a manner which does not keep the proportionality of the costs being incurred at the forefront of their minds at all times.”
WHAT WAS SAID IN THE FIRST POST ON THIS SUBJECT
“There is now plenty of material on costs budgeting, much of it can be found in links on this blog. However I have not found any guidance for litigators on how the requirement for “proportional” costs will affect their work and practices. In short there is, so far as I can tell, no guidance at all on how litigators can, and undoubtedly must, change to adapt to the fact that “disproportionate” costs are not going to be recovered.* Having not found any post or article where this crucial issue is addressed I thought I would start off the debate here. Primarily by looking at the practical things that have to be done.”
SOME EXAMPLES OF PROPORTIONALITY IN ACTION
The Dorchester Group Ltd -v- Kier Construction Limited  EWHC 3051 (TCC). The court had allowed the defendant £120,000 for disclosure in the costs budget. By the time of the hearing (a partially successful application for further disclosure) the defendant had incurred £500,000 on the costs of disclosure. A shortfall of £380,000 which the defendant may well find very difficult to recover.
Savoye -v- Spicers Ltd  EWHC 33 (TCC) costs were reduced on summary assessment from £201,790 to £94,465.00.
Taylor -v- Bell & Haworth (16th February 2015). Costs reduced from £23,267.99 to £15,000 (inclusive of vat and disbursements).
(Vitol Bahrain EC –v- Nasdec General Trading LLC (RCJ 5/11/2013))
where costs were reduced from £165,421.80 to £75,000
“It is important that the message should go out loud and clear that the Commercial Court will not assess costs summarily in such disproportionate amounts merely because the figures on both sides are broadly comparable. Control will be exercised to ensure that the costs claimed from the unsuccessful party are reasonable and proportionate”.
GSK Project Management Ltd -v- QPR Holdings Ltd  EWHC 2274 where a costs budget of £824,038 (with £310,000 already spent) was reduced to £425,000 (past and future costs).
CIP Properties (AIPT) Limited -v- Galliford Try Infrastructure Ltd  EWHC 481 (TCC) Costs budget of £9.2 million (£4,226.768 incurred) reduced to £4.28 million in total
“In that way, going forward, the assessed costs/costs budget for the claimant will be a total of £4.28 million, made up of the figures which I consider to be recoverable on assessment in respect of the costs said to have been incurred, and the approved budget figures in respect of the estimated costs. As noted above, the estimated costs fall to be reduced, £ for £, to the extent that the amounts actually recovered on assessment in respect of costs incurred are higher than the figures which I have indicated.”
THE JUDGMENT IN GSK
“44. It is therefore time to say, in the clearest terms, that parties and their solicitors can no longer conduct litigation in a manner which does not keep the proportionality of the costs being incurred at the forefront of their minds at all times.”
IS PROPORTIONALITY IMPORTANT?
Many of these are high profile cases with figures exceeding most litigation. However these principles apply across the board.
There are a number of choices for litigators.
- Ignore proportionality altogether, and end up doing work they may well never get paid for. Thus going broke.
- Ignore proportionality and incur costs their clients have no chance of recovering. The clients will then go broke and the litigators will follow suit.
There are, perhaps, a number of clients with deep pockets, but these are few and far between. Further few businesses can sustain such losses for long. Even fewer will carry on instructing the same lawyers in these circumstances.
ANY EVIDENCE OF A CHANGE IN PRACTICE?
You would think, given the major reductions, that the continuing education market would be replete with courses “Proportional Litigation: How to do it” “Be proportional or go bust”. I have seen none. I was beginning to feel it was me that was wrong until I lectured at a costs seminar last week and every single person there agreed with me.
WHAT PRACTICAL STEPS CAN BE TAKEN?
There is no universal answer. A major problem at the moment is that no-one is looking for any kind of answer. Strategies have to be put in place. Litigators either need a “proportionality” tsar in their practice in the short term or (and preferably) it has to be imbued into daily litigation practice.
- Read “Understanding and Reducing the Costs of Litigation: Educating your client”. (As evidence that this is hardly a new problem that post is based on an article I wrote for Law For Business in April 1991).
- Read “Proportionality & Survival for Litigators Part 2
PRACTICAL FIRST STEPS
1. Tell the client about proportionality
The client should be warned about the need for costs to be proportional at the outset and of the real dangers of disproportional costs will not be recovered.
2. Any step or strategy must be considered against the requirement for proportionality
There are numerous examples of cases being conducted where applications are made “strategically” rather than with the aim of helping a party prepare for trial. Before any strategy is adopted consider:-
(i) The costs involved;
(ii) Whether there is any possibility that the costs could be classified as disproportional;
(iii) Whether the steps proposed could lead to a total costs
3. Always keep in mind how much the case is worth
Added to this is have a realistic view of how much the claim is worth and have a wholly realistic view of the value of the claim.
4. If you are the claimant make an early, and realistic, Part 36 offer as early as you can
If the claimant beats its own offer then costs are awarded against the defendant on an indemnity basis for the period after the offer expired. The “proportionality” test does not apply to indemnity costs.
5. Make proportionality your watchword
Proportionality does not mean “cheap” or “without value” or “the lowest possible price”. In essence it means “value for money”. The need to ensure that the litigation strategies adopted represent value for money should be central to the litigation strategy.
RELATED POSTS ON PROPORTIONALITY
- Budgets, proportionality & disclosure
- Proportionality, assessment and the costs of budgeting
- Proportionality, bundles & £3 million spent on costs.
- More on summary assessment of costs and proportionality.
- A working example of proportionality in practice.
- Rigorous costs budgeting to ensure proportionality.
- Enterprise, Proportionality, witness statements & unnecessary costs.
- Proportionality and survival for litigators Part 1
- Proportionality and survival for litigators Part 2.
- Costs, proportionality and getting the budgets right.
- Costs, parties & Proportionality
- An assessment of costs bites the dust.
- Proportionality and costs: it applies to big cases as well.
- What is meant by proportionality?