PROPORTIONALITY: SHOULD HINDSIGHT BE A FACTOR? EXTRACTS FROM O’HARE AND BROWNE ON CIVIL LITIGATION (YOU SAW IT HERE FIRST…)

I am grateful to John O’Hare for sending me an extract from the next edition of O’Hare and Browne on Civil Litigation (19th edition). It deals with proportionality and, in particular,  whether hindsight should be a factor in assessing proportionality.  (The arguments in the Court of Appeal referred to in the text can be viewed by following the links here.) 

PROPORTIONALITY

How to challenge costs which are reasonable but disproportionate*

Receiving parties entitled to costs on the standard basis have to prove that the costs they claim are proportionate as well as reasonable. There has always been more to this than simply comparing the total amount spent by the winner with the total benefit gained thereby (the value of the money or property recovered or preserved in the proceedings). Before 2013 the term “proportionate” (which was not defined in the CPR) was taken to mean “necessary” having regard to the parties’ reasonable expectations as to the value of the claim (the “Lownds test”). Since 2013 a new test (the “Jackson test”) has been set out in r.44.3(5). This states that 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. There is a different list of factors for use when assessing the reasonableness of costs (r.44.4(3)).

Proportionality trumps reasonableness and necessity

Rule 44.3(2) states that on a standard basis assessment, “Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred ….”
It is generally accepted that, until you have worked out what is reasonable, there is no need to struggle with what might be proportionate. Once the total amount of reasonable costs has been identified, the court should step back and consider whether that sum bears “a reasonable relationship” to such of the five factors listed in r.44.3(5) as are relevant to the case in hand. In our view costs are proportionate if they are consistent with, or in harmony with, the relevant factors, as opposed to being wholly inconsistent or out of line with them.
Proportionality is a problem whenever the value of the benefit gained by the receiving party is lower than the amount reasonably spent to obtain it. “Why on Earth did you spend £100,000 just to obtain compensation of £25,000?” (The figures just mentioned are taken from the facts of May v Wavell Group Ltd HH Judge Dight, CC (Central London) 22 December 2017, unrep. LTL 15/1/2018. We respectfully endorse the opinion expressed by HH Judge Dight (at [71]) that, if it is properly applying the rules, the court will not normally make “a very substantial reduction on the overall figure without regard to [its] component parts”. In all cases we would prefer the court to make a broad brush reduction calculated by reference to those parts of the costs otherwise allowed which appear to be inconsistent with the true value of the claim. In our opinion, when doing this at the conclusion of a case,  the court can and should use hindsight.

Proportionality and hindsight
Some commentators think it would be unfair to disallow now costs which reasonably appeared to be proportionate at the time they were incurred. Indeed, they would say, the expenditure may well have been approved by the court when it approved the receiving party’s budget in respect of them.
In our view it is not neither wrong nor unfair to use hindsight. Hindsight is often used in respect of costs disputes. Hindsight tells us who should be ordered to pay costs; losers pay even where they were acting entirely reasonably in running their unsuccessful case. Hindsight fixes the quantum of costs in many of the fixed costs regimes implemented or proposed. Consider an RTA personal injury claim which starts, and then drops out of, the Portal. A large chunk of the fixed costs (set out in Table 6B) will be a percentage based on the damages agreed or awarded. If it settles before proceedings are issued, the fixed costs will include 15 per cent of the agreed damages which exceed £5000; if the case goes all the way to trial, 20 per cent of the damages agreed or awarded). These figures would be awarded to all relevant claimants, including those who had had the best of reasons for thinking they would receive much higher damages than they actually did.
The use of hindsight is wrong only where the paying party must pay the relevant reasonable costs whether or not they are proportionate: for example, costs awarded on the indemnity basis or costs awarded in a Solicitors Act assessment (the indemnity basis modified by three presumptions, see r.46.9). Where costs are awarded on the standard basis, proportionality trumps reasonableness (and indeed, necessity); see again the words quoted from r.44.3(2) set out above.
Francis v Francis and Dickerson
The seminal case on the use of hindsight is Francis v Francis and Dickerson [1955] 3 All ER 836. When that case was decided, orders for costs between litigants usually allowed only such costs as were “necessary and proper”. Francis was a divorce case in which Mrs F (who had the benefit of legal aid) had instructed her solicitor to incur costs on private detective fees in order to prove that Mr F had committed adultery. The detective delivered a report would have been useful but, ultimately, it was not needed because Mr F admitted adultery and the case ended with no order for costs. The learned judge in this seminal case confirmed that the detective fees would not have been recoverable as between litigants because they had not been necessary. This was so even though, at the time they were incurred it had been entirely reasonable to assume that Mr F would not admit adultery. The case outlawed the use of hindsight only in respect of assessments made on a basis such as the “common fund basis” (something similar to today’s indemnity basis) or as between solicitors and their clients or as between solicitors and the legal aid authorities.

Proportionality and costs  budgets
When approving a costs budget, the court  attempts bring the overall costs into line with the proportionality factors set out in r.44.3(5) (see above) . As to factors (a) and (b) (which deal with the overall value of the claim) the court at the costs budgeting stage is working on predicted values only. If, as often happens, the parties strongly disagree as to what the overall value is, the court must necessarily accept the claimant’s valuation unless the defendant can show that it is plainly excessive. That acceptance is just for the time being. Budgets can later be revised, upwards or downwards, if there are significant developments, or at detailed assessment if some good reason is shown (see below). However, for the time being, the court may have to decide what costs to approve having regard to the claimant’s prediction as to value.
The approved budget of each party warns the opposing parties of the amount of budgeted costs likely to be ordered against them if the case goes all the way to trial and they lose. However, if they do lose, there are several ways in which they can challenge the total costs they must pay. In particular, at a detailed assessment, the court must again consider whether the costs claimed are reasonable and proportionate (Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] 1 W.L.R. 4456 CA at [52]). Reconsidering the proportionality question with the benefit of hindsight may well give the court good reason to depart from a budget which had been set on predicted values now shown to be excessive.
Demouilpied v Stockport NHS Foundation Trust
Last month (June 2019) the Court of Appeal heard argument in this case which concerns the reasonableness and proportionality of ATE premiums in clinical negligence cases in respect of the cost of expert reports on liability and causation in low-value claims. (The hearing in the Court of Appeal was recorded and is available on youtube.) We are sorry to report that, in this case, the paying party conceded that proportionality cannot be decided with the benefit of hindsight. We think that that concession was wrongly made and so this important aspect of proportionality will have to await further argument in a subsequent Court of Appeal decision. ”

*Extract from the new edition of O’Hare and Browne, Civil Litigation, due to be published in October 2019