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Costs proportionality: answers at last?

22 November 2019. Published by Aimee Talbot, Associate

Practitioners have been waiting six years for authoritative guidance on how the new post-April 2013 proportionality test applies in the hope that we will be better able to predict the outcome of costs assessment and, therefore, better equipped to advise our clients. A recent Court of Appeal decision has been described as delivering this; however, it raises a number of new issues which are sure to give rise to further satellite litigation. As such, proportionality remains the great unknown.

In the conjoined appeals in West v Stockport NHS Foundation Trust [2019] EWCA Civ 1220, the Claimants both sued the same NHS trust for clinical negligence.  Ms West's claim settled for £10,000 and her costs were £31,714.44.  Mr Demouilpied's claim settled for £4,500 and his costs were £18,376.36.  Both Claimants' costs bills included £5,088 for the recoverable element of a block-rated ATE premium.  In both cases, the premiums were reduced on provisional assessment to £nil and £1,982.20 respectively.  Following appeals, £2,500 was allowed to Ms West and £650 to Mr Demouilpied.  They both appealed to the Court of Appeal.

One of the issues on appeal was how the courts should address proportionality.  Following a number of conflicting authorities, there has been debate within the profession as to whether the court should consider proportionality twice during an assessment: first during the line-by-line assessment, assessing whether each item was proportionate (as well as reasonable); and again at the end, of the line-by-line assessment, taking a broad overview of the global figure and considering whether that figure was proportionate.  Receiving parties argued that this approach risked unfairly penalising them as bills would be subject to a double reduction on grounds of proportionality.  Paying parties argued that adopting this approach was the only way to ensure that a bill was truly proportionate.

The Court of Appeal's answer is "yes", the two-stage approach can be followed, if the judge considers it appropriate. But will this end satellite litigation concerning proportionality?  We fear not.  

Having recognised that one of the motivations behind this appeal was the fact that judges assess proportionality in wildly different ways, leaving the area extremely unpredictable, the Court of Appeal stated that it did not wish to "restrict judges or force them, when assessing a bill of costs, to follow inflexible or overly-complex rules".  Clearly, a balance needs to be struck. The Court of Appeal went on to give the following guidance.

First, the judge should carry out a line-by-line assessment of the reasonableness of each item.  Then, "if the judge considers it possible, appropriate and convenient when undertaking that exercise", they may address the proportionality of the particular item at the same time.  Presumably it is "possible, appropriate or convenient" to do so where the judge considers that, even after assessing an item for reasonableness, they still consider it disproportionate.

Second, having completed the line-by-line assessment, the judge should stand back and consider whether the final figure (the product of a reasonableness assessment and perhaps already reflecting some deductions for proportionality) is proportionate.  If not, a further proportionality assessment should be undertaken by category of cost.  No guidance is given as to what are appropriate categories of costs, save for these examples: "disclosure or expert’s reports, or specific periods where particular costs were incurred, or particular parts of the profit costs". 

However, the Court of Appeal suggests that the proportionality test should simply not be applied to some items if they are unavoidable, such as the court fee, a reasonable ATE insurance premium, the costs of drawing the bill and VAT.  Although this might hint of a return to the old Lownds test (in which case items were automatically proportionate if they were necessarily incurred), the Court of Appeal expressly refutes this on the basis that "most costs" will still be subject to the proportionality test.  Some might be sceptical about the attempt to draw a distinction between "unavoidable" expenditure and "necessary" expenditure.  There is also a lack of any real guidance as to what is "unavoidable" beyond the examples given.  This will be fertile ground for future disputes as parties try to argue that a particular item or category of expenditure was "unavoidable" and should therefore not be subject to a proportionality assessment.

The final stage of the assessment therefore is for the judge to apply a reduction on grounds of proportionality (if necessary) to "categories" of costs, but not including "unavoidable" items.  There should be no further stage of standing back and making a further proportionality reduction because, the court says, this would risk double-counting.

Despite the initial promise of clarity, it remains difficult to predict how proportionality will be applied and a number of new concepts have been introduced by this decision which parties and the courts will need to grapple with.  Expect more decisions in this troubled area.