November 30, 2015

What is meant by proportionality?

Proportionality of costs in litigation

Recovering legal costs

The usual rule in civil litigation is that the winning party is entitled to recover its legal costs from the losing party over and above any damages awarded by the court. The winner’s costs, if not agreed between the parties voluntarily, will be assessed by a judge who will ultimately decide how much the loser should pay to the winner.

Prior to the changes in the costs rules in April 2013, the judge’s primary consideration when assessing costs was whether or not the costs being claimed had been “reasonably and necessarily incurred”, having regard to all the circumstances of the case. Since the new rules came in, judges have been grappling with a different test – whether or not the costs are “proportionate”, but what does this mean?

So what is "proportionate"?

Proportionality is notoriously difficult to define. The legal test in this context is that costs will be proportionate if they bear a reasonable relationship to the sums in dispute and the complexity of the claim among other factors, and can be deemed disproportionate even if reasonably or necessarily incurred. Since it was introduced there have been numerous interpretations of the new test and plenty of confusion.

In a recent clinical negligence case, the Senior Courts Costs Office (SCCO) has stepped in to provide some clarity as to what is meant by “proportionality” and how the test should be applied in all civil cases.

Some clarity

The facts of the case are not important, apart for the fact that the case settled for £3,500. The winning party (the claimant) claimed costs of over £32,000. At the original costs hearing the Judge knocked those costs down by two thirds on the grounds of unreasonableness and then knocked off a bit more on the basis that the sum was still disproportionate. The final sum that the loser was ordered to pay in costs was just under £10,000 plus VAT. The claimant sought to have this decision reviewed.

The SCCO reconsidered the test and concluded that even though it was reasonable for the claimant’s solicitors to have incurred those costs, it was unfair for the defendant to have to pay for them, and reduced the bill by a further £1,200 plus VAT.

What does this mean for parties to litigation?

This case has therefore clarified that the test of proportionality trumps reasonableness and necessity altogether, meaning that the sum awarded or settled for will have a significant bearing on what costs will be allowed.

For example, even if it was necessary in the course of a claim to incur additional costs by obtaining specialist expert evidence in order to succeed at trial or persuade the opponent into settlement, these costs may ultimately be considered disproportionate to the overall value of the claim and could be significantly reduced or disallowed altogether.

From a commercial and strategic viewpoint, parties to litigation will have to think very carefully about what costs they are incurring and whether taking even necessary or reasonable steps to progress the claim could be seen as disproportionate.

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