PROPORTIONALITY II (THE EXTENDED ALBUM EDITION)

The earlier post on the decision in Dr Brian May -v- Wavell Group Plc [2016] EWHC B16 (Costs) outlined the decision in summary.  This is a case that justifies an extended examination.

REPRISE

Following acceptance of the defendant’s Part 36 offer of £25,000 the claimants produced a bill totalling £208,236.54. After a line by line assessment that was reduced to £99,655.74.  However after considering the principle of proportionality that sum for recoverable costs was further reduced to £35,000 plus vat.

FAME DON’T MATTER: ANOTHER ONE BITES THE DUST

The Master considered that there were no factors of wider public importance to consider when assessing the principles of proportionality.

“Any wider factors involved in the proceedings, such as reputation or public importance
  1. Mr Carpenter submitted that there were no wider factors involved in these proceedings. Whilst the other residents had intimated proceedings against the defendants, they were private nuisance claims in the same way that this was a private nuisance claim between the respective claimants and defendants. The fact that the claimants enjoyed a celebrity status and therefore were able to generate publicity for their concerns did not create any wider public importance to these proceedings.
  2. Mr Sareen accepted that the fact that the claimants are public figures did not equate to any form of public interest. Nevertheless the existence of these proceedings had, according to Mr Sareen, caused the council to change its policy regarding basements and a settlement, even if short of a judgment, had a value in seeking to discourage basements being contemplated by other residents. That had a value to the claimants in its own right.
  3. Whilst it is undoubtedly the case that the first claimant in particular is clearly exercised by the new phenomenon of “mega basements”, his campaign to disrupt their creation is well outside the ambit of these County Court proceedings. I do not think there is anything within the costs claimed for these proceedings which can be considered proportionate as a result of any wider factors.”

THE JACKSON FIVE

The Master went on to consider the new approach to proportionality.

The new approach
  1. The recasting of the costs rules in the CPR as from 1 April 2013 was part of the implementation of the review of civil litigation costs by Sir Rupert Jackson. The terms of that review were to consider the costs of civil litigation and to make recommendations in order to promote access to justice at proportionate cost.
  2. Chapter 3 of the final report is devoted entirely to the subject of proportionate costs. The test set out at CPR 44.3(5) comes from this chapter and so too does the method of considering proportionality at the end of the detailed assessment rather than at its beginning (thereby reversing the decision in Lownds v Home Office [2002] EWCA Civ 365).
  3. Under the heading “proportionality of costs”, Sir Rupert Jackson said:
“5.5…Proportionality of costs is not simply a matter of comparing the sum in issue with the amount of costs incurred, important though that comparison is. It is also necessary to evaluate any non-monetary remedies sought and any rights which are in issue, in order to compare the overall value of what is at stake in the action with the costs of resolution.
5.6 The comparison exercise set out in the previous paragraph produces a strong indication of whether the costs of a party are proportionate. Before coming to a final conclusion, however, it is also necessary to look at the complexity of the litigation. There can be complex low value claims where the costs of litigation (if conducted properly) are bound to exceed the sum at stake. Equally, there can be high value, but straightforward, commercial claims where the costs are excessive, despite representing only a small proportion of the damages. It is also relevant to consider conduct and any wider factors, such as reputational issues or public importance.”
  1. At paragraph 5.10, Sir Rupert states that disproportionate costs do not become proportionate because they were necessary to bring or defend the claim. He refers to the cost benefit analysis undertaken by the Legal Aid Agency and states that any self-funding litigant would do the same. No doubt such a litigant would consider the costs involved, but if an act were seen to be necessary to be successful in the litigation, it does not seem to me to be obvious that a litigant would discount that necessary step simply on the ground that it might subsequently be found to be disproportionate.
  2. In my view this is the crux of the challenging concept of proportionality. Achieving justice at proportionate cost would, to many people, mean allowing for the recovery of at least the minimum costs involved in bringing the case to a successful hearing. In Kazakhstan Kagazy PLC v Zhunus[2015] EWHC 404 (Comm) Leggatt J said:
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.”
  1. This description of the minimum necessary costs being recoverable from the losing party, and the excess being a matter between the solicitor and his client, tallies with the general notion of costs recoverable on the standard basis.
  2. But as Master O’Hare said in the case of Hobbs v Guy’s and St Thomas’s NHS Foundation Trust (2 November 2015) about the Kazakhstan case:
“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.”
  1. It seems to me to be clear that where the sums in issue are modest, the Kazakhstan method is still too generous to the receiving party under the new approach. The amount that can be recovered from the paying party is not the minimum sum necessary to bring or defend the case successfully. It is a sum which it is appropriate for the paying party to pay by reference to the five factors in CPR 44.3(5). It is not the amount required to achieve justice in the eyes of the receiving party but only a contribution to that receiving party’s costs in many modest cases.
  2. This is a change of approach from the one set out by Lord Woolf in both Lownds and Jefferson v National Freight Carriers Plc [2001] EWCA Civ 2082 when he approved the dicta of HHJ Alton in the case of Stevens v Watts. In that case the judge explained that the receiving party needed to plan what work was required and at what level it should be done in order to bring the case “home” for a proportionate sum. That philosophy carried on into paragraph 11 of the Costs Practice Direction where the court was cautioned to understand that the relationship between the total of the costs incurred and the financial value of the claim may not be a reliable guide and so a fixed percentage could not be applied in all cases to the value of the claim in order to decide whether or not the costs were proportionate (11.1).
  3. The Costs Practice Direction went on to say that there would be costs inevitably incurred and which were necessary for the successful conduct of the case. Solicitors were not required to conduct litigation at rates which were uneconomic and so “in a modest claim the proportion of costs is likely to be higher than in a large claim, and may even equal or possibly exceed the amount in dispute.” (11.2)
  4. In fact, in modest claims, any case which ran all, or most of the way to trial, often involved costs that exceeded the amount in dispute. Mr Carpenter submitted forcefully that these provisions in the Costs Practice Direction had been deliberately removed when the rules were recast in April 2013. This was done, in his submission, because they no longer informed the test that the court should apply. It seems to me clear, however, from the Final Jackson Report that Sir Rupert did not necessarily expect the guidance to be entirely removed. Under the heading “proposed practice direction amendments” he drew a distinction between those provisions of paragraph 11 which would need to be repealed because they dealt with additional liabilities and those which simply needed amending in order to make clear that, on an assessment of costs on the standard basis, proportionality prevailed over reasonableness and that the proportionality test needed to be applied on a global basis: see paragraph 5.22. Paragraphs 11.1 and 11.2 are specified to fall into the latter category.
  5. The dicta of Leggatt J in the Kazakhstan case demonstrates an understanding that there are cases where the sums at stake will be so large that the costs involved in bringing proceedings will always be “proportionate” if the costs are simply compared to the sums at stake. It was for that reason that Leggatt J cautioned against parties taking the approach of “no expense being spared” in such cases. At the other end of the scale, the case ofHobbs involved the settlement of a clinical negligence claim for £3,500 plus costs. At this lower end of the scale, it is not the case that a minimum necessary spend approach is proportionate in the way that it would be in a Kazakhstan type case.
  6. It is for this reason that I did not find the cases referred to by Mr Carpenter such as CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd[2015] EWHC 481 (TCC) to be of much assistance. Those cases all involved significant damages claimed in the Technology and Construction Court and where limiting the recoverable budgeted costs to the sums at stake still gave the claimants’ legal teams considerable scope in planning the minimum necessary spend.
  7. I made the point at the hearing that, in a case run by a direct access barrister, the client care letters were specifically intended to define the costs by reference to discrete pieces of work rather than the case overall. It has only been since barristers have been entitled to conduct litigation, that there has been any prospect of the client being given an indication of the overall spend. In the present case therefore there was no estimate given to the client in the manner expected (but by no means always achieved) by the SRA Code of Conduct. But, even if such an estimate had been given, it seems to me to be inevitable that the figures involved would have exceeded the damages claimed by some margin. I note that in his interim report, Sir Rupert considered the question of whether private nuisance claims should be ones which benefited from Qualified One way Costs Shifting given the level of damages compared with the costs involved.
  8. In cases such as this, it seems to me that the new test of proportionality as described in paragraphs 5.5 and 5.6 of the final report (see [30] above), will require legal representatives to inform their clients that, even if successful, they will receive no more than a contribution to the costs that will be incurred. It may be that such advice proves to be a driver for the costs to be reduced or for alternative dispute resolution mechanisms to be explored. It is to be hoped that cases such as this one, which are in a transitional phase of understanding the new proportionality test, will be relatively rare.
  9. I set out my views on the five factors in CPR 44.3(5) when setting out the parties’ submissions. In summary, this is a case worth in the region of £25,000 and for which there was a modest prospect of an injunction at least early in the case. There was no noteworthy complexity in the litigation of either a legal or factual nature. There were no additional costs caused by the defendant’s conduct nor were there any wider factors to be considered. In these circumstances the reasonable costs allowed of £99,655.74 are undoubtedly disproportionate.
  10. In the case of Hobbs, Master O’Hare reduced the reasonable, albeit disproportionate, costs that he had originally assessed by revisiting certain items which he then disallowed as being disproportionate. Mr Carpenter urged me not to take the same course and it seems to me that it will be an unusual case where that will be appropriate given the requirement to consider proportionality on a global basis. It is tempting to do so here because it seems to me that the reasonable figure is larger than it might otherwise have been by virtue of the disbursements allowed in respect of the acoustics expert. Those fees were challenged in principle but I was against the first defendant on that point. Challenges were then raised as to the quantum of those fees but I disallowed those challenges too. They had not been specifically set out in the points of dispute and were not clarified when specifically requested in the replies. I have no doubt that if I were to have assessed the quantum of the reasonable costs of obtaining evidence from an acoustics expert, it would have been rather less than is contained in the reasonable figure that I have assessed here. But, I accept that the revisiting of individual items does not appear to be what was intended when the judge “steps back” to consider whether the reasonable sum is also proportionate and so I decline to take that course in this case.

PROPORTIONALITY: ONE VISION

The Master considered how the court should approach the global approach.

  1. The effect of the global approach however is that the resulting figure becomes entirely a matter of judgment. I reject Mr Carpenter’s argument that the costs should never exceed the damages as seeking to elevate the first aspect of the 44.3(5) test to a different level from the remainder. In paragraph 5.6 referred to above, Sir Rupert Jackson refers to the possibility of low value but complex litigation incurring costs above the value of the damages. Whilst I have determined that this was not legally or factually complex case, it undoubtedly relied upon the use of expert evidence. No claim could have been brought without some such evidence to calibrate the noise involved and to compare it with the level of noise otherwise involved in everyday living. Such evidence has a cost in itself and also involves legal work in support.
  2. However, it also seems to me that I should bear in mind the stage at which this case had reached when the claimants accepted the Part 36 Offer. The proportionate amount of costs must inevitably be smaller for a case which concludes early than one which reaches a final hearing. The figure that I consider to be a proportionate one for the first defendant to pay bearing in mind all of the factors in 44.3(5) is £35,000 plus VAT.
  3. Finally, Mr Carpenter sought to persuade me that I should remove the costs of drawing the bill (as well as the VAT) when considering whether the sum is proportionate. Having decided upon a proportionate figure I should then allow a reasonable and proportionate figure for drawing the bill in addition. It is not said that this is to penalise the receiving party’s drawing of the bill as such, but instead is to avoid the paying party having to pay the full price for a bill to be drawn when only a proportion of the bill has been allowed.
  4. I appreciate that the approach proposed by Mr Carpenter is standard practice when considering proportionality at the beginning of an assessment under the Lownds test. There is also some superficial attractiveness in the separation of the costs involved in the proceedings from the costs effectively relating solely to the detailed assessment proceedings. It may be that in some cases such a separation is useful to the court when considering whether the costs claimed are both reasonable and proportionate. But if this case is anything to go by, in my view, it is an unnecessary refinement. There is only so much finesse that can be employed when using a broadsword rather than a rapier. A concluding global assessment of proportionality as envisaged by the new approach involves the court wielding a blunt instrument rather than a precision tool.

FEEDBACK

There are already a large number of articles & posts on this case.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: