PROPORTIONALITY DOES NOT AFFECT A PROPORTIONATE COSTS ORDER: HIGH COURT DECISION

There are many aspects of the judgment in Amey LG Limited -v- Cumbria County Council [2016] EWHC 2496 (TCC) that are of interest to readers of this blog.  Here I want to explore the judgment in relation to proportionality.

“The trial judge should limit his task to addressing whether relevant circumstances such as conduct, success and admissible offers arise and, if so, their impact on the total time and cost of the trial, or the case as a whole, and how – if at all – they ought to be reflected in the costs order made. The trial judge should make a proportionate costs order based solely on such considerations, as opposed to the further consideration as to what proportion of the overall costs would have been incurred had the action been pursued in a manner which was proportionate”

KEY POINTS

  •  A trial judge will not normally consider issues of proportionality when deciding upon a proportionate costs order.

THE CASE

His Honour Judge Stephen Davies (sitting as a judge of the High Court) had earlier determined an action in favour of the claimant.  This judgment deals with the appropriate order in relation to costs.

THE RESULT OF THE TRIAL

  1. The result of the trial, in summary, was as follows[1]:
4.1 After taking into account all claims and counterclaims Amey was the victor, achieving a judgment of around £5.365 million, comprising around £3.698 million principal plus contractual interest of around £1.697 million.
4.2 Amey was successful as to around £4.616 million in relation to its part 1 claim, claimed at around £7.915 million, being its valuation of its annual account claims for work done in the 3 final years of the contract, where it said that Cumbria had wrongfully undervalued its claims and wrongfully made deductions from them.
4.3 Amey was only successful as to around £296,000 in relation to its part 2 claim, claimed at around £19.774 million, being its valuation of what were pleaded as being 16 separate final account claims for additional sums claimed under the contract and/or as damages.
4.4 Cumbria was successful as to around £1.214 million in relation to its counterclaims, claimed at around £15.646 million.
4.5 Adding together Amey’s part 1 and part 2 claims, and deducting Cumbria’s counterclaims, pleaded as a defence and set off as well as an independent counterclaim, produced the net balance of £3.698 million principal. The interest of around £1.697 million represents contractual interest on that sum at 8% over base from June 2012.

THE ARGUMENT IN RELATION TO PROPORTIONALITY

The judge was considering the award of costs.  He dealt with an argument from the defendant in relation to proportionality.
  1. I should however refer to one particular point upon which reliance was placed by Cumbria in its written submissions, and that is proportionality.
  2. It is common ground that there is no express reference in Part 44.2 to proportionality as a factor to which the court should have regard when deciding what order to make about costs. Part 44.2(6)(a) does of course allow the court to make an order that a party must pay a proportion of another party’s costs. This is commonly – although to a non-costs lawyer confusingly – referred to as a proportionate costs order, i.e. an order for payment of a specified percentage or fraction of the other’s costs. There is no suggestion that the court should expressly take proportionality as defined in Part 44.3 as a factor into account when deciding whether or not to make a proportionate costs order under Part 44.2(6)(a). In contrast, by reference to Part 44.3 and Part 44.4, and as intended by the costs reforms implementing the recommendations of Jackson LJ, proportionality assumes centre stage importance when it comes to the assessment of costs to which a party is entitled under a costs order, whether under a detailed assessment or on a summary assessment. Express reference is also made to proportionality in the practice direction relating to costs management, because of course proportionality again assumes centre stage importance in relation to costs management. More fundamentally, proportionality assumes centre stage importance in relation to the overriding objective in its post Jackson amended form.
  3. A question which appeared to arise is whether or not the court should also have regard to proportionality when deciding what order to make about costs under Part 44.2 and in particular when deciding whether or not to make a proportionate costs order and if so in what amount under Part 44.2(6)(a). In their written submissions Mr Bowdery QC and Mrs Pigott submitted that it should, whereas in his oral submissions Mr Streatfeild-James QC submitted that it should not.
  4. It seems to me that Mr Streatfeild-James is right; if proportionality had been intended to be a relevant factor under Part 44.2 there can be no doubt that it would have been specifically mentioned. Indeed in oral submissions Mr Bowdery QC was prepared to accept this.
  5. However the more difficult question, at least to my mind, is whether or not, when the court is considering what order to make about costs, in particular if one or more relevant circumstances such as conduct, success and admissible offers ought to justify making a proportionate costs order, considerations of proportionality should come into play. It might be argued, for example, that if a court is satisfied that a claimant had pursued its case in an unreasonable and unrestrained manner, persisting with every issue, no matter how low value or ill-founded, and devoting substantial time and cost to such issues, then when deciding what discount to make the court should consider, and often may consider, what percentage of the total time and cost would proportionately have been devoted to the claim if pursued in a reasonable and restrained manner. Thus considerations of proportionality feed into the process by which the court arrives at a discount from the 100% costs order which would otherwise have been made.
  6. If so, that would appear to raise an important practical issue, which is that if the court at the Part 44.2 stage is making a proportionate costs order on the basis of conduct, success or admissible offers and does so taking into account considerations of proportionality, there is a risk of double-jeopardy if on detailed assessment the costs judge is also invited to reduce the receiving party’s costs by reference to the proportionality test in Part 44.3.
  7. The same question has previously arisen in the context of conduct, where the answer is clear that conduct is something which should be considered and taken into account both by the trial judge at the end of the case under Part 44.2(4)(a) and by the costs judge when assessing costs under Part 44.4(3)(a), but that care should be taken to avoid the risk of double jeopardy so that the trial judge should take steps to ensure that the costs judge is able to understand the effect of the order made by the trial judge and thus the task remaining for him to undertake. On this point I gratefully accept the helpful analysis of the author of the current edition of Cook on Costs (2016 edition) at [22-24], where particular reference is made to the decision of the Court of Appeal in Ultraframe v Fielding [2006] EWCA Civ 1660.
  8. However it appears to me that in most, if not all, cases, a clear dividing line can be drawn between the circumstances to be considered under Part 44.2 and proportionality. The trial judge should limit his task to addressing whether relevant circumstances such as conduct, success and admissible offers arise and, if so, their impact on the total time and cost of the trial, or the case as a whole, and how – if at all – they ought to be reflected in the costs order made. The trial judge should make a proportionate costs order based solely on such considerations, as opposed to the further consideration as to what proportion of the overall costs would have been incurred had the action been pursued in a manner which was proportionate. At this stage the trial judge will have details of the approved costs budgets of the parties, if the case is subject to costs management, and may well have been provided with some details of costs actually incurred for the purpose of making an interim payment on account of costs, but will not be in a position to know whether and if so to what extent costs have been unreasonably incurred, which is of course a matter for detailed assessment.
  9. If however a trial judge is minded to take into account proportionality when deciding what proportionate costs order to make, and to make a discount which expressly or implicitly takes into account his assessment of overall proportionality when arriving at a percentage or fractional reduction, that should be clearly stated and identified in the order and/or the judgment, so that the costs judge will know what the trial judge has taken into account and why when undertaking the detailed assessment at the later stage. By the end of the hearing both Mr Bowdery and Mr Streatfeild-James were I think of one mind that if I was satisfied that I should exclude any question of proportionality from consideration at this stage I should say so in this judgment, so that there can be no question of the costs judge being left in any doubt as to what I have done and on what basis.
  10. In this case I am satisfied that I should exclude any question of proportionality from consideration. That is for the reasons given in paragraph 27 above, which I consider apply in this case. It is also relevant in this case that the question of proportionality cannot be assessed by reference only to the relative lack of success on the claim, because of course Amey has also substantially succeeded in defending a very substantial defects counterclaim. Before me Mr Bowdery submitted that there was a developed practice in TCC cases that proportionality meant that the TCC Judge, whether undertaking costs management or summary assessment, would not permit the global costs of all parties to exceed the amount in issue or recovered, and thus in a two party case would not allow the successful party more than 50% in costs of the amount claimed or recovered. Even if that is so, about which I need express no opinion one way or the other, there will clearly be room for legitimate debate in this case as to whether or not it could be considered disproportionate for Amey to spend what it has spent in relation to the successful pursuit of a claim in excess of £5 million which included within it the substantially successful defence of a counterclaim of around £20 million. It is not self-evident in my view that if this case had been costs managed I would not have approved costs budgets broadly in line with the costs actually incurred, given the size of the claims advanced by both parties. Nor is it self-evident in my view that if the costs had been approved at that level a costs judge conducting a detailed assessment would inevitably conclude that the eventual result amounted to a “good reason” for departing from those approved costs under Part 3.18(b).

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