Appeal court gives first guidance on proportionality of costs

Legal costs expert Keith Levene of Pinsent Masons, the law firm behind Out-Law.com, said that the guidance would hopefully lead to more consistency between judges when assessing costs, while at the same time allowing them the necessary flexibility in how the proportionality test should be applied.

"Given the context of the judgment, however, it remains to be seen how far paying parties will be able to take advantage of the statements made by the judges, and how they will apply in general and commercial proceedings," he said. "Practitioners have been waiting for some guidance on proportionality since the rules changed, which is why what are effectively a few paragraphs in a lengthy medical negligence judgment have been received with some enthusiasm."

Changes to the Civil Procedure Rules (CPRs) from 1 April 2013 resulted in the introduction of a new civil court costs and funding regime, following the recommendations of Lord Justice Jackson in his review of civil litigation in England and Wales. The courts will now only allow costs which are "proportionate to the matters in issue", defined as those that bear a reasonable relationship to the sums and non-monetary relief at issue in the proceedings as well as the complexity of the litigation, any additional work generated by the conduct of the paying party and any "wider factors" involved in the proceedings.

Separately, the Jackson reforms ended the ability of successful parties to litigation to recover success fees and ATE insurance premiums from the other side, with the exception of ATE policies covering the cost of experts' reports on liability and causation in clinical negligence claims. Recoverability of these premiums remains subject to a reasonableness and proportionality assessment.

Here, the Court of Appeal allowed the appeals of two claimants, Suzanne West and Lee Thomas Demouilpied, whose ATE premiums obtained in their clinical negligence cases against Stockport NHS Foundation Trust had been ruled disproportionate. Both cases were settled before court proceedings began, but costs judges found that the premiums in both cases were disproportionate to the value of the underlying claim.

The Court of Appeal began its consideration of the proportionality assessment by stating that "there is an absence of consistency in the way in which costs bills are assessed". It was for this reason that it decided to set out some guidance for the lower courts, while noting that it was "anxious not to restrict judges or force them, when assessing a bill of costs, to follow inflexible or overly-complex rules".

The judges said that the assessment should start with a "line-by-line" assessment of the reasonableness of each item of cost by the assessing judge. The judge may also address the proportionality of each item at the same time if "possible, appropriate and convenient" to do so; otherwise, the judge should assess the proportionality of the reasonable costs bearing in mind both the circumstances of the particular case (as required by rule 44.3(5)) and "all the circumstances" (as required by rule 44.4(1)).

Should the overall figure be considered disproportionate by the judge, a further assessment should be conducted. This assessment should not be line-by-line, but should instead consider "various categories of cost ... or specific periods where particular costs were incurred, or particular parts of the profit costs". The Court of Appeal were concerned by the "risk of double counting" and expressly warned that "there would be no further stage of standing back and, if necessary, undertaking a yet further review by reference to proportionality". However, "unavoidable" costs such as court fees and ATE premiums in clinical negligence cases should be left alone to the extent that they pass the reasonableness test, the Court of Appeal said.

Applying these principles to the facts of both West's and Demouilipied's cases, the Court of Appeal ruled that both premiums should be recoverable in full. The premium paid by West was "fairly typical" and "reasonably competitive"; while the premium paid by Demoulipied was proportionate, not unreasonable and was an unavoidable cost of the litigation.