Proportionality in litigation costs: Guidance from the Court of Appeal

24th September 2019

Gwendoline Davies, a Partner in Walker Morris’ Commercial Dispute Resolution Team, highlights a Court of Appeal case which offers important guidance on the application of the test for proportionality of litigation costs.

Hot on the heels of the first High Court decision to deal with the proportionality test under the Civil Procedure Rules (CPR) [1] comes another key judgment, this time from the Court of Appeal. Although this most recent case dealt specifically with after-the-event insurance premiums in the clinical negligence context, its significance is much wider, as the Court of Appeal’s decision contains important guidance on the application of the proportionality test and goes some way to unifying the different approaches used by the courts to date.

Why is this case important?

The judgment in West v Stockport NHS Foundation Trust and Demouilpied v Stockport NHS Foundation Trust [2] represents another step in the right direction in terms of clarity and transparency for parties and practitioners when it comes to determining proportionality in litigation costs. The courts continue to recognise that there has previously been a lack of consistency in the way costs have been assessed, and that there is a need to balance a cohesive, practical approach to proportionality with sufficient flexibility to ensure that litigation costs are assessed appropriately and fairly in each case.

This recent case helps to clarify the practical steps that a judge will take in order to carry out an assessment of proportionality. However, the issue remains that it is intrinsically difficult to apply a concrete definition to the concept of proportionality and it is important to note that each case will still inevitably involve an element of an individual judge’s subjective interpretation.

What happened in this case?

The claimants purchased after-the-event insurance premiums as part of two separate clinical negligence claims against the same NHS hospital trust. In the first instance, the premiums were reduced by costs judges because they were considered to be disproportionate. The Court of Appeal reversed the decision and, in conjunction with their specific determination regarding the treatment of insurance premiums of this type, provided some comprehensive guidance on the proper approach to be taken by judges when assessing costs.

Scope of the proportionality test

As noted in our previous article, under the CPR [3], costs incurred in the course of litigation are considered proportionate if they bear a reasonable relationship to:

1. the sums in dispute in the proceedings
2. the value of any non-monetary relief in dispute in the proceedings
3. the complexity of the litigation
4. any additional work generated by the conduct of the paying party
5. any wider factors involved in the proceedings, such as reputation or public importance.

However, the Court of Appeal made clear in this case that assessments of proportionality should not be limited to just these specific circumstances, but should also take into account any wider circumstances where these are relevant [4].

Correct approach to costs assessments

While the Court of Appeal was cautious of imposing any overly-complex or inflexible rules upon judges when assessing a bill of costs, it did offer the following guidance:

• The judge should go through the bill line by line and assess the reasonableness of each item. Reasonableness remains distinct from proportionality, but there may be some areas of overlap. As such, if the judge considers it possible, appropriate and convenient, they should assess the proportionality of any particular item at the same time whilst completing the line by line review.
• Once a total figure has been produced that is considered by the judge to be reasonable, its proportionality should then be assessed by reference to rules 44.3(5) and 44.4(1). If the figure is considered proportionate at this stage, no further assessment is required.
• If the total reasonable figure is considered disproportionate, a further assessment should be carried out by reference to:
  • particular categories of cost, such as disclosure or expert reports;
  • specific periods where particular costs were incurred; or
  • particular parts of the profit costs.
• Appropriate reductions can then be made as required. This must, however, exclude any unavoidable costs or costs with an irreducible minimum, such as court fees (in the same manner that VAT and the costs of drawing the bill itself must also be excluded).
• Following these reductions, the resulting figure is the final amount of the costs assessment and no further proportionality review should be conducted.

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[1] For information and advice, please see our earlier briefing
[2] [2019] EWCA Civ 1220
[3] CPR 44.3(5)
[4] As identified in CPR 44.4(1)