Ever since the concept of proportionality was introduced to legal costs as part of the Woolf reforms in 1999, the courts and legal practitioners have wrestled with what this actually means. As part of Lord Justice Jackson’s package of reforms in 2007 the test was set out in the Civil Procedure Rules (CPR) Part 44. This part of the CPR provided that only costs which were considered proportionate to a case would be allowed. Costs which were considered disproportionate would either be disallowed or reduced even if the costs were reasonably or necessarily incurred.
To give a bit more clarity about what the courts consider when deciding whether costs are proportionate, they will look at:
(a) the sums at issue in the proceedings;
(b) the value of any non-monetary relief in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance.
Based on these definitions, there are two key aspects to claiming costs:
- The costs must be proportionate, and this is more important than costs being necessary or reasonable, and
- A decision as to proportionality has to be taken at the end of a case when the court has made an award and can then assess what costs were reasonable and necessary costs.
The problem with deciding proportionality in this way is that it is somewhat subjective, and so it is difficult – if not impossible – for lawyers to properly advise their clients about potential legal costs. Unfortunately, there is little case law to help except for the case of Reynolds v. One Stop Stores Limited (Norwich and Cambridge County Courts, 21 September 2018), which has provided some guidance. In the case the claimant suffered a wrist injury at work. The defendant made an early admission of liability and offered £35,000 to settle the claim. The claimant rejected the offer and issued proceedings. The litigation continued for the next three years and the claimant applied to increase the value of the claim up to £300,000. At the door of the court, the parties reached a settlement in the sum of £50,000, but in the process of fighting the claim, costs were in excess of £115,000. Spending over twice as much in legal fees versus the damages obtained is not proportionate. The court, when deciding on the claimant’s appeal, considered facts such as:
- The claim being originally pleaded at £50,000, with the defendant having made an offer to settle at £35,000. The claimant then sought to increase the value to £300,000 and after that she pursued the case on that basis. Even though at one point, the claimant’s pain expert began to have second thoughts following disclosure of the defendant’s surveillance evidence, the matter was primed for a full fight and the court was led to believe the claim continued to be valued at up to £300,000.
- The defendant increased their offer on the day of the trial and the ultimate settlement sum was much closer to the defendant’s original offer. The court decided that it was the claimant’s conduct that needed to be looked at given that the defendant had been consistent in how they handled the case.
- Finally, when deciding to dismiss the claimant’s appeal on the issue of costs, the court looked at how complex the case really was. While the medical opinion had been divergent, the litigation itself had not been complex. The judge said, “So, I am left with a situation where the claimant has overstated their case; and then on the day of trial has accepted a much reduced figure than it was originally seeking.”
Based on the above facts, the costs in this case were reduced from £115,000 to £75,000. The difference of £40,000 would then be due from the claimant, leaving her with only £10,000.
Current case law confirms that the courts when assessing legal costs will pay considerable attention to the factors set out in CPR Part 44 and only allow costs which are proportionate to the case. This should be a warning to both claimants and defendants that allowing excessive legal costs to occur will put their clients at risk. In addition, this warning should be given to a client in the clearest terms to avoid being left with a large legal bill.