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Costs and the proportionality rules


Until comparatively recently, a successful litigant could expect to recover a large part of the costs of a matter from his opponent.  Typically, in a multi-track case the advice was that between two thirds and three quarters of the legal bill would be recoverable if the case was won.

The proportionality test was introduced by Jackson LJ as part of his amendments to the Civil Procedure Rules and part 44.3 provides that where costs are to be assessed (considered by the Court and either allowed or disallowed as items which the winner can recover) the court will only allow costs which are proportionate to the matters in issue.  Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred.

Costs incurred are proportionate if they bear a reasonable relationship to, among other things, the sums in issue in the proceedings and the complexity of the litigation. 

It is difficult now to advise with any certainty as to what the costs award is likely to be for a winning or indeed a losing party.  The losing party should clearly be advised that any additional work generated by unreasonable behaviour is likely to be recoverable by the other side. Beyond that the value of the claim and its relationship to the overall legal bill is the key factor.  Even if the solicitor needs to do the work to make sure that the case is conducted properly and acts reasonably in so doing, the client may not be able to get back the costs of his having done so. 

We saw this only a short time ago in May and another v Wavell Group PLC and another.  The Claimants, rock guitarist Brian May and his wife, brought the cliam against Wavell in the County Court.  It was a claim for nuisance caused by a neighbour's basement development.  They were successful and accepted compensation of £25,000.00 at an early stage of the claim.  The Defendant was ordered to pay costs.

Mr May had claimed costs of £208,236.54.  He had not instructed a solicitor but he had instructed a QC under a direct access scheme.  The costs were challenged as unreasonable and disproportionate.  The Court reduced the claim to £99,000.00 being what it found to be a reasonable amount.  However, after that reduction, the proportionality test was applied and the overall costs award was reduced to a mere £35,000.00 plus VAT.  That was a very expensive victory for the Claimants and a huge saving for the Defendant.

The question that springs most quickly to mind is this.  If the work needs to be done and is done reasonably how can the legal adviser avoid an allegation of negligence for not doing it when the cost is going to be disproportionate to the issues in the case including its value?

The only way is to make it clear to the client from the outset that the recovery of costs can be a lottery, that some things may need to be done to win the case and that the cost of those things may not be recoverable.