Just because it’s reasonable doesn’t mean it’s proportionate

The Jackson reforms of costs in civil litigation (mostly) came into force on 1 April 2013, including a new test for proportionality.  However, in the intervening four years, there has been precious little authority as to what proportionality means in practice.  This has changed as a result of the judgment of the Senior Costs Judge, Master Gordon-Saker, in BNM and MGN Limited.

The litigation (as so often seems to be the case) concerned a relationship between an anonymous Claimant and a premiership footballer.  The Claimant lost her phone and it came into the possession of the Sunday People newspaper.  Although the phone was eventually returned to the Claimant, two years later she issued a claim for an injunction to restrain use of her confidential information and damages.  She entered into a conditional fee agreement (CFA) with both her solicitor and counsel and took out an after the event (ATE) insurance premium.  (Generally, additional CFA and ATE liabilities are no longer recoverable in litigation but the Claimant benefitted from transitional provisions for privacy cases).

The case settled before trial upon payment of £20,000, some low value non-financial relief and MGN’s agreement to pay the Claimant’s costs.

The Claimant sought costs in the sum of £241,817.  This included a success fee on her solicitor’s CFA of 60% and 75% on counsel’s CFA and an ATE premium of £61,480, including tax.

On assessment the Senior Costs Judge reduced the costs payable to £84,855 – just 35% of the total sum claimed.  He adopted a two-stage process to arrive at this figure.

• He firstly assessed the costs for reasonableness on the usual ‘line by line’ basis. He reduced the success fee for both solicitors and counsel to 33% and, having reduced other base costs, brought the sum down to £167,389.
• He then considered the issue of proportionality, taking into account the relatively low value of the settlement. In doing so, he reduced each of the sums claimed by a further half, including the ATE premium.

There are several important lessons to be drawn from this decision.

1. The proportionality test has real teeth. Even when costs have been reduced to a “reasonable” level, if disproportionate, they can be dramatically reduced still further.

2. The proportionality tests allows for reductions to additional liabilities for CFA and ATE (although such examples will reduce as the transitional provisions come to an end).

3. The ATE premium was also reduced by 50% even though the Court accepted that it was a reasonable price to pay in the market. In fact, the total costs awarded were only £23,375 more than the ATE premium paid, leading to a very large shortfall to be picked up by the Claimant, solicitor and/or counsel.

This decision may give some encouragement to litigants to bring proceedings, in the knowledge that they will not be ordered to pay disproportionate costs if unsuccessful.  Equally, it is clear warning that if litigation is conducted in a disproportionate manner the successful party will have to foot the shortfall in its costs.