Proportionality in litigation costs: Further guidance from the courts

20th September 2018

Continuing our series of updates on proportionality of costs in court proceedings, Walker Morris’ Commercial Dispute Resolution specialist Gwendoline Davies consider further developments in this evolving area of law. Our previous articles on this topic are available here.

Proportionality…

Anyone involved in the conduct of litigation will be aware that the ‘overriding objective’, at rule 1.1 (1) of the Civil Procedure Rules (CPR), requires cases to be dealt with “justly and at proportionate cost”. Unfortunately, the question of what is proportionate continues to cause confusion and dispute.  In this latest in our series of articles, Gwendoline highlight recent key cases which address this important issue.

The claimant in the case of Arjomandkhah v Nasrouallahi [1] was ordered to pay the defendant’s costs and sought to overturn that decision on the basis of proportionality.  The Senior Courts Costs Office, on appeal, noted that the court should assess proportionality by reference to the relatively wide factors set out in the CPR [2].  In doing that in this case the court considered:

• The requirement for a value to have been attributed to the claim. The claimant’s claim was for a final injunction, and not for damages or costs, and so no value per se had been attributed to the claim. The claimant argued that “in order to judge proportionality, the court must consider and make a finding about the value of the claim”. The court rejected this proposal, stating that the CPRs clearly require proportionality to be judged on wider criteria than just the notional financial value (or lack of it) of the claim.
• The parties’ approach to disclosure and the litigation overall. Documents disclosed by the defendant did not relate to issues that the judge wished to consider in open court. However it had been the claimant who had pressed for a wide approach to disclosure. (In fact the defendant’s solicitor had sought to limit the amount of disclosure, but the claimant’s solicitor refused.) The court commented that: “A disproportionate approach on the part of the Claimant does not justify a disproportionate approach on the part of the Defendant… “ however the overriding objective requires the court to ensure that parties are on equal footing. Taking all this into account the court held: “it is not open to the Claimant to say…that if he was to take a disproportionate approach to the litigation, that was a matter for him and has no bearing upon the proportionality of the Defendant’s costs…His approach to the litigation is inevitably going to have an effect upon the costs to be incurred by the Defendant.” [3].
• The difference between reasonableness and proportionality. The court confirmed that “Whilst there may, in some circumstances, be some overlap between the two criteria, they are not the same. CPR 44.3(5) states in clear terms that costs are…proportionate if they bear a reasonable relationship to the specified criteria. That is not the same as whether they are reasonably incurred or reasonable in amount.”

• The impact of the claim on the defendant. The court had regard to the fact that, in this particular case, if the claim had been successful and the evidence submitted on behalf of the claimant been accepted, the defendant would have been on record as a “blackmailer of a ruthless and sleazy disposition”. Such a finding could have had devastating consequences for the defendant. The court was mindful of this potential impact when considering the proportionality of costs incurred by her to defend against such an outcome.

…and costs budgeting

Alongside the somewhat nebulous concept of proportionality, cost budgeting requirements continue to raise queries in practice. In the case of Various Claimants v Scott Fowler Solicitors (a firm) & Ors [4] Walker Morris solicitors (acting on behalf of some of the claimants) experienced first-hand observations from Chief Master Marsh concerning the court’s approach to costs budgeting and the interplay with proportionality.  The general principles considered by Chief Master Marsh and summarised below may be of general interest and assistance when it comes to the preparation and analysis of cost budgets:

• The reasonableness and proportionality of the total costs for each budget phase must be determined by the court;
• The court is not obliged to compare the parties’ budgets when considering reasonableness and proportionality, although this could be informative;
• Certain aspects of a claim could be complex, justifying higher costs in relation to those aspects; and
• (In line with the Arjomandkhah case above) a purely mathematical consideration of the costs versus the amount in dispute is not envisaged by the Civil Procedure Rules, and would be inappropriate.

WM Comment

These latest cases serve to emphasis the court’s wide discretion when considering costs and proportionality. As a result, reliable and conclusive ‘tests’ for ascertaining whether costs are proportionate, and whether budgeted costs will be allowed, continue to elude practitioners.  While this lack of certainty can prove problematic, it does also leave the door open for parties to make whatever arguments they see fit in favour of their costs objectives.  The best advice is therefore for parties to a dispute to bring all relevant information to the court’s attention on the issue of proportionality of costs – both at the budgeting stage and on any subsequent detailed assessment.

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[1] [2018] EWHC B11 (Costs)
[2] CPR 44.4 (3)
[3] In this case the claimant was wealthy and could afford to conduct the litigation in a disproportionately costly manner, whereas the defendant was of limited means.
[4] [2018] EWHC 1891 (Ch) (27 July 2018)