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A googly spin on assessing proportionality of costs

Legal news

The recent appeal decision of May & Anor v Wavell Group Plc & Anor [2017] affords a fresh approach on assessment of proportionality of costs for interim applications. This decision shows that the courts are willing to take a holistic approach to the proportionality test where the complexity of litigation is prevalent and award legal costs which may seem to be disproportionate to the value of the claim.

The claim concerned an injunctive relief to abate nuisance, restrain from construction works and/or damages for interference with the appellants' quiet enjoyment of their property.

Before the proceedings reached trial, although no application for and interim relief was filed, the respondent made a Part 36 offer to settle the claim for £25,000. The resulting consequences of that offer included payment of the appellants' costs on the standard basis. The offer was duly accepted and the proceedings then moved on to a detailed assessment of the appellants' costs.

The judgment set out the appellants' costs to be:." £208,236.54 comprising £131,138.00 profit costs, £42,578.28 disbursements (ie experts, the costs of issuing the claim and the costs of drawing the bill) and VAT."

The Senior Costs Judge was tasked with a detailed assessment under CPR 44.3(5) to the incurred costs. Those grounds being:

a. "the sums in issue in the proceedings" ;
b. "the value of any non-monetary relief in issue in the proceedings" ;
c. "the complexity of the litigation" ;
d. "the additional work generated by the conduct of the paying party" ;
e. "any wider factors involved in the proceedings, such as reputation or public importance".

With the above the Senior Costs Judge then applied the proportionality test assessing the reasonableness of costs which he determined to be at £99,655.74; and the proportionality of the total sum which he then determined to be £35,000 and VAT in total. The basis of the Senior Costs Judge's assessment was that the effect of the global approach to the "resulting figure becomes entirely a matter of judgment", thus boiling it down to two key factors: legal complexity and the pre-trial stage settlement which he deemed to be a cost saving exercise.

The appellants appealed the Senior Costs Judge's decision based on the misdirection and misapplication of the proportionality test. The "new" proportionality test has had little attention by way of authorities which handicaps parties who seek much needed guidance. Be that as it may, the Appeal Judges considered Leggatt J decision of Kazakhstan Kazagy Plc v Zhunus [2015] EWHC 404 in which he held that "It is fair to distinguish between, on the one hand, costs which are reasonably attributable to the other party's conduct in bringing or contesting the proceedings [...] and, on the other hand, costs which are attributable to a party's own choice about how best to advance its interests."

The Appeal Judge highlighted the effects of reasonableness and proportionality when assessing costs but that the CPR 44.3(5) must be given due consideration if a balance of scales between them is to be achieved.

A key factor in the Senior Costs Judge's decision in assessing the value of the claim was the figure at which the case had settled, but the Appeal Judge disagreed with this approach, as to do so would have meant that the settlement sum was reflective of the final stages of the battle rather than the battle grounds upon which the dispute was fought on.

To summarise, the Appeal Judge held that the Senior Costs Judge had misapplied the proportionality test by undervaluing the value of the claim and failing to recognise the complexity of the litigation ground which resulted in the drastic reduction of the appellant's costs. The Appeal Judge reversed the decision and awarded £75,000 and VAT.

The successful appellants were represented by Simon Farrell QC of 3 Raymond Buildings.

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Sarah Brooke

Senior Claims Executive, Lawyer
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