Senior Costs Judge “misapplied proportionality test” says Appeal Court

An English Appeal Court has ruled that a senior costs judge misapplied the proportionality test, reports Sarah Brooke, Senior Claims Executive and Lawyer at Skuld.

Brooke noted that the recent appeal decision of May & Anor v Wavell Group Plc & Anor [2017] afforded a fresh approach on assessment of proportionality of costs for interim applications.

She said that the decision showed that the courts were willing to take a holistic approach to the proportionality test in complex cases and to award legal costs which might seem to be disproportionate to the value of the claim.

In the case in point 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 accepted and the proceedings then moved on to a detailed assessment of the appellants’ costs.

The judgment set out the appellants’ costs to be: just over £208,000 comprising about £131,000 profit costs, plus £42,600 in disbursements and VAT.

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

·       the sums in issue in the proceedings

·       the value of any non-monetary relief in issue in the proceedings

·       the complexity of the litigation

·       the additional work generated by the conduct of the paying party

·       any wider factors involved in the proceedings, such as reputation or public importance.

The Senior Costs Judge applied the proportionality test assessing the reasonableness of costs – which he determined in total to be a fraction under £100,000 – 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 became “entirely a matter of judgment”.

The case was appealed.

The Appeal Judge highlighted the effects of reasonableness and proportionality when assessing costs but said that the CPR 44.3(5) had to be given due consideration if a balance of scales between them was 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. The Appeal Judge disagreed with this approach, stating that to do so 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.

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.–defence/proportionality-of-costs/