Straight talking about proportionate costs

We’ve been waiting for nearly two years for some guidance from the courts on the new proportionality test for costs introduced in 2013. It has come from the Technology and Construction Court in Savoye v Spicers Ltd – no surprise there since the TCC, and in particular its former presiding judge Jackson LJ, has always been in the vanguard when it comes to case and costs management reform.

The purpose of the new test (the Jackson test) is to reduce costs bills so that losing parties will not be required to pay disproportionate costs. The amended version of the Civil Procedure Rules that came into force in April 2013 also added the phrase “and at proportionate cost” to the overriding objective in CPR 1.1 and the relief from sanctions provision in CPR 3.9, and introduced costs budgeting and case management powers designed to enable the court to prevent a party from incurring disproportionate costs.

The Jackson test

Minimal guidance about how the Jackson test should be applied is given in CPR 44.3(5) which states:

“Costs incurred are proportionate if they bear a reasonable relationship to:
(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) Any additional work generated by the conduct of the paying party
(e) Any wider factors involved in the proceedings, such as reputation or public importance”.

In a speech in May 2012, Lord Neuberger said that the law on proportionate costs would have to be developed on a case by case basis but he hoped it would require relatively few cases. We still have no guidance from the Court of Appeal.

When does the Jackson test apply?

Savoye v Spicers Ltd is one of the first cases to look properly at the Jackson test. This is not surprising since the old Lowndes test applies to all costs in cases commenced before 1 April 2013 and to costs incurred in respect of work done before that date in cases begun on or after 1 April 2013. The Jackson test only applies to costs incurred from 1 April 2013 in cases begun from that date onwards.

Savoye concerned a claim to enforce an adjudicator’s decision. The proceedings began in September 2014 and the notice of adjudication had been given in June 2014, so all of the costs incurred in the proceedings were subject to the Jackson test.

The decision in Savoye

Akenhead J summarily assessed the costs following what the judge described as a “one issue case” involving three short hearings relating to an application for summary judgment plus a trial. Total time taken was about seven hours plus a short site visit. Savoye was successful and claimed costs of a little over £200,000. The judge held that Savoye’s costs were disproportionate - the claim was for just under £900,000 - and should be assessed at £96,465, a reduction of more than 50 per cent.

The relevant factors

Akenhead J reviewed the factors in CPR 44.3(5) and gave his own expanded version of the list:

• The relationship between the costs spent and the amount in issue.
• The amount of time said to have been spent by solicitors and barristers in relation to the total length of the hearing(s).
• Duplication where costs and time have been spent on the same issue in any other contractual dispute resolution machinery such as adjudication, in which the parties were required to pay their own costs.
• The extent to which the case is a test case or in the nature of a test case.
• The importance of the case to either party.

Why were the costs disproportionate?

• Too much partner time. 111 hours claimed, 20 allowed.
• Too much time all round. 364 hours or about 8 to 9 weeks of time was not reasonable or proportionate particularly when the basic issue had already been ventilated and investigated in the adjudication and the time was incurred by experienced construction lawyers who seek to justify large hourly rates. 196 hours allowed (including 20 partner hours).
• Savoye insisted on continuing with its application for summary judgment and Spicers should not have to pay for that risk-taking approach.
• Counsel’s brief fee of £12,000 for the final trial was disproportionate, given her extensive involvement beforehand. It was reduced by 50 per cent.

Other decisions

Judges in the TCC have been prepared to state that costs are disproportionate, both at the budgeting stage (Willis v MRJ Rundell & Associates Ltd) and at the end of a case even where costs are not being summarily assessed (Laing O’Rourke Construction Ltd v Healthcare Support (Newcastle) Ltd). In Laing Edwards-Stuart J suggested proportionate figures for each party so as to help the parties to agree costs and avoid detailed assessment, or to assist the costs judge.

Some judges in other courts have also spoken bluntly about disproportionate costs. In Vitol Bahrein EC v Nasdac General Trading LLC a foreign claimant applied to restrain foreign defendants from joining it to proceedings in the United Arab Emirates even though all agreed justice could be done there or in England. Both sides’ costs for a single day’s hearing totalled more than £400,000. Males J in the Commercial Court described the costs as grossly disproportionate. He limited each side’s recoverable costs to £75,000.

Comment

Given the nature of the proceedings in Savoye, where the issue had already been ventilated in an adjudication, the conclusions on costs cannot be applied directly to a different type of case. However, the judgment contains plenty of comments of general application, including those referring to time, particularly partner time, where specialist firms are charging high rates.

In Willis v MRJ Rundell & Associates Ltd Coulson J accepted that a professional negligence claim can involve costs that other commercial disputes may not. This is because expert evidence will almost always be necessary to demonstrate that a professional fell below the standard required. It is also the case that in assessing what would be proportionate costs, allowance needs to be taken of the non-quantifiable, but potentially serious, damage to the defendant's professional reputation that may be caused by the claim.

No doubt other judges, including costs judges, will be affected by the views expressed in these cases. Anyone who doubted the willingness of the courts to slash recoverable costs bills has been warned.

Click here to read the judgment in Savoye v Spicers Ltd