Predicting the unpredictable: Supreme Court drops hint on application of proportionality test on additional liabilities
Back in June 2016 Master Gordon-Saker handed down judgment in the case of BNM v MGN Limited. The case saw a Bill of Costs of £241,817.00 reduced in the first instance to £167,389.45, thereafter, adjustments were made for proportionality (under the post 1 April 2013 test detailed in the CPR) and the assessed amount was allowed at £83,964.80. This gave an overall recovery of circa 34%. Sean Linley, Costs Consultant, PIC, reports.
One of the most concerning issues arising out of BNM was the application of the ‘new’ test for proportionality on additional liabilities. The claimed ATE Premium of £61,480.00 was most notably reduced to £30,000.00.
The case is due to be looked at again by the Court of Appeal in October where it is hoped a definite answer will be given on the relationship between additional liabilities and proportionality.
Notably, the BNM case relates to a defamation claim whereby both the CFA and ATE were incepted post 1 April 2013 (such claims continue to be exempt from the funding changes directed by LASPO).
Whilst in BNM it was found that proportionality did apply to additional liabilities, the slew of judgments since have not given any consistent or definitive answers.
In Rezek-Clarke v Moorfields Eye Hospital NHS Foundation Trust  EWHC B5 (Costs) (17 February 2017) Master Simons agreed with Master Gordon-Saker and held that “any item contained in a Bill of Costs may be disallowed or reduced on the ground that it was disproportionate”.
Conversely, Master Rowley (King v Basildon & Thurrock NHS Foundation Trust) and Master Brown (Murrells, Estate of v Cambridge University NHS Foundation Trust) found that additional liabilities were exempt from the new test of proportionality.
To complicate matters further District Judge Besford in Mather-v-Doncaster & Bassetlaw Hospitals NHS Foundation Trust stated that additional liabilities incurred pre-31 March 2013 were exempt from the new proportionality test.
This leads to three possible outcomes:
- All additional liabilities are subject to the new proportionality test;
- Additional liabilities incepted post 1 April 2013 are subject to the new proportionality test with additional liabilities incepted pre-31 March 2013 been exempt (as per the old costs practice direction);
- All additional liabilities are exempt from the new proportionality test.
The Supreme Court in the case of Plevin v Paragon Personal Finance Limited has offered hints as to how the issue may be finally resolved by the Court of Appeal in October.
Lord Sumption speaking in the Supreme Court judgment stated as follows;
“Costs in the Supreme Court were high, mainly because Mrs Plevin’s solicitors were acting under a conditional fee agreement (“CFA”), with after the event insurance (“ATE”). They were assessed at £751,463.84, including £31,378.92 for the solicitors’ success fee and £531,235 for the ATE insurance premium. It need hardly be said that these sums are wholly disproportionate to the relatively modest amount at stake, in the event just £4,500. This was a common feature of the costs regime introduced by the Access to Justice Act 1999, which ultimately led to its abrogation on the recommendation of Sir Rupert Jackson’s Review of Litigation Costs (2010). Subject to transitional provisions, the 1999 costs regime was brought to an end with effect on 1 April 2013 by Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.”
No doubt this issue will be brought to the Court of Appeal’s attention with Lord Sumption giving the clearest indication yet that additional liabilities incepted post 1 April 2013 will be subject to the new test for proportionality. The Supreme Court make it clear that the 1999 costs regime was brought to an end on 1 April 2013 and given the lack of transitional provisions for additional liabilities and proportionality it is a strong signal that proportionality will at the very least apply where additional liabilities are incepted post 1 April 2013.
Given Plevin concerned an ATE Premium in excess of £500,000.00 had the new test for proportionality applied (the original ATE Premium was incepted pre-31 March with top-ups obtained thereafter) then it would likely have had a significant impact upon the costs recovered by the receiving party.
Broadly speaking it is easy to see why the issue is to be addressed by the Court of Appeal given the potential wide-reaching impact the ‘new’ test of proportionality can have.
One thing BNM will still not provide is certainty as to how proportionality will be applied across the whole Bill of Costs with levels of adjustments at assessment varying wildly. Costs Budgeting does alleviate this issue to some extent, however, uncertainty will always remain.
Of course, all the time spent addressing the above issues could become moot if Lord Justice Jackson’s proposal to extend fixed costs is accepted as presumably fixed costs would already be set at a pre-determined proportionate level.
For now, the Supreme Court appears to be hinting (at least) that proportionality will affect additional liabilities in at least some form. All we can hope is that the issue is finally determined come October.
To contact him regarding this newsflash or any other costs matter,