A new proportionality test without accompanying guidance will be disastrous

Central to Lord Justice Jackson's costs proposals is a new proportionality test. This would replace the following test set down by the Court of Appeal in Lownds v Home Office [2002] EWCA Civ 365: 'What is required is a two-stage approach. There has to be a global approach and an item-by-item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which part 44.5(3) states are relevant.

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If the costs as a whole are not dis-proportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable.'

At the time of writing the exact wording of the new rule had not been published, but Jackson LJ's favoured approach is, 'that in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR rule 44.5(3). ?The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction.'

Confusion and inconsistency

There has been considerable pressure from some quarters for a new practice direction to give guidance as to how the new rule should be applied in practice. However, apparently this has been rejected and there will be no further guidance contained within the rules themselves. Specialist costs counsel Nicholas Bacon QC has predicted this will cause 'mayhem' and it would be a miracle if this did not prove to be the case.

To put this into perspective, I am currently acting in a routine fast-track highway tripping claim that went to trial. The claimant recovered £1,125 in damages. The claimant has submitted a bill of costs totalling over £80,000. Applying the current Lownds test, it is possible that a figure in the region of £40,000 may be allowed by the court. However, once the new proportionality test is in force, if the court adopted the approach envisaged by Jackson LJ of standing back and making a further reduction if the total still appears disproportionate, what figure would be allowed? I believe that £40,000 would self-evidently be viewed as still being disproportionate to the amount in dispute. So, what figure would be allowed? £1,125? £5,000? £10,000? Or some other figure? What advice should I be giving to clients?

The reality is we will have several months of chaos with different judges making wholly inconsistent decisions as to what approach to adopt in relation to the final 'appropriate reduction'. The matter will then be rushed to the Court of Appeal (if not higher) for them to give us Lownds 2. Would it not make more sense to give the guidance at the outset?

Uneasy transition

I also suspect that when we see the new rule we will discover that they have forgotten to include any transitional provisions to deal with the introduction of the new proportionality test. If that is so, it will mean that any detailed assessment undertaken after April 2013 (when the new rule will be introduced) will have the new test applied, rather than the Lownds one.

The new test is designed not simply to limit the costs payable by unsuccessful parties to litigation, but also to encourage a change in behaviour in the way litigation is conducted. It might seem somewhat harsh if parties who have been litigating for several years in the belief that costs will be recoverable on one basis are to discover at the conclusion of the claim a totally different test is to be applied, by which stage it will be far too late to do anything about it.

Second, if the new rule is to have retrospective effect, should paying parties be doing all they can to avoid settling costs disputes before April 2013? Surely it will be much more favourable for paying parties to have an assessment under the new test than under the existing one.

'Mayhem' may be putting it mildly.

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Simon Gibbs is a costs lawyer with Gibbs Wyatt Stone and writes their legal costs blog (www.gwslaw.co.uk/blog)