PROPORTIONALITY AND ADDITIONAL LIABILITIES

on Thursday, 06 July 2017.

A new proportionality test was introduced as part of the Jackson Reforms. The new test of proportionality under CPR Rule 44.3 (2) provides that “Where the amount of costs is to be assessed on a standard basis, the Court will – (a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and (b) resolve any doubt which it may have as to whether costs were reasonably and proportionally incurred or were reasonable and proportionate in amount in favour of the paying party”.

The rules do not mention the application of this new test to additional liabilities. However, a significant number of cases continue to run where additional liabilities continue to be recoverable as CFAs and ATE insurance policies were incepted prior to 1st April 2013. There are also a number of cases post 1st April 2013 where additional liabilities are still recoverable, such as insolvency cases where the funding arrangements were entered into prior to 6th April 2016, mesothelioma cases, publication and privacy cases and clinical negligence cases. The success fees remain recoverable in the first of those 3 examples and the ATE Premium relating to the insuring of the costs of obtaining own liability and causation reports remains recoverable in clinical negligence cases.

There have been numerous competing judgments in relation to how the new proportionality test applies to additional liabilities.

The matter of BNM -v- MGM Ltd (2016) EWHC B13 (Costs) was a matter in which the Claimant’s Bill of Costs totalling £241,817 was reduced to £167,389.45. The claim concerned a primary school teacher who had a relationship with a premier league footballer. She lost her mobile phone, which ended up in the hands of a national newspaper and therefore the Claimant brought proceedings seeking an injunction to restrain the paper from using or publishing confidential information taken from her phone, damages and an Order for delivery of any confidential information. The claim was concluded by a Consent Order at an early stage and damages were agreed at £20,000 plus costs. Master Gordon-Saker held that the new proportionality test applies to both base costs and any additional liability. However, this was a case in which the additional liabilities arose from funding arrangements entered into after 1st April 2013.

The case of King -v- Basildon & Thurrock University Hospitals NHS Foundation Trust (2016) EWHC B32 (Costs) was a clinical negligence claim with additional liabilities pre dating 1st April 2013. In this case, Master Rowley declined to follow the BNM decision. His reasoning was that under the old CPR Part 44, the definition of costs included additional liabilities. Under the new rules, additional liabilities were not included in the definition of costs. Therefore, as the new proportionality rules state that “Costs are proportionate” then additional liabilities can be excluded from that definition. Policy decisions were also advanced in that Parliament had preserved the recoverability of additional liabilities in run off matters.

If additional liabilities were aggregated with base costs in order to assess proportionality, then this would have the effect of making those additional liabilities irrecoverable.

This reasoning was also followed in the case of Murrells -v- Cambridge University Hospitals NHS Foundation Trust (2017) EWHC B2 (Costs). In this matter, it was stated that in many run off cases, the success fee would be fixed and it would therefore be odd if these sums were effectively reduced by the new proportionality test.

Ultimately, an appeal is due to be heard in the BNM decision later this year. Hopefully further guidance from the Courts will be provided.