Posted by Chris Stephenson, a costs lawyer at Litigation Futures sponsor Just Costs
“Metaphorically speaking, to open a can of worms is to examine or attempt to solve some problem, only to inadvertently complicate it and create even more trouble. Literally speaking, opening a can of worms, as most fishermen can attest, can also mean more trouble than you bargained for.” (How Did the Term “Open a Can of Worms” Originate? – Matt Soniak 28.06.12)
I do not consider that there is a better way of evaluating the courts’ initial attempts to apply the new test of proportionality since its introduction.
In his final report, Lord Justice Jackson said: “Disproportionate costs do not become proportionate because they were necessary. In my view, that disproportionate element of the costs cannot be saved, even if the individual items within it were both reasonable and necessary”
The new relevant rules state:
These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost (emphasis added).
(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –
(a) on the standard basis; or
(b) on the indemnity basis,
but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
(2) Where the amount of costs is to be assessed on the 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.
On 29 May 2012, prior to the new rule being introduced, the then Master of the Rolls, Lord Neurberger, gave a speech to the Law Society giving his views on proportionality.
He said: “Any question relating to proportionality and any question relating to costs is each very case-sensitive, and when the two questions come together, that is all the more true. The law on proportionate costs will have to be developed on a case by case basis.
“This may mean a degree of satellite litigation while the courts work out the law, but we should be ready for that, and I hope it will involve relatively few cases.”
We are now nearly four years into the changes presented by the new test of proportionality and we appear to be no closer to “working out the law”. Below are two examples of the contradictions between judges, which is alarming:
In BNM v MGN Limited  EWHC B13, Master Gordon-Saker included additional liabilities when applying the new test of proportionality. He said: “Ringfencing and excluding additional liabilities from the new test of proportionality would be a significant hindrance on the court’s ability to comply with its obligation under CPR 44.3(2)(a) to allow only those costs which are proportionate.”
On finding the costs disproportionate, he reduced all items by a similar amount, saying: “In my judgment no more than one half of that amount could be considered proportionate.”
However, in King v Basildon & Thurrock University Hospitals NHS Foundation Trust  EWHC B32 (Costs), fellow costs judge Master Rowley rejected this approach to additional liabilities.
Specifically rejecting the principle set out in BNM, he said: “Consequently, I think the reasonable costs so far can be assessed using the 44.3(5) test for proportionality on the basis that the costs to which it refers are only the base costs. The additional liabilities would then fall outside that proportionality test.”
Then there is the question of how the appropriate reduction, as referred to by Lord Justice Jackson, is applied.
In Hobbs v Guy’s and St Thomas’s NHS Foundation Trust  EWHC B20 (Costs), the court considered individual items which led to the costs being disproportionate and reduced appropriately, whereas in BNM, a reduction was made on a global basis to all items.
So there is clear disagreement between masters in the Senior Courts Costs Office on a fundamental element in applying the test. The situation is compounded by an inability of the judiciary to agree on something as simple as how to apply an appropriate reduction once costs have been found to be disproportionate.
How can this uncertainty have anything other than a detrimental effect on practitioners and clients? How can a practitioner provide accurate advice to a client on the application of the test, when the judges themselves cannot reach a consensus?
Nearly four years in and the courts have made little headway on this fundamental issue. The CPR were first introduced in 1999 and Lownds v Home Office, which firmly established the application of the pre April 2013 test of proportionality, was heard in March 2002. As the importance of the new test of proportionality grows, so does the delay in providing practitioners with guidance on how to apply it.
Numerous questions continue to whirl around practitioners’ heads. The most important of these are:
Who will be responsible for the costs of ’working out the law’? The rule makers? The court? No, it will be practitioners and our clients.
Can it be honestly said, with reference to the new overriding objective, that the costs of ‘working out the law’ are themselves just and proportionate? Many would say not. We all suffer while the courts struggle to grasp and implement the new test.