The Senior Costs Judge was wrong to apply the new proportionality test to additional liabilities in a case that began before LASPO took effect on 1 April 2013, the Court of Appeal has ruled.
However, it did not offer any hoped-for guidance on the new test, although it is understood that three conjoined cases raising the issue are due to be heard soon.
In BNM v MGN, a privacy case, the defendant media group agreed to pay damages of £20,000 plus costs.
The claimant sought costs of £241,817, including a 60% success fee for her solicitors, Atkins Thomson, 75% for both counsel, and an after-the-event premium of £58,000 plus insurance premium tax of £3,480 from Temple Legal Protection.
At the detailed assessment, Senior Costs Judge Gordon-Saker ruled  that, subject to proportionality, all the success fees would be allowed at 33% and the ATE premium allowed as claimed. On the line-by-line assessment, the costs were reduced to £167,389, including base solicitor costs of £46,000 and base counsel fees of £14,000.
Master Gordon-Saker decided that the new proportionality test applied to the additional liabilities and concluded that it demanded that he halve the costs he had allowed.
Giving the judgment of the Court of Appeal , the Master of the Rolls, Sir Terence Etherton, said: “It seems perfectly clear that… subject to specific saving and transitional provisions in the 2012 Act, the recoverability of success fees and ATE insurance premiums in an order for costs was abolished by the 2012 Act and, where they remain recoverable by virtue of those saving and transitional provisions, they are recoverable in accordance with the old costs rules, including those relating to proportionality, reasonableness and assessment”.
He continued: “If it had been intended that the new proportionality test was to apply to funding arrangements to which the statutory saving and transitional provisions applied, that would have been made clear in the statutory provisions or the new costs rules or both and it was not.”
Both the Senior Costs Judge and the parties had referred to the Jackson report in seeking to interpret the new rules, but Sir Terence said the fact that the 2013 reforms did not entirely reflect all the recommendations made the report “an unsound basis for undermining what I consider to be the clear intention of the drafters of those provisions, rules and practice direction”.
The court remitted the case to the Senior Costs Judge to consider the proportionality of the costs again.
It also partially upheld MGN’s cross-appeal over whether it was reasonable for BNM to issue the proceedings without giving prior notice, when the publisher said they could have reached an agreement without the need to issue and increase the costs.
Master Gordon-Saker found it was, but the Court of Appeal said there were certain factors he had not taken into account in reaching that decision.
But Sir Terence said: “The Senior Costs Judge is highly experienced. Notwithstanding the points I have mentioned, I do not consider that it would be right for us to say on the appeal that there is only one answer to the question [of whether BNM acted reasonably].
“I consider that the appropriate course would be to remit the matter to the Senior Costs Judge to re-consider the issue of prematurity, making it explicit that he has taken the matters I have mentioned into account.”
Francis Kendall, vice-chairman of the Association of Costs Lawyers, described the ruling as “sensible”, adding: “Even now, four years on, it is a decision that will impact a significant number of cases.”
But he said it was “disappointing” that the court chose not to give any guidance on the application of the new proportionality test.
“But we understand that three conjoined cases are set to come before the court shortly that will hopefully be a vehicle for such guidance. The disputes caused by the continuing uncertainty are not helpful and we urge the Court of Appeal to give the profession the strong steer it needs.”
In an obiter point of note for costs specialists, the appeal court rejected MGN’s argument that ATE insurance premiums were ‘expenses’ rather than ‘costs’ under the definition of costs in the new CPR 44.1(1).
It said: “They have nothing to do with the cost of issuing and progressing the litigation, any more than the premiums on a householder’s or car owner’s insurance which contains litigation cover.
“Both before-the-event insurance and after-the-event insurance offset the risk of a person’s financial exposure as a result of litigation but they are not expenses of the litigation itself.”
Simon Browne QC and James Laughland of Temple Garden Chambers, instructed by Atkins Thomson, acted for the claimant, with Alexander Hutton QC and Jamie Carpenter of Hailsham Chambers, instructed by Reynolds Porter Chamberlain, for the defendant.