Costs: a harsh lesson on proportionality

Since the new proportionality rule came in in 2013, there has been relatively little insight from the courts on how exactly they will operate it – with the issue still to come before the Court of Appeal.

So last week’s High Court judgment by the senior costs master Master Gordon-Saker in BNM v MGN Limiteddoes at least cast some more light on how the courts will apply the rule – even if what it reveals is somewhat ugly.

The judgment is a clear illustration of what we already know to be the new position: costs that are reasonable, costs that need to be incurred in order to bring the case, will not be recoverable except to the extent that they are ‘proportionate’.

The same goes for a reasonable after-the-event insurance premium, without which a claimant would probably not have the confidence to litigate.

The master slashed the successful claimant’s costs in half on the basis of the new proportionality rule. 

Where the judgment is interesting is that it also shows us a bit more about the extent to which a judge will look at other factors, besides just the monetary value of the damages, in determining whether or not costs are proportionate.

Master Gordon-Saker considered whether there were any ‘wider factors’ at play, and appeared to indicate that if the claimant had been ‘in any real way’ seeking to protect her reputation, that might have justified higher costs being allowed.

But more worryingly, the judge did not feel that the defendant’s conduct gave any reason to award higher costs.

He noted that: ‘While the defendant’s conduct can fairly be categorised as reprehensible, so much of civil litigation is based on the bad behaviour of others. I cannot see that there was any wider public importance… I do not think that the conduct of the defendant added significantly to the costs.’

The ‘reprehensible’ behaviour did not relate to the way that the litigation procedure itself was conducted, as that presumably could have attracted indemnity costs, which are not subject to the proportionality rule.

To my mind, the key issue in a case such as this, where a very large chunk is lopped off the winning litigant’s recoverable costs by the proportionality axe, is who actually bears the loss?

Will law firms take it on the chin, and write off the unrecoverable time? The proportionality rule makes it extremely difficult to bring unstraightforward cases; cases that involve expensive experts; or frankly, cases against tough opponents who are willing to drag out and escalate the litigation without crossing into conduct bad enough to justify indemnity costs.

Or will law firms attempt - as far as they can - to recover the remainder of their unrecovered costs from the client? If so, then defendants - who will be presented with a lower, ‘proportionate’ adverse costs bill - will be benefitting from the proportionality rule, to the detriment of the claimant clients who have fought and won their case.

The very real risk is that access to justice will drift even further beyond the fingertips of those seeking to enforce the rights that the law apparently gives them.

Rachel Rothwell is editor of Litigation Funding magazine

Follow Rachel on Twitter: @LawJourno