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Unreasonable reasonableness!

James Perry looks at growing concerns within the profession regarding the proportionality test when assessing a bill of costs.

The latest NLJ/LSLA Litigation Trends Survey published this month does not make for good reading citing the “twin spectres of higher court fees and ever increasing disclosure costs” as being the two big reasons why litigators are not so certain about the future. 60% of lawyers say that higher court fees have already affected clients’ decisions on whether or not to commence proceedings and 87% believe it will affect future decision-making by clients. The obvious message here being that if you are going to litigate you need to either accept the risks or be very sure indeed that you stand a decent chance of getting a return on your investment.

In addition to these hikes the profession is getting attacked from other angles as well. Sadly, when all we are trying to do is deliver quality litigation services that are value for money, it is a shame to see our determination being pegged back by the legislature and the judiciary. Not only are high fees and disclosure rules making litigation look unattractive, so too are the rules on things such as proportionality when the courts assess a “winning” party’s legal bill. This is another area which really does highlight how a system of rules designed to help lawyers and clients is actually beginning to put people off litigating altogether.

As most litigants and their lawyers know at the end of a case, if you win, usually your costs are recovered from the losing party. It used to be a rule without exception which was understood by everyone. It was simple and we took confidence and comfort in it. The loser in litigation paid. Fullstop!

That was until the CPR rules came in and by the mid-noughties things began to change. Then in 2013 the new test on proportionality arrived to thwart this basic principle altogether. 

Recently we’ve seen how the courts apply the principle of proportionality in the case of BNM v MGN Ltd [2016] Lexis Citation 62 which is bound to upset any credit professional. This case concerned a mobile phone which was lost and fell into the hands of the editor of the Sunday People. Not only does the case highlight how unfortunate it can be to be a celebrity , but it also illustrates the unworkable application of the proportionality test when assessing your legal spend.

In short, the court assessed BNM’s reasonable costs at £167,389 (so reduced the original bill he submitted (which was probably somewhere in the region of £250,000+) down line-by-line) and then went on to hold that the reasonable costs were still disproportionate and slashed it again by awarding BNM only £83,964.80! It is the new part where your reasonable costs are still deemed to be unreasonable that we’re all scratching our heads about. In this case, it meant that BNM can now only recover this sum from his opponent and has to swallow the rest. I suspect BNM will have had to pay for about 70% of his bill, something in the region of £200,000! I also suspect all his pockets now have zips!

No I’m not crackers. This is actually what happened, and when you try to glean precisely why it happened nothing within the Judgment really helps you. As lawyers we search for hard answers and in the absence of something definite we try to apply some logic. Here, there is no evidence to be found of either and that is because the rule can be interpreted so widely. It is not really the Judges’ fault. It is the Rules Committee who brought this in that have created such widespread uncertainty.

For those that are interested, the relevant rule within our rule book is CPR 44.3. This rule states that proportionality is to be considered after a line-by-line assessment of reasonableness at the end of a detailed assessment. For example, you might claim two units of time for a letter and two for a call but then be told by the Judge at one of these hearings that they are going to award you only one unit for the letter and one for the call.

I have been advising my clients of these judicial foibles for years and despite the explanation being well-rehearsed by now it still always sounds absurd when I’m running through it with them. Now, the new proportionality dimension adds to the absurdity by stating that the court must now also look at whether the often illogical line-by-line calculation bears any reasonable relationship to the sums claimed in your case. Its very existence means clients will recover even less and wins are further diluted!

It seems to me that this rule plays into the hands of a defendant who, if they can file a defence littered with issues (even if those issues are not going to succeed) they will force a claimant to settle because there will be no definite reward for the work that is involved getting the matter to Trial.

The big problem is how can anyone apply this test and be able to properly justify what they have done? As I said, I’m not blaming the Judges here. I think they have a difficult job to do because it can be done using their “gut” feeling on what is best, which is not exactly something lawyers and Judges are used to. Legal certainty is after all the cornerstone of our Judiciary.

I believe it is the distinct lack of science behind the test which makes this rule such a problem. The uncertainty naturally puts people off. What credit professionals need are robust contractual terms which tackle the point, and ensure that the costs incurred in recovering a debt are recoverable on the indemnity basis and not subject to the proportionality rule.

In this case I feel sorry for the claimant and  his lawyer who had to explain all of this to him. The simple fact is that they went to see their lawyer because a civil wrong had been committed; their lawyer took action and won a legal case for them. The claimant had no understanding that a win would cost them a small fortune! In fact, nobody did and that is exactly the point. Only the person right at the end of the process determines this outcome and that has to be wrong. Lawyers are supposed to be forewarned to be forearmed. They are supposed to know the rules of the game so they can properly protect clients. 

So in closing I draw an analogy. Lottery tickets which cost this much become games only the rich are ever going to be prepared to play. It used to be the case that if you entered the draw and your numbers came in you would collect your winnings and so for many people they knew their investment in that ticket was a good investment. Now, even before you have collected your winnings, it seems you have to buy a second ticket just to enter the lottery of collecting your legal costs. It’s an accumulator and the odds are stacked in favour of the loser, not the winner! 

Author: James Perry, Director Technical, Co-Manager of the Recoveries team

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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