How should judges be applying the new proportionality test?
8th June, 2015
We still don’t really know, and the longer that goes on for, the faster Lord Jackson’s recommendations for an extension of fixed fees into the multi-track is likely to be implemented. This will enforce proportionality in the same way the fixed costs regime has done to the fast track.
The new proportionality test will not apply to work undertaken before 1 April 2013, nor to any work, pre or post 1 April 2013, where proceedings were issued before 1 April 2013.
Master Haworth has described the new test as “difficult” as well as “arbitrary and subjective”, and raised concerns that “uncertainty is the enemy of costs saving and encourages satellite litigation” i.e. the opposite of what it was designed to achieve. Professor Dominic Regan went as far as to say “the new proportionality test is an utter mystery”.
The limited guidance that is available includes Savoye and Savoye Ltd v Spicers Ltd  EWHC 33 (TCC) whereby, following a claim settling for damages of £889,300, costs of £201,791 were reduced to £96,465 on the grounds that the bill was not reasonable or proportionate (equating to just 10.85% of damages). However one of the numerous difficulties with that authority was the conflation of the issue of proportionality with reasonableness.
Kazakhstan Kagazy plc v Baglan Abdullayevich Zhunus  EWHC 404 (Comm) heard in the Commercial Court of the High Court stated that the amount to be recovered from the other side in costs is “the lowest amount a party could reasonably be expected to spend in order to have its case concluded and presented proficiently, having regard to all the circumstances.” This harks back to King v Telegraph Group Ltd (CA)  EWCA Civ 613 whereby the approach was to asking whether a litigant (of adequate means) paying costs out of his own pocket, would have been prepared to pay that level of costs in order to achieve success.
Specialist costs counsel, Andrew Hogan’s view is that:
“The notion of a “long stop” discount test of proportionality, is a recipe for satellite litigation, as it will introduce chronic uncertainty into the assessment of costs, both in terms of when such a deduction will be applied and in terms of what the quantum of deduction might be. Perhaps, more significantly, it is even more disappointing that even now, some 15 years after Lord Woolf ‘borrowed’ the concept of principle of proportionality from European Union law, it remains a nebulous and uncertain concept, hard to define and even harder to apply, which is conceptually very odd, when one considers that the stated aim of Jackson was to reduce perceived disproportionate costs to a proportionate level. If you can’t define proportionality, how can you judge whether you have succeeded or not in moving from a disproportionate model of costs to a proportionate one?”
It appears that those leading reform believe the only way of achieving true proportionality is by way of fixed costs in some form or another across the board.
Watch this space.