This is no longer optional!

Proportionality

pro·por·tion·al

(prə-pôr′shə-nəl) Adj.

1. Forming a relationship with other parts or quantities; being in proportion.
2. Properly related in size, degree, or other measurable characteristics; corresponding:
3. Mathematics Having the same or a constant ratio.

In the beginning…

The Genesis of CPR… CPR 1.1 and the overriding objective reads;

(1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost.

(2) Dealing with a case justly and at proportionate cost includes, so far as is practicable –

(a) ensuring that the parties are on an equal footing;
(b) saving expense;
(c) dealing with the case in ways which are proportionate –
    (i) to the amount of money involved;
    (ii) to the importance of the case;
    (iii) to the complexity of the issues; and
    (iv) to the financial position of each party;
(d) ensuring that it is dealt with expeditiously and fairly;
(e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases; and
(f) enforcing compliance with rules, practice directions and orders.

Despite this being the manner in which Courts proceed to deal with cases, both in the management of them as a whole and the costs management of them, it continues to be the case that, too much time is too regularly being expended in the running of cases that are of low value and do not warrant the levels of work routinely seen. As personal injury and clinical negligence practitioners in particular have seen, their costs are often being significantly reduced as a result of the overriding objective and in consideration of CPR 44.3(5)

(5) Costs incurred are proportionate if they bear a reasonable relationship to –
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance.

A most telling outcome of the application of CPR 44.5(3) was seen in May & Anor v Wavell Group Plc & Anor [2016] EWHC B16 (Costs)(16 June 2016). A similar application of proportionality has also been seen recently in the Family Division in the matter of K v K [2016] EWHC 2002 (Fam).

This is a situation that is untenable in the long term and sees vast sums of work in progress (WIP) written off. Most practitioners in this field find reverting to their own clients for shortfalls unpalatable and would rather not go down this route. So what is to be done?

The answer is costs management (oh no not again!). Without effective management of the costs in an action from the first months of instruction, solicitors and fee earners will find themselves continuing to be on the receiving end of proportionality decisions, the knock-on effect of which will be WIP write-offs.

WIP is an effective tool by which to value a Firm and is used for a variety of purposes. From ascertaining the average hourly rate of the fee earning staff to visiting the local Friendly Bank Manager with a request for an extension to the overdraft to take the business in a more Jackson proof direction. However, for a number of reasons the WIP against these cases, whether taken as a book or individually, cannot be relied upon as a barometer for the profitability of a Firm, Practice or Partnership if it bears little, if any, relationship to the likely actual recovery. Whilst I am not advocating a move toward a factory or conveyor-belt style of working, all practitioners within this field (or those likely to have cases budgeted) must have an eye on the escalation of their costs in an action that is worth a relatively small amount in damages terms.

Of course, to some degree, the budgeting of work under CPR 3 has seen a reduction in actual costs, in the Courts taking a view of work and fee estimates moving forward at an earlier stage. But what has been seen is that there continues to be a lack of understanding on the part of the profession in their comprehension of exactly what it means to exceed budgeted or agreed sums.

CPR 3.18 states;

In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

(a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and
(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.

Clearly, this is a message that once budgeted on an action the Court does not wish to revisit these items again at a later date. Whilst not impossible, good reason would need to be shown as to why a budget had been exceeded and the matter would have had to have ridden off on a steed named tangent to prove this point. A simple increase in value is insufficient and this was seen in the matter of Churchill v Boot [2016] EWHC 1322 (QB)

However it is dressed up, the simple answer is “management”. Both of the action and in regular auditing of the costs within it to ensure that once a budget is approved by the Court or agreed with your opponent, it does not run away and exceed those costs, whether by phase or on a gross sum basis. The revision of a Precedent H and the budgeted costs is not a retrospective activity and needs to be undertaken as contemporaneously as is possible as failure to do so will continue to see your business suffer.

Written by Jonathan Wiseman - Senior Costs Draftsman