Blog - Friday 27 February 2015

When the Test of Proportionality isn’t as Straightforward as it Seems

Decisions regarding the new proportionality test are few and far between, however in Savoye And Savoye Ltd v Spicers Ltd [2015] EWHC 33 (TCC) the High Court has reached the perhaps surprising conclusion that costs of £200,000 in a claim valued at £890,000 were disproportionate.

Summary

  1. Determining whether costs are proportionate is not as simple as comparing the costs incurred with the value of the claim.
  2. The relationship between the time spent by solicitors and barristers and the length of the hearings may prove a useful yardstick of proportionality.
  3. Where the same issue has been aired in another forum (such as adjudication) it would be expected that the costs of litigation would be lower to take into account the fact that significant work had already been done on the case.

Facts

The parties were involved in a dispute which centred on the interpretation of s.105 of the Housing Grants, Construction and Regeneration Act 1996.

The matter had been the subject of a non-binding adjudication, at which the Claimant had been successful. The adjudication agreement had provided for each party to bear its own costs.

Litigation had ensued. There were four hearings which lasted approximately seven hours in total. A site inspection took place which lasted just over one hour, excluding travelling time.

The Claimant was successful and secured a judgment for the full sum claimed, which was approximately £889,300.

The Claimant’s costs totalled £201,790.66.

Judgment

The Court considered the CPR 44.3(5) ‘Jackson Five’ issues which speak to proportionality. This Rule provides:

Costs incurred are proportionate if they bear a reasonable relationship to –

  1. the sums in issue in the proceedings;
  2. the value of any non-monetary relief in issue in the proceedings;
  3. the complexity of the litigation;
  4. any additional work generated by the conduct of the paying party; and
  5. any wider factors involved in the proceedings, such as reputation or public importance

The Court went on to say that, in cases such as Savoye, Courts should have regard to:

  1. The relationship between the amount of costs claimed and the amount in issue. 
  2. The amount of time said to have been spent by solicitors and barristers in relation to the total length of the hearing(s). 
  3. In the context of time spent, the Court can have regard to the extent to which the lawyers for the receiving party claiming and the receiving party itself has incurred costs and spent time before the Court proceedings in connection with any other contractual dispute resolution machinery agreed between the parties. 
  4. The extent to which the case is a test case or in the nature of a test case.
  5. The importance of the case to either party. If for instance an individual or a company is being sued for everything which he, she or it is worth, it may not be disproportionate for that individual to engage a QC even if the amount in issue is objectively not very large.

Applying these factors to the case before it, the Court concluded that:

  • It was reasonable for Leading Counsel to be instructed. 
  • The case revolved around a relatively narrow construction of one section of a statute.
  • The case provided some clarification of the law, but could not be considered a test case.
  • Although the case was of commercial importance to the parties, there was no hint that their continuing existence depended on the outcome of the case.
  • The litigation was effectively a re-run of the adjudication. This led to an inference that the costs of the litigation would have been modest in view of the fact that the legal teams knew exactly what the issues were.

Accordingly, the costs were held to be disproportionate.

The Court summarily assessed the Claimant’s costs at £94,465 – a reduction of some 63%.

Analysis

At first blush it may appear odd for the Court to decide that £200,000 of costs in a claim worth almost £890,000 was disproportionate. However, the Court’s analysis makes it clear that the financial value of the claim is just one factor which will be taken into consideration.

The case emphasises the importance of involving costs specialists in litigation, even where costs are being summarily assessed. There is sometimes a tendency to view costs issues as being ancillary to the main litigation. However, in Savoye, the reduction to costs amounts to 12% of its damages.

Just Costs are able to assist with summary assessments, whether by preparing written submissions or appearing as advocates. As specialist costs solicitors, our involvement gives your clients the best chance to maximise their recovery of costs.