Katherine Clark, solicitor at Weightmans, looks at how judicial focus on proper case management has led to tighter controls on what constitutes proportionate costs

When it comes to litigation, there has been a strong emphasis in recent years on the importance of case management and adherence to court orders and directions. The consequence of failing to adhere to deadlines set by the court can be a hefty cost sanction; for example, in the infamous case of Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537, Mr Mitchell lost the opportunity to recover costs of £500,000 from NGN due to his solicitors’ failure to file their cost budget on time.

Judicial focus on proper case management has led to tighter control on whether parties’ costs are reasonable and proportionate. The most obvious way in which the court maintains cost control is through cost budgeting. All parties in a multi track action must complete a pro-forma budget document, detailing incurred and anticipated costs for each stage of the claim.  

In the recent case of May and another v Wavell Group plc and another [2016] EWHC (B16), the court demonstrated clearly that they are prepared to take a strong line when it comes to the issue of proportionality of costs. This was a nuisance claim issued by Queen’s Brian May against the developer Wavell Group plc. May brought a county court claim in respect of the nuisance caused by his neighbour’s basement development.  

The claim settled in its early stages for £25,000; what followed was the more contentious issue of Mr May’s claim for costs. The defendant argued that his claim for £208,000 was unreasonable and disproportionate. Unsurprisingly, the court agreed. First, at a detailed assessment hearing, the amount allowed was reduced to just under £100,000. Then the court applied the proportionality test set out in Rule 44.3 (5) of the Civil Procedure Rules. This provision provides that costs are only proportionately incurred 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.

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The court clearly felt that the litigation was not particularly complex and that the subject matter was not of public importance; Mr May’s costs were further reduced to £35,000.

The issue as to the value of litigation was addressed in Kazakhstan Kagazy plc v Zhunus [2015] EWHC 404 (Comm). The court’s guidance was that, where the sum at stake in litigation is modest, the standard position is that the recoverable costs should be the least amount that a party could be reasonably expected to spend in order that the case was conducted and presented well. However, in Mr May’s case, the judge departed somewhat from that position, expressing the view that, in lower value claims, the successful party will only receive a contribution towards their legal costs and that legal advisers should make their clients aware of this from the outset.  

Another recent case where the court has shown its appetite to strictly analyse the costs incurred is the case of BNM v MGN Limited [2016] EWHC B13 (Costs). Again, a strong line was taken in relation to costs and the judge reduced the costs by half.  

This case related to an action to prevent the defendant from using confidential information. The claim settled not long after proceedings had been issued with the defendant agreeing to pay the claimant £20,000 plus the claimant’s costs.  

The costs were initially reduced on detailed assessment from £242,000 to £167,000. However, in applying the proportionality test, the court then further reduced the costs to £84,000.

The Jackson Reforms

It is abundantly clear from these cases that the courts are taking a hard line on the issue of costs and are not prepared to accept parties incurring unreasonable and disproportionate costs. Since the Jackson reforms in April 2013, we have seen a plethora of cases setting precedents on how the court will deal with parties failing to adhere to court directions.

The Jackson Reforms provided the biggest overhaul of the Civil Procedure Rules since their introduction over a decade earlier.  The reforms sought to tighten up the way in which litigation was being conducted, thereby promoting access to justice and controlling costs.  It wasn’t long before we saw the full force of these reforms at work, when the Court of Appeal handed down the judgment in the Mitchell case, just months after the introduction of the new rules.  It was clear from the outcome in that case that the judiciary would be strictly interpreting and implementing the Jackson Reforms.

It appears that the courts have now turned their attention to costs by providing guidance in these two cases on how the issue of proportionality will be applied.

As the judge made clear in Mr May’s case, clients should be made fully aware from the outset of a case as to the likely recoverability of costs. Even a wholly successful litigant will only recover a contribution towards their costs in claims of modest value. There is, therefore, a real need for lawyers to ensure that the costs incurred are reasonable and proportionate and that clients are fully aware of the risks.