In April 2013, a new test of proportionality was introduced to assess the amount of costs to be awarded in cases brought before the court. This article considers a recent decision taken by the Senior Courts Costs Office and the implications this will have on claimants in the future.
Once a litigated dispute has been resolved, the court has complete discretion to decide whether costs are payable by one party to another, the amount of those costs and when they should be paid. The general rule is that unsuccessful parties to litigation are often ordered by the court to pay the costs of the successful parties. This case reviews the cost assessment process taken by the court in deciding these matters.
Cost assessments: the two-stage test
When assessing the amount of costs to be awarded, the court will first consider whether those costs have been reasonably and necessarily incurred. Having established this, the court will go on to consider whether those costs reasonably incurred are also proportionate.
Proportionality means five factors will be considered:
May v Wavell Group Plc (2016)
Brian May brought an action in private nuisance when construction work, which involved the development of a basement of a neighbouring property, interfered with the normal noise levels in his own property. The claim settled when May accepted an offer of £25,000 from the neighbour. However, the court was required to assess the level of costs sought when Brian May claimed costs from that neighbour amounting to just over £208,000.
The facts were simple. There was an initial possibility of an injunction being sought, but the offer was accepted before a defence was filed; Mr May had made no attempt to negotiate a higher offer before accepting the £25,000. Unusually, Mr May instructed a QC directly to conduct the litigation, rather than instructing a firm of solicitors. As a result of this method of representation, his costs were higher.
The court’s discretion: Application of the two-stage test
The costs judge reduced Mr May’s costs in two stages. In the first stage, on the basis of reasonableness alone, the judge reduced the bill from £208,236 to £99,655. He noted that Mr May’s unusual means of representation was not a factor to be considered when assessing the reasonableness of recoverable costs.
When applying the second stage of the test, proportionality, the judge considered the five factors affecting proportionality outlined above. As a result, the reasonable figure of £99,655 was further reduced to a proportionate sum of £35,000.
The judge explained that, even where the costs incurred were reasonable, some of those costs were disproportionate for the following reasons:
What this decision means for future
The court’s two-stage approach to the assessment of costs may mean successful parties to litigation could see a significant reduction in the level of costs they can recover from unsuccessful parties.
Successful parties who incur costs that are disproportionate to the amount of sums in issue are unlikely to recover the full amount of those costs, even where such costs are reasonably and necessarily incurred. In particular, the importance of the amount of damages claimed is notable in cases where the level of costs far exceeds the value of the claim itself.
The amount that can be recovered in costs is not measured by the minimum sum necessary for the claimant to successfully bring the claim or the defendant to successfully defend it, but rather it is only a contribution to that sum. In order to avoid a situation like that in May v Wavell Group Plc, more thought ought to be given to costs management at every stage of proceedings. The approach taken by the court in this case may encourage parties in the future to consider more seriously the alternative forms of dispute resolution available to them.
Louisa McMurdo and Jane Bloomer
For further information please contact Jane Bloomer, Director of Property Litigation, on 01604 258079 or by email to [javascript protected email address].
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