The Appeal Judge has overturned the first instance decision on the proportionality of costs and substantially increased the costs allowed at first instance.

May & May v Wavell Group PLC & Bizarri [2018] EWHC 23

In January 2018 the decision of Costs Master Rowley in the case of May & May v Wavell Group PLC & Bizarri [2016] EWHC B16 (Costs) was overturned and the Appellants’ recoverable, proportionate costs were increased from £35,000.00 (plus VAT) to £75,000.00 (plus VAT). Whilst this is not a High Court decision, it is significant in that it provides some guidance on the application of the “new proportionality test” contained in rule 44.3(5) CPR.

The underlying litigation was a claim in a private nuisance dispute. Proceedings were issued and the Claimants accepted the first offer of £25,000. It followed that the Claimants were entitled to their reasonable costs of the proceedings, to be subject to assessment on the standard basis. The case settled at an early stage prior to any costs budgeting by the Court. All the work was done post 1 April 2013 and subject to the new test of proportionality.

The Claimant claimed costs totalling £208,236.54. The first stage assessment of the costs on an item by item basis resulted in a figure of £99,655.74. Master Rowley then concluded that this was still disproportionate for a claim which settled pre-trial for £25,000 and made a further global reduction, to reflect proportionality, down to £35,000 plus VAT.

The Claimants appealed the assessment. However, there was no challenge to the finding that the reasonable costs were £99,655.74, even though this had reduced the claimed costs by over 50%. The appeal was restricted to the “Stage 2” application of the proportionality test as required by rule 44.3(5) CPR.

On appeal, His Honour Judge Dight, CBE sitting with Master Whalan held that the proportionality test had to be applied alongside the line-by-line analysis.

Judge Dight said that “The rules do not specifically state that the assessment has to be undertaken in two stages but they do require the costs judge to apply two tests, namely reasonableness and proportionality, and it is open to the costs judge to have an eye to both as he or she undertakes an item by item assessment having in mind a figure or range of figures which would be proportionate but it is equally open to the judge to apply the tests sequentially”.

He criticised the approach of Master Rowley and said “I respectfully disagree with the learned Master insofar if it is right that he used his description of the new proportionality test as a blunt instrument as a reason to make a substantial reduction in the reasonable costs to bring them down to a rough and ready but proportionate amount”.

Whilst the rules may be “difficult” to apply in practice, they required the “specific factors in CPR 44.3(5) to be focused on and a determination to be made as to whether there is a reasonable relationship between them”.

Judge Dight ruled that “the tests of reasonableness and proportionality are intended to work together, each with their specified role, but with the intention of achieving what is fair having regard to the policy objectives”.

Four separate grounds of appeal against the initial decision had been considered. Thereafter Judge Dight concluded that Master Rowley had “misinterpreted and misapplied the new proportionality test. In particular, he undervalued the sums in dispute, by a considerable margin in county court litigation, and he gave too little weight to the complexity of the litigation. Further, he reduced the costs disproportionately because of early settlement.”

In the circumstances His Honour Judge Dight and Master Whalan approached the application of the proportionality test afresh and concluded that the proportionate figure was £75,000.00 plus VAT. This is more than double the £35,000.00 plus VAT that had been allowed at first instance.
The outcome of this case clearly is a victory for the Claimants. The importance of the Court taking into account all five matters listed in 44.3(5) in determining proportionate costs and giving detailed reasons to merit a reduction clearly emphasises within the decision.