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May v Wavell: The proper application of the 'new proportionality test'; but how useful is this judicial guidance?

View profile for Richie Rees
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The Appeal Judge has overturned the decision of Master Rowley and increased the Appellants’ recoverable, proportionate costs from £35,000 to £75,000 (plus VAT), following an accepted line-by-line assessment of reasonable costs of £99,655.74. The Judgment has provided some guidance on the application of the ‘new proportionality test', whilst explaining how the initial decision was a misapplication of law rather than an unchallengeable exercise in discretion.

The Appeal Judge acknowledged early on that the final figure ordered by Master Rowley could not be overturned just because a different figure may have been reached by a different judge when considering the same factors. However, the decision has been successfully appealed as an error in law; a misinterpretation and misapplication of the new test. The judgment states that Master Rowley:

“…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 disproportionality because of early settlement."

Having read the judgment there are some significant questions that could be asked of the conclusions reached by the Appeal Judge when deciding that the initial decision was a result of a misapplication of the law. On several occasions the initial approach and reasoning of Master Rowley appears to be accepted, but then a finding is made that his reasoning resulted in a misapplication of that part of the 'new test'.

One example is where the Master observed that a proportionate sum for a matter that concludes before trial will be smaller than if the same matter proceeded to a final hearing. This is a broadly accepted principle, with the Appeal Judge confirming that the stage of settlement is a relevant factor under CPR 44.4 which forms part of the proportionality assessment despite not being expressly listed in CPR 44.3(5). However the Appeal Judge then concludes that this seemingly logical observation incorrectly resulted in a 'notional reduction' to the proportionate costs awarded. The paragraph expressly referred to by the Appeal Judge (46), makes no reference to a notional reduction; yet this is found to be one of the misapplications made in the first instance. Furthermore, the Appeal Judge's recalculated sum of £75,000 claims to exclude this notional reduction without stating how much it had supposedly amounted to in the initial calculation that produced a proportionate sum of £35,000.

Notwithstanding these concerns, the decision stands as an authority on the 'new proportionality test' that will be referred to in future Detailed Assessments. The Appeal Judge considered four separate grounds of appeal against the initial decision and then permitted the appeal with a broad conclusion that, had the Master properly applied the proportionality test, he would have reached a figure that was far closer to the costs that had been initially awarded on a line-by-line assessment.

The initial figure of £35,000 was criticised as not appearing to be based on any specific mathematical calculation or explanation of the weighting of the various factors that comprise the proportionality test. When reaching the new figure of £75,000, no equivalent mathematical calculation is provided and, arguably, no clear explanation of the weighting of the various factors that have now been correctly applied by the Appeal Judge (unless stating that giving "greater weight" to the sums in issue and complexity equates to a sufficiently clear explanation of the weighting?).

The Appeal Judge‘s assessment primarily differed from the Master's when finding that the sums in issue were within the £50,000 - £100,000 range as stated on the claim form, rather than £25,000. This factor had been misapplied when the Master incorrectly considered the Appellant's subjective view of their valuation of the claim based on their decision to accept the first offer of £25,000 with little analysis of the sum. In light of no other evidence at the Detailed Assessment in relation to valuation, he determined this sum as the sum in issue. The Appeal Judge found that the range claimed in the pleadings was more in line with the likely valuation of the damages, based on the court's own knowledge of similar rental devaluation claims in that part of London, and so should have been objectively identified as the sums in issue.

The Master’s decision that the claim was not legally or factually complex was also determined to be an incorrect outcome. This is in spite of the Appeal Judge stating that the facts were not complicated and noting that even the Appellants acknowledged that the claim was not legally complex. Additional weight should have been attributed to the complexity factor when determining proportionality, as was done by the Appeal Judge.

Thirdly the 'notional reduction' incorrectly applied purely on the basis of the claim settling early was identified as a correct challenge to the initial decision, and excluded on the Appeal Judge's recalculation of proportionality.

Finally the Appeal Judge determined that the proportionality assessment must be a holistic exercise. It can be conducted as the assessor goes through the items individually or when standing back at the end. Most interestingly however, the Appeal Judge stated that whichever method is used it doubted that the end result should be an assessor making a very substantial reduction to a figure that has initially been determined as reasonable. This conclusion that proportionate costs should be relatively close to reasonable costs is not supported by reference to the rules governing a standard basis assessment.

Analysis

This decision may be good news for receiving parties who had previously considered themselves to be victims of an unchallengeable, and frankly unpredictable, judicial discretion. It does not provide a clear-cut, definitive formula for determining proportionate costs, but I don't think any reasonable observer ever expected the courts to solve the costs equivalent of the ‘theory of everything’. It does, however, put a heavier burden on the assessor to ensure that the relevant factors for assessing proportionality are all properly considered, and applied in a specific and objective way. 

Receiving parties who suffer a similarly heavy reduction to their costs on the basis of proportionality alone will now seek to rely on this decision to show that the assessor misapplied the ‘new test’, even where each relevant factor set out in CPR 44.3(5) were considered. It is no longer sufficient for a costs judge to say that, in all the circumstances including the relevant factors, the proportionate sum is "£X.XX". There must be some empirical evaluation of each relevant factor which then leads to a proportionate sum that can legitimately be seen as the obvious result of that process. Providing this requirement is upheld, there will be transparent decisions that will enable parties to accept the further reduction, or to properly assess the merits of appealing a proportionality decision.

On the other hand, I do question how useful this will be for advising on proportionality. Despite criticising the initial decision's lack of mathematical transparency or weighting of the factors, there is very little additional certainty provided by the summary in paragraph 72 that results in the £75,000 figure. I doubt many costs professionals would be able to follow this judgment with redacted figures and also come out with a £75,000 conclusion with any certainty.

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