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Proportionality Trumps Necessity - Hobbs -v- Guy's St Thomas NHS Foundation Trust

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Following the new rules on proportionality introduced in April 2013 as a result of the Jackson report litigators have been waiting for case law to emerge as to how the courts will assess costs and proportionality.  Whilst not quite a Court of Appeal judgment, Master O’Hare in the SCCO recently handed down judgement in Hobbs –v- Guy’s St Thomas NHS Foundation Trust on the issue of proportionality in low value clinical negligence claims wherein he confirmed that costs, even when entirely reasonably incurred, would be disallowed if disproportionate. The claim itself settled for £3,000 and the costs were claimed at £32,329.12. Upon provisional assessment the bill was reduced by two thirds on the grounds of reasonableness, and then further reduced to £9,879.34 on the grounds of proportionality. The Claimant then applied for a post-provisional review.

The first issue addressed was the hourly rate charged by the conducting solicitor. It was a low value claim that settled pre-Issue for £3,500, yet almost all of the work was undertaken by a highly experienced Grade A fee earner based in the City of London whose hourly rate was £300 per hour.

While it was noted that this was significantly lower than the guideline Grade A rates for both the City of London and Central London (£409 and £317 respectively), Master O’Hare held that the case did not merit a Grade A fee earner, as the work undertaken was neither sufficiently complex nor sufficiently important. It was considered that an average Grade B fee earner was of an entirely appropriate level of experience for conduct of such a case and that said fee earner could always defer to the more experienced lawyer should they encounter anything beyond their abilities.

The meat of the judgement, however, came in relation to the issue of proportionality. Master O'Hare applied the Lownds test to the work undertaken prior to Jackson, and applied the Jackson rules (found at CPR 44.3(2)) for costs incurred thereafter. The Pre-Jackson work was not at issue, as the rules and guidance for the test were already clearly established. Issues only arose when considering the latter costs, as there was no definitive guidance as to how best to apply CPR 44.3(2), which states that costs, when assessed on the standard basis, “may be disallowed or reduced even if they were reasonably or necessarily incurred."

The Master initially allowed £11,000 plus VAT as being a reasonable amount to have obtained medical records and expert evidence, to have sent a letter of claim, and to have settled the claim prior to issue. He then turned to assessing whether the amount allowed as reasonable was also proportionate.

In assessing proportionality, Master O'Hare considered a test propounded by Leggatt J in Kazahkstan Kagazy PLC v Zhunus [2015] EWHC 404 (Comm) (20 February 2015), where it was said that the test is “not the amount of costs which it was in a party's best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances.” That test, however, originated in a claim where the sums at issue were in the tens of millions, and the costs were also exceedingly large. As a result, it was considered to be inapplicable to a claim where the costs would inevitably exceed the actual value of the claim.

Master O’Hare instead utilised the guidance provided in CPR 44.3(5)(a), which requires that the costs bear a reasonable relationship to the sums at issue in a case in order to be considered proportionate. He also gave particular consideration to 44.3(5)(c), which requires that the costs bear a reasonable relationship to the complexity of the litigation. With these two factors in mind, Master O'Hare assessed the reasonable costs as being disproportionate, so set to work reducing them.

In doing so, he decided against simply lopping off a chunk of the costs in a broad-brush fashion and instead targeted particular items of work that could be considered to be disproportionate in the circumstances. This resulted in three items being disallowed because they appeared, with the benefit of hindsight, to be "inconsistent with the true value of the claim." While these costs were considered by Master O'Hare to be reasonably incurred, he considered it to be unfair to expect the Defendant to pay for them. In doing so, he disregarded the hindsight rule established in Francis v Francis and Dickerson as being a rule based upon reasonableness, which was now trumped entirely by proportionality.

All of which reduced the costs to a sum below £10,000. Master O’Hare considered this sum to be disproportionate to the sum at issue, but not to the broader circumstances of the claim, i.e. complexity, importance, and other factors listed in CPR 44.5(3). Items included within that total were not spared the cut because they were necessarily incurred, but because of the inherent complexity of clinical negligence claims.

In the post-provisional assessment, Master O’Hare did not accept that the claim was of particular importance to either party or to the public. He also did not accept that the conduct of the Defendant had caused additional costs to be incurred. The outcome of the assessment was that Master O’Hare reduced the costs awarded by a further £500 after suitably adjusting his assessment to account for VAT and adding back on the costs of assessment.

In summation, Master O’Hare first considered what was necessary and made a reduction accordingly. He then considered whether the sum arrived at was proportionate. In the present case, he decided that, even after reducing the costs by two thirds on the basis of reasonableness, the sum arrived at was still disproportionate. He then looked at individual items in the bill and assessed whether they were proportionate in the wider context of the claim. While items reduced on this basis were considered to have been reasonably incurred, it was considered unfair to expect the Defendant to pay for them. Even though the sum that remained after those reductions was disproportionate to the sums at issue in the claim, it was considered proportionate to the complexity of the litigation, so no further reductions were made. In short, proportionality was considered to be significantly more important than necessity in cases where the costs of conducting the claim would inevitably exceed the value of the claim.

This case is a stark warning for Claimant solicitors that the court will not entertain claims for costs vastly in excess of the sums in issue, however it should be noted that the costs allowed were still in the region of 2-3 times the damages.