The Jackson reforms in 2013 also brought a new proportionality test and, as predicted by many costs experts at the time, we still don't have a clear understanding of how it may be interpreted. It remains a test which is primarily subjective and so of course there is little continuity in decisions from the Judiciary.
There have been reported cases within the past year which have created significant uncertainty as to which costs should be included when assessing proportionality. Below I have detailed how the law has developed in relation to the relevance of additional liabilities to proportionality.
By now everyone is familiar with the matter of BNM v MGN Limited  EWHC B13 (Costs) (03 June 2016) in which Master Gordon-Saker, when presented with a bill of costs in the sum £241,817, conducted a line by line assessment which reduced the costs to £167,389.45. This amount was deemed reasonable but not proportionate and so the Master then further reduced the costs to £83,964.80 with the ATE premium being cut to £30,000 from £60,000.00.
The position developed in the matter of King v Basildon & Thurrock University Hospitals NHS Foundation Trust. The matter started prior to April 2013, however it was issued post April 2013, with total costs claimed in the sum of £326,404.57 and damages awarded in the sum of £35,000.00. The costs incurred pre April 2013 were in the sum of £13,401.20 and were assessed under the old rules. Master Rowley reduced the Claimant's bill from £326,404.57 to £249,889.83, which was deemed a reasonable sum. The assessed costs post April 2013 amounted to £213,495.17 + VAT.
In this matter the paying party heavily relied on the BNM v MGN and submitted that the post April 2013 costs should be assessed in total, including additional liabilities.
The base costs incurred were in the sum of £88,337.58; Master Rowley stated that this figure was almost always going to be proportionate for a clinical negligence case which reached a three-day trial. However it was for the Master to decide whether the test should apply to base costs or the total costs.
Master Rowley noted that Master Gordon-Saker states that the definition of "costs" in the CPR prior to 1 April 2013 included additional liabilities, but the current definition of "costs" makes no such reference to additional liabilities.
The logic followed by Master Rowley was that prior to April 2013 additional liabilities were recoverable from the other side and therefore the rules were required to explain that the “costs” to be assessed were exclusive of additional liabilities.
LASPO then made additional liabilities unrecoverable from the other side, save for in some particular circumstances. It would follow that any rule regarding costs would take LASPO into account and when 44.3(5) states that "costs incurred are proportionate if they bear a reasonable relationship to…". The word "costs" would refer to the costs recoverable post LASPO. This would be solicitor’s base costs and not additional liabilities, as this new definition of “costs” has only come into force since April 2013.
Furthermore to support this view, Master Rowley explained that success fees are simply a percentage of the base costs allowed and if the base costs have been allowed at a proportionate figure, a success fee at a percentage agreed by the parties or allowed by the Court would also be proportionate.
Master Rowley considered that ATE premiums were necessary under the old regime but however conceded that that Courts have become more willing to consider the reasonableness of the figure claimed and will reduce it to a more reasonable figure at assessment.
Master Rowley’s conclusion was that ATE premiums and success fees can be assessed and reduced to a reasonable sum, however they do not form part of the costs to be taken into account when assessing the proportionality of costs.
The decision is in keeping with the thinking of most costs experts but does however go against the reasoning of Master Gordon-Saker in BNM v MGN.
Master Brown in the matter of Murrells -v- Cambridge University NHS Foundation Trust (SCCO 17th January 2017) agreed with Master Rowley's approach in King v Basildon and choose to follow that over Master Gordon-Saker decision in BNM v MGN.
The matter was again a medical negligence claim which settled for £9,650.00 with costs being claimed in the sum of £140,539.05 + VAT. Following the initial assessment the costs were reduced to £94,076.68, of these costs £61,351.10 were incurred post April 2013.
Master Brown stated in his Judgement “I agree with the decision of Master Rowley in King on this point. I do not accept that additional liabilities are subject to the new test of proportionality or, even if they were, that they should be aggregated with the Claimant’s base costs for the purposes of that test.”
The Judgement provides further details of Master Brown’s reasoning and I urge the reader to consider the same, however they do closely mirror the logic followed by Master Rowley and therefore have not been repeated here.
Following Master Gordon-Saker’s controversial decision last year it appears that other Masters at the SCCO have followed the more traditional view that additional liabilities should not be considered when performing the proportionality test.
The Masters are mostly following the approach of reducing costs to a reasonable sum and then standing back and assessing the proportionality of those costs. It follows that the new definition of costs is not deemed to include either a success fee or ATE premium
However as these are all first instance decisions they are not binding but merely persuasive authorities. This therefore does not resolve any uncertainty into the costs but does provide receiving parties with a persuasive counter argument to paying parties reliance on BNM v MGN.