I’m sure by now you’ve read or heard of BNM v MGN Limited  EWHC B13 (Costs) (03 June 2016). If not, it will soon be imprinted onto your retina through rinse and repeat Defendant party citations. BNM was a privacy case involving a primary school teacher having been in a relationship with a premiership footballer for circa three years. The Claimant lost her mobile phone, later kindly returned to her wiped of all data, but not before all the data had been scooped right from it. The irony of a case about privacy being printed, probably right now as you read this, on thousands of Points of Dispute across the country should not be forgotten.
The decision runs 54 paragraph long. The salient legal facts are this – This was a Post-April 2013 CFA funded claim entailing additional liabilities of the instructed Solicitors and Counsel (paragraph 7). Costs totalled some £241,817 including additional liabilities (paragraph 10) with damages having settled for £20,000.00. Issues were raised as to Article 10 ECHR rights, a resurrection no doubt inspired by Coventry and others (Respondents) V Lawrence and another (Appellants)  UKSC 50, but this thankfully failed (paragraph 11). The matter progressed to assessment wherein the sums were reduced on the basis of reasonableness and then thereafter reduced by half on the basis of a more global appreciation of proportionality (paragraph 14). In total £83,964.80 was recovered in costs.
In addressing proportionality (paragraph 17 onwards), emphasis is placed on Access to Justice, but that this must be at proportionate cost (paragraph 18), with the ‘new’ test of proportionality having been, in Master Gordon-Saker’s view, intended to bring around a ‘real change in the assessment of costs’. This included allowing hands on treatment of additional liabilities, paragraph 32. Whilst it was accepted in principle that base costs sums which exceed those in issue may not be innately disproportionate (paragraph 40), paragraph 49 carries on to state
‘In these circumstances base profit costs of £46,000 and base counsel’s fees of £14,000 must be disproportionate under the new test, being over 3 times the amount of agreed damages, and covering work which fell far short of trial. In my judgment costs of about one half of those figures would be proportionate’
Base costs of 1.5 x the global damages were deemed proportionate, but in terms of gross sums, £83,964.80 all-in having been allowed as per paragraph 14, equates at just over 4x global damages.
It is clear therefore, that the Courts remain of the view that costs can still exceed damages and all is not doomed, although the test is somewhat a significant departure from the Pre-April 2013 decision of Home Office v Lownds  EWCA Civ 365 (21st March, 2002).
The new proportionality test certainly tightens margins and does not leave much room for error, allowing a Judge to reduce a Bill further at will if they feel so justified. Nevertheless, it should be remembered that this is, in a sense, an artificial comparison – BNM was a relatively straight-forward matter which settled well before Trial, and in any event, there are also sums to be considered above and beyond base sums, including the costs of assessment and any success fee that may be recovered at detailed assessment.
The decision however also introduces further uncertainty. The quantification would appear to have been arbitrary, a rough guess at best, and so Post-BNM the Court has continued to try and find the magical ‘proportionate’ costs to damages ratio.
The issue of what is proportionate post April 2013 is also assisted in the decision of May & Anor v Wavell Group Plc & Anor  EWHC B16 (Costs) (16 June 2016) is a decision handed down subsequent to BNM. In May the bill of costs presented totalled £208,236.54, damages having settled for £25,000. A reasonable level of costs therein was determined to be a figure of £99,655.74, however, this remained disproportionate (paragraph 43) and thus costs were ultimately reduced to the solely proportionate figure of £35,000 plus VAT (paragraph 46). Thus in BNM the Court allowed, excluding VAT, costs of 3.8:1, but subsequently in May, VAT-exclusive costs in a ratio of 1.4:1 were deemed proportionate.
So what implications does this have for inherently low value cases, for example a significant portion of Noise Induced Hearing Loss claims?
Let’s take an example. On an average Post-April NIHL claim, let’s say £5,000 was recovered. Global costs allowable, as per the decision in May, would therefore be proportionate if they were in the region of £7,500. However, taking the global approach of a 4:1 costs to damages ratio in BNM still allows up to £20,000 in total costs. The guidelines for recovery therefore remains ambiguous, and many questions arise.
So how do we determine what’s right in each case?
In the writer’s experience, the issues of complexity and importance are predominantly of lesser influence in routine lower value cases, but certainly come into play in higher value matters. Issues of capacity, extent of medical evidence or Defendant conduct are often key factors in increasing costs in these instances.
In lower value litigation however, the key in determining proportionality can often be related to the stage of litigation based on current principles. Whilst we must accept that the days of pre April 2013 costs are gone, and that we must always find ways to improve our efficiency through technology and keep costs down, that does not mean that lower value cases should not be profitable.
Whilst in BNM, proceedings concluded some twelve months after the initial date of issue with the process of litigation quite advanced (likely at the disclosure stage), conversely, the matter of May settled shortly after issue and prior to receipt of a Defence. It is evident therefore, that the stage of litigation bears key influence of proportionality and that, in theory, in excess of the 4:1 ratio of BNM is recoverable on a global costs basis should the matter proceed further through the stages of litigation to Trial.
Therefore, in summary whilst the Courts may be trending towards finding the answer, the current guidance certainly ensures that lower value work can certainly remain profitable with global costs likely to be recoverable between 2x – 5x the level of damages in lower value cases, and dependent upon the stage of litigation you reach.Read More
Some of you may have heard a bit of noise being made about Merrix -v- Heart of England NHS Foundation Trust  EWHC 346 (QB) recently concerning the impact on your Cost Budget, the Judgment for which can be found here.
But what’s all the noise about?
Well, the case is actually a strong result for all receiving parties, and emphasises the importance of getting your Costs Budget right and getting it agreed/assessed before settling. For years paying parties have argued that the Costs Budget should not and cannot be exceeded in any circumstance, and that on assessment, the costs claimed are still subject to detailed scrutiny. This is true however, the impact of Merrix is that it clarifies the position as to how a Costs Judge is to deal with costs on detailed assessment when a Costs Management Order has been made.
So what’s new?
Well it’s not so much new, but a renewed focus on CPR 3.18 (b), to “not depart from such approved or agreed budget unless satisfied that there is good reason to do so”. The intent of this inclusion in the CPR was with the purpose of reducing the need for detailed assessment, and the whole purpose of budgeting was to set reasonable and proportionate amounts of expenditure in the early stages of litigation (see para. 68 of the Judgment, and CPR 3 PD 3E 7.3). It was ultimately concluded by Mrs. Justice Carr that this could only be interpreted as meaning that a Budget should not be departed from, either upwards or downwards, unless there is good reason to do so.
And how does this affect you?
Detailed assessment is still a detailed assessment, the Court can and will continue to remove any unreasonable costs. But if a Budget has already been set and your end costs are within the boundaries of this Budget, then to argue they are disproportionate (and thus subject to the dreaded second-phase of the new proportionality test) is to conflict with Merrix. One should take heed however, as in para. 82 of the Judgment it is stated that if good reason is given, the new proportionality test could still rear its head on assessment, or it may infact simply be applied sooner in the budgeting process, rather than later on assessment. It is also anticipated that the matter may now be appealed go to the Court of Appeal for a more senior decision to be made, so this may not be the last we hear of this issue.
What can we learn from this?
Get your Costs Budget right and get it agreed if possible before settling your case. If a paying party has agreed a Budget and your costs remain within the same, then your position on proportionality is significantly stronger. It may also be worthwhile electing for your costs to be subject to Costs Management (remember PD 3E (2)(a)!) even when it’s not mandatory, especially in low-value cases, such as Fast Track clinical negligence matters where costs are often much higher than standard PI litigation.
Here at Legal Practice Support we can offer free advice on the issue and whether you are able to overcome the fixed costs hurdle. Further, if your case has prospects we are able to draft and negotiate the Bill of Costs prepared as a result.
Contact our Legal Costs Director at Robert.Collington@legalpracticesupport.co.uk for further information.Read More