From time to time, I am afraid I do lose a case. One such case a couple of months ago, the decision of HH Judge Auerbach in the case of Sarah Jane Reynolds v One Stop Stores Limited County Court at Norwich 21st September 2018has been widely reported in the legal press, as it is the latest exegesis at Circuit Bench level of the principle of proportionality.
In this post I will attempt to set out how the case is an example of how application of the principle of proportionality as now defined, to the assessment of costs is likely to become increasingly problematic, due to conceptual confusions at the heart of the rule, and flaws in its drafting.
The rule of law
Let me start though with high level principle, by consideration of the rule of law. It is recognised in a mature and democratic society, that all laws made should conform to the rule of law, rather than being arbitrary or capricious in their formulation.
If one returns to the classic text by Fuller, The Morality of Law the criteria that laws must possess in order to conform with the rule of law is that they (i) must inevitably have a minimum degree of generality in relation to the people and situations to which they are applied (ii) must be promulgated in order to be known by those whose conducts the rule intends to guide (iii) must be prospective or non-retrospective (iv) must be clear and precise, though this does not suppose that all rules must be precise to their greatest extent leaving no room for legal principles or standards (v) must be coherent with other rules (vi) must be capable of being observed (vii) must have stability that allows them to be known by citizens subject to them and (viii) must be applied and obeyed by public authorities.
The rule of law also recognises that judicial discretion has a proper place in a mature legal system: however per Hart in The Concept of Law a judicial discretion cannot be exercised arbitrarily, a judge must always have some general reasons that justify his decision, seeking a reasonable answer to the problem that he must decide. Conversely were a decision made by a judge to be no more than an exercise in a judge tossing a coin, this would not be a judicial decision. Judicial discretion to avoid a charge of arbitrariness and to comply with the rule of law must be obligatory, impartial and necessarily limited.
These criteria form a useful bench mark against which to assess the principle of proportionality. The degree to which it complies with them may be thought indicative as to whether the principle as formulated in the current rules, can be described as a “good” or “bad” law.
Proportionality: the rule
The principle of proportionality that applies to decisions on costs is expressed so far as is relevant in these terms in the Civil Procedure Rules:
(2) Where the amount of costs is to be assessed on the standard basis, the court will –
(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred;
And more generally:
(5) Costs incurred are proportionate if they bear a reasonable relationship to –
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance.
How well does the application of this rule work in practice in terms of demonstrably satisfying the criteria that all good laws should possess as described above? Consideration of the Reynolds case illustrates that it does not work very well at all.
The most obvious problem to the informed reader is that the decision in the Reynolds case is simply inconsistent with the reasoning of HH Judge Dight in the case of May v Wavell Group Ltd (County Court at Central London 22 December 2017. The two judges disagree as to whether a decision made to reduce costs on the ground of proportionality is one of judgment or one of discretion and the construction that should be given to the various factors: this dichotomy of approach, currently unresolved by the Court of Appeal indicates that the rule is neither clear nor precise in its application.
The second problem is that as demonstrated by the Reynolds case, the rule is permissive of a very large measure of judicial discretion. The damages recovered by the claimant were £50,000. The proportionate costs were decided to be £75,000, the decision upheld on the appeal.
But if the District Judge had decided they were £50,000, or £100,000 or had refused to make any proportionality deduction at all, it is impossible to see any basis upon which his judgment, adopting the approach of taken by the court on appeal, could be said to be wrong.
Such a large measure of judicial discretion is predicated by the fact that the rule expressly does not constrain a costs judge by concepts of reasonableness or necessity, but gives such a wide measure of discretion that the rule becomes essentially arbitrary in its effect, a conclusion that rests uneasily with the rule of law.
The rule (and part 44 CPR more generally) is an example of horrific drafting involving three separate principles in a single sentence and containing redundant concepts. It contemplates that a costs judge will consider reasonableness and necessity, but may still find costs are disproportionate and disallow them.
In which case why bother with reasonableness and necessity at all? If a paying party successfully argues costs are disproportionate then reasonableness and necessity are otiose considerations. Conversely were a receiving party to establish costs were proportionate, there would be no scope to argue that they were unreasonable or unnecessary.
Logically you should just ignore a line by line assessment of the costs reasonableness and just cut to the chase and ask whether costs are proportionate or not. Such a rule encourages muddy thinking, and is neither clear nor precise in its formulation.
But the rule still contemplates a reasonableness assessment. In the Final Report, it was suggested that a reasonableness assessment would be undertaken and then the principle of proportionality applied as a second stage. This is in part a tacit recognition that there is a plain incongruity in assessing costs on a time and rate basis, by seeking to apply a concept of proportionality ripped roughly from public law.
On an assessment applying a test of reasonableness or even necessity, the actual hours spent or costs incurred can be judged on familiar principles by putting oneself in the position of reasonable solicitor or considering the exigencies of the litigation process, and applying market rates when considering reasonableness and necessity.
No such considerations assist in the application of a principle of proportionality: the checklist of criteria is no help at all because they are so nebulous and unweighted. A glaring omission as a factor is the actual market costs of instructing solicitors, counsel and experts which is to be ignored: the result is they become to all intents and purposes meaningless as a guide to how a discretion will be exercised in an individual case or what the economic consequences for a litigant may be.
So wide a gap may exist between recovered costs and incurred costs, that if a solicitor insists on their contractual rights the client may be left with nothing despite winning the case. This is not a result the rule of law would recognise. This is not a rule that produces stable results.
This in turn leads one to question where the principle of proportionality came from and the context in which it was intended to be applied. Proportionality is a principle of public law: it applies when a public authority’s decision is judicially reviewed. It applies when considering whether a person’s human rights have been infringed, by actions which disproportionately affect their rights. It is a principle that involves itself in considering the reasonableness and necessity of state actions.
It has no application to money claims between private individuals. The victim of a tortfeasor or a breach of contract, is not awarded “proportionate” damages. Indeed when consideration is made of any such principle in the context of costs, more naturally one might say that if costs are necessarily incurred, then the receiving party has acted proportionately as far as the economic rights of the paying party are concerned, to achieve redress. But this is the converse, of what the rule actually says.
The next problem, a more particular problem, is that the application of the principle coupled with paragraph 52 of the Court of Appeal decision in Harrison -v- University Hospitals Coventry & Warwickshire Hospital NHS Trust  EWCA Civ 792 has the potential to run a coach and horses through the costs budgeting regime. If it be the case that there is unbridled scope to reduce budgeted costs, on the basis of proportionality at the end of a case applying a test of hindsight, then again one would pose the question, what is the point of budgeting?
A broad open textured discretion of that nature plainly conflicts with the very detailed rules and practice direction on costs budgeting, with the restrictive test of “good reason” for departure from a budget, effectively becoming redundant and constitutes legal incoherence, inconsistent with the rule of law.
A further problem is a conceptual one. The Jackson review which led to the LASPO 2012 reforms was meant to curb disproportionate costs. But at no point has it ever been established in the years before during and after the review, what in pounds and pence per annum, per case, or across civil litigation as a whole, were the amount of disproportionate costs being gaily claimed and awarded by costs judges, and what figure they individually per case, or collectively across civil litigation as a whole needed to be reduced to.
Had this work been done, one could argue that the way proportionality should have been taken into account was to have a scheme or schemes of fixed costs: this would be a proportionate step to take across civil litigation whether as a whole, or in particular areas. Proportionality in public law, is often applied in this way to consider the legality of statutory instruments or broad schemes of rules.
But in the context of an individual case, proportionality applied on the basis of these criteria in this rule, without regard to the consequences for the individual will never bring about a just result: the individual cannot predict his final position, so that in sense the law is not promulgated or predictable in its result.
So what can be done? Because despite the conclusions of the judge on the Sarah Jane Reynolds v One Stop Stores Limited County Court at Norwich 21st September 2018 appeal, any costs practitioner worth his salt, will see the clear scope presented by this judgment, now to lace a case with uncertainty and seek a swingeing discount to otherwise reasonable and necessary costs, on the basis of arbitrary factors such as what judge you have, or which court you find yourself in on a given day.
Without criticising those costs judges who will do their best, it is as plain as a pikestaff that without clear limits to their discretion, different judges will give very different decisions on cases which have similar facts resulting in arbitrary justice. You might as well toss a coin.
There will be other consequences. More cases will fight. Settlements will be harder to predict. Litigants will become more dependent on the goodwill of solicitors writing off reasonable and necessary costs, and this state of affairs can be said to be antithetical to the rule of law. Are these attractive consequences of this rule?
The solution is very simple. Ditch proportionality. Apply a standard of necessity to costs assessed inter partes, and a standard of reasonableness to costs assessed on a solicitor-own client basis, as would have been done up until the 1990s.
If a paying party then finds himself liable to pay only those costs a judge deems necessary for his victim to instruct lawyers at market rates to gain redress, why would that result be regarded in everyday language as a “disproportionate” consequence of his wrongdoing that forced his victim to go to law?
A version of this post appeared in the December 2018 edition of Litigation Funding magazine.