The notes at [44.3.3] of the 2019 Consolidated Edition of Civil Procedure (the White Book) (p.1390) read:
“As yet no guidance has been provided by the Court of Appeal as to how the test of proportionality introduced on 1 April 2013 by r.44.3(2) and (5) should be applied …”
That is no longer the case.
Last week the Court of Appeal handed down its judgment in West v Stockport NHS Foundation Trust  EWCA Civ 1220. The case was principally concerned with a specific issue relating to ATE premiums, and the relevant guidance is tucked away at §87-93. But it is important, and there is no reason to think it is not of general application.
I set out the guidance below. But to understand it, and its relevance, it is necessary to go a few stages back to consider the “new” proportionality test and how it came to be introduced.
Proportionality as a concept came into English law as part of the Woolf reforms: see Sir Rupert Jackson’s Review of Civil Litigation Costs: Final Report (“FR”), Chapter 3, §3.2. (p.30). The rules which followed those reforms (the CPR) included a requirement for a court assessing costs on the standard basis to consider whether they were proportionate to the matters in issue: see old CPR r.44.4(2).
Lord Woolf was given the chance to interpret the rules he had helped originate in Lownds v Home Office  EWCA Civ 365,  1 WLR 2450. At the heart of that appeal was the question of whether the new proportionality test was to be applied globally or on an item by item basis, or both globally and on an item by item basis: see §10.
The Court of Appeal resolved this question in favour of what it described as a two-stage approach: see §31. First, the court was to ask itself whether the total costs claimed were proportionate. If they were, then the court would allow costs on an item by item basis which were reasonably incurred and where the cost for that item appeared reasonable. However, if the total sum claimed was not proportionate, then the court would need to be satisfied that each item was necessary and, if necessary that the amount claimed for that item was reasonable.
The salient features of this two-stage test were that (a) proportionality was considered at the start of the process (b) it was considered in relation to the total costs claimed and (c) it informed the nature and degree of scrutiny applied by the court when it subsequently conducted an item by item assessment.
Jackson considered the Court of Appeal’s guidance Lownds was unsatisfactory, because “its effect was to insert the Victorian test of necessity into the modern concept of proportionality”: see FR, Ch. 3, §5.11 (p.37). This was inconsistent with the concept of proportionality, he felt, because “if the level of costs incurred is out of proportion to the circumstances of the case, they cannot become proportionate simply because they were “necessary” in order to bring or defend the claim”: ibid. §5.10. He therefore proposed that the effect of Lownds was reversed by a rule change such that the fact that costs were necessarily incurred did not make them proportionate.
This duly happened, and there was inserted into what became CPR r.44.3(2)(a) a specific provision to the effect that “costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred” (emphasis added).
Jackson also made suggestions as to how the pre-eminence of proportionality should affect the manner in which an assessment on the standard basis occurred. Specifically, he proposed that proportionality should be considered in respect of the total sum once the court assessed the reasonableness of each item on the bill individually. In other words, having undertaken a line by line assessment, “the court should then stand back and consider whether the total figure is proportionate” and, if not, should make “an appropriate reduction”: ibid. §5.13.
Application of this approach by the lower courts had led to a number of cases where swingeing and, it has to be said, seemingly fairly arbitrary reductions were made on the basis of proportionality at the end of the assessment process.
The new guidance from the Court of Appeal should put an end to that. It reads (§88-93) (emphasis added):
- First, the judge should go through the bill line-by-line, assessing the reasonableness of each item of cost. If the judge considers it possible, appropriate and convenient when undertaking that exercise, he or she may also address the proportionality of any particular item at the same time. That is because, although reasonableness and proportionality are conceptually distinct, there can be an overlap between them, not least because reasonableness may be a necessary condition of proportionality: see Rogers at paragraph 104. This will be a matter for the judge. It will apply, for example, when the judge considers an item to be clearly disproportionate, irrespective of the final figures.
- At the conclusion of the line-by-line exercise, there will be a total figure which the judge considers to be reasonable (and which may, as indicated, also take into account at least some aspects of proportionality). That total figure will have involved an assessment of every item of cost, including court fees, the ATE premium and the like.
- The proportionality of that total figure must be assessed by reference to both r.44.3(5) and r.44.4(1). If that total figure is found to be proportionate, then no further assessment is required. If the judge regards the overall figure as disproportionate, then a further assessment is required. That should not be line-by-line, but should instead consider various categories of cost, such as disclosure or expert’s reports, or specific periods where particular costs were incurred, or particular parts of the profit costs.
- At that stage, however, any reductions for proportionality should exclude those elements of costs which are properly regarded as unavoidable, such as court fees, the reasonable element of the ATE premium in clinical negligence cases, and the like. Specifically, therefore, if the ATE premium is assessed as reasonable, it will not fall to be reduced by any further assessment of proportionality.
- The judge will undertake the proportionality assessment by looking at the different categories of costs (excluding the unavoidable items noted above) and considering, in respect of each such category, whether the costs incurred were disproportionate. If yes, then the judge will make such reduction as is appropriate. In that way, reductions for proportionality will be clear and transparent for both sides.
- Once any further reductions have been made, the resulting figure will be the final amount of the costs assessment. There would be no further stage of standing back and, if necessary, undertaking a yet further review by reference to proportionality. That would introduce the risk of double-counting
This guidance is to be welcomed. It should hopefully lead to greater consistency of approach and greater predictability of outcome.
An interesting feature of the guidance is that the final proportionality assessment (where required) should be undertaken in respect of “categories of cost”, i.e. a level of granularity less than line-by-line, but greater than the overall figure.
Finally, a heretical thought. If the concept of proportionality is still proving so troublesome in its application twenty-odd years after its introduction into English law, is it not perhaps time that practitioners and moreover litigants (who, one way or another, end up footing the bill) start questioning whether it is really a useful concept at all? Could the same aim of controlling costs not be achieved by incorporating elements of proportionality into an overarching test of reasonableness, where reasonableness is defined not as what it was reasonable for a party to spend, but what it is reasonable for them to recover?