The Court of Appeal provided its decision in the case of BNM v MGN Limited  EWCA Civ 1767 on 7 November 2017. The appeal looked at whether the old CPR 44.4(2) or the new CPR 44.3 (2) &(5) test for proportionality should be applied to additional liabilities which are still recoverable inter partes.
Under Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, recoverable success fees and ATE premiums were abolished, however transitional provisions provide that additional liabilities are still recoverable under a funding arrangement entered into before 1 April 2013. There are also saving provisions which allow additional liabilities in certain other cases; mesothelioma proceedings, insolvency proceedings and publication and privacy proceedings. There are still therefore a large number of cases which have not yet concluded in which additional liabilities remain recoverable inter partes.
The Old Test
The old test for proportionality was set out in Lownds v Home Office  1 WLR 2450. Under the Lownds two stage test there had to be a global approach and an item by item approach. The global approach looked at whether the costs as a whole were disproportionate, and if they were not, then the item should have been reasonably incurred and reasonable in amount. However, if on a global consideration the costs were disproportionate then the Court would consider whether each item was necessary and, if necessary, that the cost of the item was reasonable.
Therefore under the old test, “when an item is necessarily incurred then a reasonable amount for the item should normally be allowed”, and “any item that was not necessary should be disallowed”. Under the old test, in accordance with in CPR Part 44 PD 11.5 additional liabilities were to be considered separately from base costs. The old CPR Part 44 PD 11.5 provided that:
"A percentage increase will not be reduced simply on the ground that, when added to base costs which are reasonable and (where relevant) proportionate, the total appears disproportionate.”
The New Test
The new CPR 44.3(2) and (5) provide as follows:
“(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
(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.”
“(5) Costs incurred are proportionate if they bear a reasonable relationship to—
- the sums in issue in the proceedings;
- the value of any non-monetary relief in issue in the proceedings;
- the complexity of the litigation;
- any additional work generated by the conduct of the paying party; and
- any wider factors involved in the proceedings, such as reputation or public importance.
BNM v MGN
In this matter, the receiving party, BNM had claimed costs of £241,817, which included a success fee of 60% on the solicitors' costs, a success fee of 75% on Counsels' fees and an ATE insurance premium of £58,000 plus IPT of £3480.00. At the detailed assessment hearing Senior Costs Judge Gordon-Saker held that the new proportionality test applied to the success fee and ATE premium and he assessed the receiving parties' costs at £83,964.80 plus interest.
On appeal it was held that:
"the assessment should have been conducted on the footing that the proportionality test in the old CPR 44.4(2), and the relevant provisions in the old Costs Practice Direction, applied to the success fees and the ATE insurance premiums".
It was held that "if it had been intended that the new proportionality test was to apply to funding arrangements to which the statutory saving and transitional provisions applied, that would have been made clear in the statutory provisions or the new costs rules or both and it was not".
It was stated in the Judgment that applying the new proportionality rule to additional liabilities was "wrong in principle". The decision and the Final Costs Certificate in the sum of £83,964.80 were set aside. The case has been remitted to Senior Costs Judge Gordon-Saker to consider proportionality again.
The decision on appeal in the above case confirms that the new proportionality test does not apply to additional liabilities which remain recoverable inter partes. This is good news for receiving parties as despite it being over 4 years since the new rules came in, there are still a large number of these cases ongoing. Unfortunately however, the Judgement does not provide any guidance on how the new test for proportionality should be applied.
In clinical negligence claims where an ATE premium is taken out post April 2013, the element of the ATE premium which relates to the risk of incurring a liability to pay for one or more expert reports remains recoverable inter partes. In BNM v MGN Limited it was common ground between the parties that the new proportionality test applies to such premiums, and this is not therefore an issue that was considered by the Court.
Catherine Frost - Costs Lawyer at Civil and Commercial with over 14 years experience.
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