Analysis on proportionality in costs assessments: how worried should we be?

Articles | Mon 16th Nov, 2015

Jennifer Newcomb considers the (potentially costly) implications of the analysis of proportionality in practice in the case of Hobbs v Guy’s and St Thomas’ NHS Foundation Trust [2015] EWHC B20.

In this recent Senior Courts Costs Office case, Master O’Hare gave a written judgment regarding the proportionality of a costs bill relating to a low value clinical negligence claim that settled pre-issue.

The claim related to a delay of 4-5 weeks in conducting radical surgery for the removal of a lump found on a patient’s forehead. The lump was detected in March 2011 and surgery conducted on 6 June 2011. Three medical reports were obtained in total, from a consultant plastic surgeon, consultant in radiotherapy and oncology and a consultant anaesthetist, which supported a conclusion that treatment was sub-standard and the delay had lead to an operation of increased duration and requiring drilling. A conference with counsel was held in October 2013. A letter of claim was sent 23 January 2014. An initial offer to settle of £1,500 was made by D in May 2014 and a counteroffer made by C later that month. A revised offer was made by D on 3 September 2014 of £3,000 and the case ultimately settled on 24 September 2014 for £3,500 plus costs.

C’s bill of costs amounted to £32,329.12. At provisional assessment, the Master reduced the bill by 2/3rds on grounds of reasonableness. Thereafter, he made a further reduction on the grounds of proportionality. In total, he allowed £9,879.34 and the costs of provisional assessment. At C’s request, a post-provisional hearing (lasting over 5 hours) took place on 9 October 2015. The Master reserved judgment on proportionality issues after that hearing.

In his reserved written judgment, Master O’Hare noted that, when assessing reasonableness, he had already assessed “the lowest amount which the Claimant could reasonably have been expected to spend in order to have this case conducted and presented proficiently, having regard to all the relevant circumstances”. He concluded that it was reasonable for C to incur costs exceeding £11,000 plus VAT to obtain medical records, appropriate medical evidence, send a letter of claim and settle pre-issue.

He then considered the issue of proportionality (which trumps necessity). Although it was reasonable for the C’s solicitors to incur the costs of £11,000 plus VAT, he said, it was unfair to expect D to pay for items if not proportionate. He considered further reductions appropriate.  When considering those reductions, rather than chopping off a slice of all costs found to be reasonable, he concluded it better to target particular items of work which were disproportionate in the particular circumstances. On that basis, he disallowed recovery of the costs of the report from the anaesthetist, the making a Part 36 offer of £10,000 and using a Grade B rather than Grade C fee earner for some of the work.

In reaching his conclusions on proportionality, the Master noted that the rule against the use of hindsight in costs assessments (Francis v Francis and Dickerson [1955] 3 All ER 836) is a rule based upon reasonableness, which, today, is trumped by proportionality (see CPR r.44.3(2)). As a result, the Master disallowed items that, with hindsight, appeared inconsistent with the true value of the claim.

What can we take from the above?

1. The distinction between what the courts consider reasonable to spend on a claim and what it is proportionate to recover from the other side is becoming ever starker. That distinction will no doubt make Defendants pleased and Claimants nervous.
2. Even if, at the time costs are incurred, it appears that those costs are consistent and proportionate to the true value of the claim, hindsight can be applied to disallow recovery of those costs from the other side at a later stage. For Defendants, hindsight may indeed be a wonderful thing.
3. Even if C spends the lowest reasonable amount to have his case conducted proficiently, he cannot necessarily expect to recover that figure from the other side. In situations where funding arrangements are such that C’s solicitors do not ultimately seek unrecovered costs from their client, it is claimant solicitors who will lose out. The problem is: can this be avoided if a case is to be conducted proficiently? Solicitors may want to consider the terms of their retainers with clients, where a client is insistent a step be taken that the legal team considers disproportionate, and those costs are subsequently deemed irrecoverable.