In April 1999 the Civil Procedure Rules (CPR) introduced the principle that costs payable by an opponent on the standard basis should be proportionate. But what is “proportionate” and what causes costs to become disproportionate?
The principle of proportionality is enshrined in the “overriding objective” of the CPR and requires cases to be dealt with proportionately to the amount of money involved; importance; complexity and financial position of each party. Costs paid on the standard basis from a losing party are required to be proportionate.
Proportionality is not simply based on the relationship between the total costs incurred and the value of the claim. Also the proportionality of success fees and ATE insurance premiums has to be considered separately from base profit costs, counsel fees and disbursements.
How to assess proportionality caused the courts great difficulty and it was hoped Lownds v Home Office  EWCA Civ 365 would solve this problem. Lownds introduces a two stage approach. The first stage requires a global review where the court will consider whether the costs appear disproportionate to the issues in the case. If the court finds that the costs are disproportionate the second stage will require each item to be necessary and if necessary the cost of each item must be reasonable.
Although Lownds was initially considered a neat way to apply the proportionality test, concerns soon grew after numerous detailed assessments and decisions in the Court of Appeal where costs that appeared disproportionate were being allowed because they were necessary.
Lord Jackson’s View
Access to justice is only practicable if the costs of litigation are proportionate. The report highlights 16 factors that cause costs to be excessive. These include a wide range of issues such as time consuming procedures; complexity of law; the basis by which lawyers are paid; the CFA regime; ineffective control over costs/case management and the level of court fees.
The Report proposes many ways to control the excessive cost of civil litigation with the intention that if the causes of excessive costs are tackled effectively, access to justice at proportionate cost will be promoted.
The CPR should include a definition of proportionate costs and the following is proposed:
“Costs are proportionate if, and only if, the costs incurred 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.”
The court should first assess the reasonableness of individual items and then if the total assessed amount is not proportionate an appropriate reduction should be made.
The Rule Committee should also consider reversing the effect of Lownds and costs necessarily incurred should no longer be automatically proportionate.
Furthermore any future rules, practice directions, protocols and court guides should give greater priority to simplicity and any increases in civil court fees should be in line with inflation.
The reverse of Lownds will remove the situation where disproportionate costs are recovered simply because they are necessary. However, the new rules as drafted will surely lead to many challenges, such as defining “wider factors” and “additional work generated by the conduct of the paying party”. If the proposals are implemented it will surely only be a matter of time before it is necessary for Lownds 2 to be decided!