This was an appeal against decisions made in the course of a detailed assessment before Master Whalan in the Senior Courts Costs Office.
- The underlying claim was a business dispute between former shareholders and co-directors in a small company.
- Ms Bohinc (60% shareholder) considered that Mr Malmsten (40% shareholder) had acted in breach of his duties as director.
- Accordingly, she wanted him out of the company and, to this end, she sought to convene a meeting of the shareholders.
- Mr Malmsten did not attend this meeting, thereby thwarting it.
- Ms Bohinc consulted solicitors and brought an application under section 306 of the Companies Act 2006 seeking an order for a shareholders’ meeting with a quorum of one, so that even if Mr Malmsten failed to appear again, the meeting could go ahead.
- The Part 8 claim form was filed on 14 July 2017 and indicated a time estimate of 30 minutes. It was supported by a witness statement of Ms Bohinc (running to some 16 pages) and a “far shorter” statement from a Mr John Banks, Ms Bohinc’s accountant.
- It was noted that prior to bringing the s306 application other remedies had been considered by Ms Bohinc’s legal advisers under the Companies Act – notably section 168 (resolution to remove a director) and sections 292-293 (circulation of a written resolution).
- Ms Bohinc was successful in her s306 application before Chief Registrar Briggs on 3 August 2017 and was awarded her costs.
- Mr Malmston objected to the level of costs sought (£74,328.90) and an order for detailed assessment was made in the following terms:
“[t]he costs of and incidental to this application shall be paid by [Mr Malmsten], such costs to be assessed if not agreed”
- Mr Malmsten contended that the words “and incidental to” had been improperly included in the order and unfairly broadened the costs recoverable by Ms Bohinc. An application to amend the order was pending Chief Registrar Briggs at the time of this appeal.
- Mr Malmsten’s general concern about the costs claimed and, specifically, the conduct of Ms Bohinc’s legal advisors was summarised by Counsel at the appeal hearing as follows:
“The solicitors do not appear to have been au fait with the principles involved (or, indeed, much of ordinary litigation – they had to learn (and billed for learning) how to use the online filing system and failed properly to assemble the pack to be served with a Part 8 claim form): they instructed experienced counsel not less than 26 times and spent some 230 hours of solicitor’s time on it. Witness evidence was duly assembled, there was a bit of correspondence with [Mr Malmsten] and he failed to attend a meeting, the application was issued, further evidence was produced and the hearing led to the inevitable order. Counsel’s skeleton argument for the hearing was, properly, pithy and short.”
The detailed assessment proceedings
The detailed assessment proceeded as follows:
(1) A bill of costs was drawn on behalf of Ms Bohinc. Total profit costs, net of VAT, were £42,197.10. Counsel’s fees, net of VAT, were £17,500. Other disbursements – notably the costs of personal service on Mr Malmsten, again net of VAT – were £2,823.00. The total bill, inclusive of VAT was £74,968.12. The total net of VAT was £62,520.10.
(2) Points of dispute were served by Mr Malmsten, which were replied to by Ms Bohinc, and provisionally ruled upon by Master Whalan in a series of handwritten annotations to the points of dispute dated 2 March 2018. There was then an oral hearing – at which Mr Malmsten appeared by Mr Benson – where various points were made in relation to Master Whalan’s provisional rulings, and where the Master made a final ruling. That hearing took place on 11 October 2018.
(3) The final costs certificate was in the amount of £78,598.24, but this included £12,129.18 in respect of the costs of the detailed assessment itself. Thus, the costs of and incidental to the application were £66,469.06, of which £13,293.81 was VAT. The net figure was £53,175.25. However, this figure included various additional items arising out of the detailed assessment process. In terms of the costs of the section 306 application before the Registrar, the Master came to a final figure of £47,500 net of VAT.
Grounds of Appeal
Mr Malmsten appealed on seven grounds:
(1) Ground 1. The Master erred in permitting recovery of time and work relating to Mr Malmsten as a director, when he was only a party to the action as a shareholder, and in so doing the Master misunderstood the nature of the application and the nature of the parties to it, and in so doing misapplied a fundamental principle of company law.
(2) Ground 2. The Master erred in permitting recovery of costs relating to work on matters not in issue on the basis that they were “incidental”, in particular:
(a) Sections 168, 292 and 293 of the Companies Act 2006.
(b) The rights and wrongs of Mr Malmsten’s actions as a director.
(c) The solvency of the business.
(3) Ground 3. The Master exceeded the discretion open to him in failing to sufficiently reduce the time sought by Ms Bohinc in respect of the evidence relied on by her for the hearing. It went into too much detail, covered irrelevant matters and was over-elaborate.
(4) Ground 4. The Master exceeded the discretion open to him in allowing Ms Bohinc to recover an excessive sum in respect of counsel’s fees for 23 occasions.
(5) Ground 5. The Master exceeded the discretion open to him and/or went wrong in:
(a) Allowing Ms Bohinc to recover the costs of using a process server to serve numerous documents, when an address was readily available and postal service under the CPR would have sufficed.
(b) Permitting recovery of solicitor’s time and counsel’s fees connected to Ms Bohinc’s solicitors’ failure to properly assemble the response pack to accompany the claim form.
(6) Ground 6. The Master erred in law in finding that, when applying the proportionality test, it was appropriate to exclude VAT and the costs of drawing the bill.
(7) Ground 7. The Master exceeded the discretion properly open to him and/or went wrong and/or in light of Grounds 1-6 took into account irrelevant or wrong factors in finding that a proportionate sum was £60,426.46 (or approximately £47,500 + VAT + costs of drawing the bill) in a dispute about organising a shareholders meeting which was litigated for less than 3 weeks and was listed for and resolved in a 30 minute hearing.
THE HONOURABLE MR JUSTICE MARCUS SMITH:
(1) Grounds 1 and 2
33. As I have noted, it is convenient to consider the first and second grounds of appeal together. The costs order provided that “[t]he costs of and incidental to this application shall be paid by [Mr Malmsten] such costs to be assessed if not agreed”.
It is incumbent upon a costs officer (and anyone else assessing costs) to give effect to any orders made by the court. In my judgment, Master Whalan failed to do so when carrying out his detailed assessment.
That is because he permitted recovery of costs that were not:
(1) The costs of the application; or
(2) Costs incidental to the application.
The words “costs of and incidental to” proceedings derive from section 51 of the Senior Courts Act 1981. It is well-established that the words “and incidental to” are words of extension rather than words of restriction. I shall consider first why certain costs claimed by Ms Bohinc were not costs of the application. I then go on to consider why these costs were also not incidental to the application.
(ii) Costs of the application
35. The costs of an application can include costs incurred prior to the issue of proceedings. The Master was perfectly entitled to consider whether Ms Bohinc’s pre-issue costs were recoverable. The section 306 application was commenced on 14 July 2017, which was just under two months after Ms Bohinc first instructed solicitors on 18 May 2017. To the extent that, during this pre-issue period, costs in relation to the application were incurred, these would be recoverable.
36. However, it is very clear from the narrative in Ms Bohinc’s bill of costs that Ms Bohinc’s legal team was considering far more than just an application under section 306. The narrative begins as follows:
“Instructions were received from [Ms Bohinc] to prepare and circulate to the directors of Lara Bohinc International Limited (hereinafter “the Company”), a written request pursuant to [section] 292 of the Companies Act 2006 to place the Company into administration and for [Mr Malmsten] call to step down as director.
At all material times, [Ms Bohinc] was a 60% shareholder and director, and [Mr Malmsten] was a 40% shareholder and director of [the Company]. The claim arose due to a dispute between [Ms Bohinc] and [Mr Malmsten] as to whether the Company should be placed into administration, in light of the Company’s financial position.”
In short, Ms Bohinc’s legal team was considering and advising in relation the overall position of the company; and the section 306 application was something that arose out of that consideration.
The narrative continues in that vein, although it is clear, as time goes by, that more and more time was being devoted specifically to the section 306 application. It is, however, difficult – simply from the bill of costs – to determine which costs are attributable to the section 306 application and which not.
37. In my judgment, subject to the question of “incidental” costs (to which I shall turn in due course),
it is for Ms Bohinc and not for Mr Malmsten to bear the costs of the advice given and work done by Ms Bohinc’s legal team in relation to matters other than work done in relation to the section 306 application itself.
It is only to the costs of the section 306 application that the Registrar’s order extends. The order makes no provision for the recovery of costs incurred in relation to other work done by Ms Bohinc’s legal team, even if this work was done at the same time as a consideration of the section 306 application.
38. Of course, I accept that some work might well be attributable to the section 306 application and to other aspects of the work that was done for Ms Bohinc. I am certainly not suggesting that such work would be irrecoverable under Mr Registrar Briggs’ costs order. But
some effort needs to be made in differentiating between the section 306 application work and the non-section 306 application work: the Master, however, drew no such distinction, and in this I consider he erred.
(ii) Costs incidental to the application
Nor can it be said that these non-section 306 application costs were costs incidental to the section 306 application.
In Contractreal Ltd v. Davies, Arden LJ considered whether the costs of other proceedings could be subordinate to incidental to [sic] proceedings in relation to which a party was obliged to pay costs. She stated:
“The expression “of and incidental to” is a time-hallowed phrase in the context of costs [which] has received a limited meaning, [in particular] the words “incidental to” have been treated as denoting some subordinate costs to the costs of the action. If [counsel for the receiving party] was right in this action it would mean that the costs of some very substantial proceedings would be treated as costs of and incidental to other proceedings.”
40. I do not consider, for precisely this reason, that the non-section 306 application costs can be “incidental” to the section 306 application.
41. In his detailed assessment,
the Master failed altogether to differentiate between section 306 costs and non-section 306 costs. He should, in my judgment have disallowed the latter. He clearly did not.
Thus, for example, Part 1 of Ms Bohinc’s bill of costs concerns “work undertaken under a private retainer to 31 May 2017 (Invoice No. 17537)”. The invoice thus covers work for the period 18 to 31 May 2017, over a month before proceedings were commenced. The costs claimed were £7,487.00 (net of VAT), limited to £6,000 (net of VAT) by reference to the interim bill. The Master allowed the vast majority of these costs, even though some clearly related to matters outside the scope of the costs order. The same is true of the other, later, parts of the bill of costs.
42. In these circumstances, Grounds 1 and 2 succeed. The Master has erred in principle by misapplying the scope of the costs order in Ms Bohinc’s favour and to Mr Malmsten’s detriment.
(3) Grounds 3, 4 and 5
43. Again, it is appropriate to consider these three grounds together. They all relate to specific items of cost allowed by the Master which, so Mr Malmsten contended, involved an inappropriate exercise of his discretion. Specifically, Mr Malmsten contended that:
(1) The evidence served on Ms Bohinc’s behalf covered material in too much (sometimes irrelevant) detail (Ground 3);
(2) The Master permitted an excessive sum in respect of counsel’s fees (counsel was consulted on no less than 26 occasions, and the costs of 23 of these occasions were allowed) (Ground 4);
(3) The Master permitted recovery of:
(a) The use of process servers when this was unnecessary;
(b) Costs relating to Ms Bohinc’s solicitors’ mistake in relation to the response pack (Ground 5).
44. I am reluctant to seek to second-guess the granular decisions of the Master in relation to these three Grounds. It may well be that certain cost lines (notably, the extensive consultation with counsel) would fall away because of my conclusion in relation to Grounds 1 and 2. But for the reasons given by Buckley J in Mealing-McLeod [v Common Professional Examination Board], I am reluctant to engage in a line-by-line analysis of costs already considered by the Master. Although I had before me the original papers that were before the Master – including potentially privileged material between Ms Bohinc and her solicitors – I did not consider it appropriate to review or hear submissions in relation to this material, particularly when this was material that Mr Malmsten’s team had not seen.
45. More to the point, it seems to me that the requirement of proportionality – to which I turn next – also constitutes a means of controlling costs without engaging in the sort of granular analysis that I am here eschewing.
46. Accordingly, I dismiss Grounds 3, 4 and 5.
(3) Grounds 6 and 7
47. Both of these grounds relate to the question of proportionality, and it is again convenient to take them together. It is necessary to begin with the concept of proportionality.
48. As was explained in paragraph 26 above, the proportionality rules in the CPR are relatively new and certainly unconsidered by the higher courts. That these new rules were intended to effect a significant change to the CPR is clear from the fact that they do not apply in relation to cases commenced before 1 April 2013 nor to costs incurred in respect of work done before that date.
49. It is worth considering the role of proportionality before the new rules were introduced. The approach that the courts took was described by Lord Woolf MR in Lownds v. Home Office:
“…what is required is a two-stage approach. There has to be a global approach and an item-by-item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which [CPR 44.4(3)] states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This is turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner.”
50. In other words, the proportionality of the overall bill claimed determined the rigour of the subsequent assessment of costs. If the costs were proportionate, then the costs judge would simply need to consider whether each individual item was reasonably incurred at a reasonable cost. If the costs were disproportionate, on the other hand, then a higher (necessity) standard was used. Only if that cost item was necessary would the reasonable costs of that item be allowed. If the incurring of a cost was necessary, and the amount itself reasonable, there was no further ability to reduce the overall costs bill by reference to proportionality or, indeed, any other measure. The final bill could remain disproportionate to the matter at issue.
51. The present rules are very different.
It is quite clear, from the express wording of CPR 44.3(2)(a) that there may be a reduction in costs on grounds of disproprortionality even if those costs were reasonably or necessarily incurred.
That, to my mind, inevitably indicates that under the new rules a proportionality assessment must occur at the end of the process, whereas under the old rules it occurred at the beginning.
In Lownds, when considering the old rules, Lord Woolf MR said this:
“…In a case where proportionality is likely to be an issue, a preliminary judgment as to the proportionality of the costs as a whole must be made at the outset. This will ensure that the costs judge applies the correct approach to the detailed assessment…Once a decision is reached as to proportionality of costs as a whole, the judge will be able to proceed to consider the costs, item by item, applying the appropriate test to each item.”
Self-evidently that must be right where proportionality determines the approach on a detailed assessment, but does not otherwise affect the outcome of that assessment.
53. It is already clear from Lord Woolf’s analysis in Lownds that proportionality is essentially a tool that controls the overall bill of costs. That is confirmed by the definition of proportionate in CPR 43.3(5). The five factors listed there are only meaningful when considered in relation to the overall bill of costs, rather than in relation to a specific item of costs.
What the new rules require is for the judge, having completed a detailed assessment of costs, to take a step back, look at the assessed bill, and ask whether a further reduction is required on grounds of proportionality.
54. Although I have reached this conclusion on the basis of the wording of the rules, my conclusion is consistent with the views expressed by others extra-judicially. I quote the following passage from Friston, which quotes a speech from Senior Master Gordon-Saker, himself quoting Jackson LJ:
“In the editor’s view, the starting point is a keynote speech given in 2014, in which Senior Master Gordon Saker (speaking extrajudicially) said the following:
“It is said that we will need guidance on how to apply the new test. I disagree. The guidance is already there. It is likely that somebody will in some case or other seek to appeal the approach that has been taken. But I would suggest that there is no reason to suppose that the court hearing the appeal will do other than restate the guidance that has already been given by Jackson LJ in his final report.
“…I propose that in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction. There is already a precedent for this approach in relation to the assessment of legal aid costs in criminal proceedings: see R v. Supreme Court Taxing Office, ex parte John Singh and Co  1 Costs LR 49.”
In the 15th implementation lecture on 29 May 2012 – the lecture entitled “Proportionate Costs” – Lord Neuberger, then MR, quoted that passage and said that it seems likely that the courts will develop the approach to proportionality “as Sir Rupert described it” in that paragraph.”
Thus, if Master Gordon-Saker is right, it would seem that proportionality will now revive “the Singh adjustment”. This is noteworthy, because this was precisely the test that was urged upon the Court of Appeal by the paying party in Lownds more than 15 years ago.”
55. My conclusion is also consistent with the notes in the 2019 edition of Civil Procedure, which says this at [44.3.3]:
“As yet no guidance has been provided by the Court of Appeal as to how the test of proportionality introduced on 1 April 2014 by [CPR 44.3(2) and (5)] should be applied. The general practice on detailed assessment is to consider the reasonableness of each item that has been challenged and then to consider whether the total sum that would be allowed on that basis is proportionate or not. If it is not proportionate, the court will then reduce the total figure to a sum which is proportionate.”
56. The new rules accordingly replace the ex ante Lownds test, with a new ex post test. Costs are assessed according to a reasonableness standard (see CPR 44.3(1): “the court will not…allow costs which have been unreasonably incurred or are unreasonable in amount”), with the final costs assessment then being subject to the proportionality test.
57. It would seem that
the distinction between “reasonable” costs and “necessary” costs – intrinsic to the Lownds test – has been eliminated, given that CPR 44.3(1) refers only to costs “unreasonably” incurred or “unreasonable” in amount.
The reference, in CPR 44.3(2)(a), to costs “reasonably or necessarily incurred” does not preserve the Lownds distinction, but simply makes clear that even costs necessarily incurred are subject to the overriding criterion of proportionality.
58. The approach that I have described will work equally well in the case of a summary assessment, albeit that there is, in the case of such assessment, no item-by-item consideration of costs.
(ii) When considering proportionality, is it appropriate to exclude VAT and the costs of drawing the bill?
59. The Master’s approach was to exclude from consideration VAT and the costs of drawing the bill of costs. The substance of Ground 6 of this appeal was that this approach was wrong in law.
60. In my judgment,
the Master was entirely right to leave both VAT and the costs of drawing the bill out of account when considering the question of proportionality. These are no more than distorting factors, when considering the overall proportionality of costs.
The fact is that, when consideration [sic] proportionality, one is seeking to determine whether there is a proper – a proportionate – relationship between the overall costs and the action or the application giving rise to those costs.
Self-evidently, the costs of any detailed assessment – which are costs entirely unrelated to the nature of the action or application whose costs are being assessed – must be left out of account.
I do not consider the contrary to be seriously arguable, given the definition of “proportionality” in CPR 44.3(5).
61. Equally, the inclusion of VAT confuses rather than assists.
The fact is that VAT is – when payable – not an option, but an inevitable cost to the receiving party. Sometimes, of course, a party will not be obliged to pay VAT; and sometimes, a party will be able to recover it. It seems to me to be entirely undesirable to include such a factor in any proportionality assessment, as it simply distorts and confuses any proportionality assessment.
This conclusion is borne out by:
(1) The fact that, in CPR 44.1(1) “costs” is defined as “fees, charges, disbursements, expenses, remuneration, reimbursement allowed to a litigant in person under rule 46.5 and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track”. VAT does not fall within this definition but is separately defined.
(2) The helpful dictum of Morland J in Giambrone v. JMC Holidays Ltd:
“In my judgment VAT should be excluded from the starting point figure because it is a percentage tax levied on the cost of the service provided. The impact of the tax has no bearing on the steps taken in the litigation or the cost of them.”
62. Accordingly, I dismiss Ground 6.
(iii) The Master’s approach to proportionality
63. The Master explicitly assessed the question of proportionality at the end of the hearing before him on 11 October 2018. He (rightly) left VAT and the costs of the detailed assessment out of account and began his proportionality assessment with the net figure of £47,500. As to the question of proportionality:
(1) The Master correctly directed himself to CPR 44.3(5).
Of the various factors there set out, he discounted, as irrelevant, factor (a) (the sums in issue in the proceedings) and factor (e) (any wider factors involved in the proceedings). I consider that he was right to do so.
He regarded factors (b) (the value of any non-monetary relief), (c) (the complexity of the litigation) and (d) (any additional work generated by the conduct of the paying party) as relevant, “almost in ascending significance”.
(3) His judgment, given ex tempore, was as follows:
“This was an application for an order under the Companies Act for a meeting of shareholders with the purpose of putting the company into administration, straightforward relief in one sense, but nonetheless important, and of central importance to this particular claimant. Insofar as the litigation’s complexity [is concerned], this was a Part 8 application for the order made by the learned Registrar. As the learned Registrar pointed out this was, or should have been, a relatively straightforward matter. Not a matter which the defendant should reasonably or realistically have objected to or opposed. So, although it is a significant matter to this claimant, it is a relatively straightforward application and should not ordinarily raise any particularly complex issues at law or litigation. But seeing this case effectively overlap, at least in part, with [factor (d)] (any additional work generated by the conduct of the paying party). And this, it seems to me, having seen not simply the file, but the transcript of the hearing before the learned Registrar, and the matters articulated in the bill and [the replies to the points of dispute], this it seems to me was the issue of central significance in this particular case. This was a matter that could have been dealt with in a straightforward manner by the cooperation of the defendant had he turned up to the meeting as convened, but notwithstanding the fact that he indicated he was planning to, he did not turn up. […] I have observed over the course of proceedings today, that in procedural terms, he is not a particularly co-operative litigant, in relation to service and other procedural matters. There is no doubt at all that that led to costs which could otherwise, and should otherwise, have reasonably been avoided. More particularly, his stance throughout, prior to, during and, to a degree, after the hearing was to try and frustrate the process to prevent the company being put into administration. His [submission] expressed during the course of the hearing was that there were sufficient assets or at least debts owed to the company to avoid this particular process, which he sought to do by reference to various different alternative […] proceedings, a section 994 application and the like. I have quoted already the intervention of the learned Registrar, who was persuaded at least in part by the defendant to delay the meeting by 28 days or so, because of his desire, valid or otherwise, to try and continue a substantive defence of the application. But the long and the short of it is that what should have been a relatively straightforward application in the Companies Court, turned out to be a more protracted and bitterly fought and undoubtedly therefore more expensive undertaking than it would otherwise have needed to be. In the light of all those factors, I have to decide on the discretion of the court whether this is a case where a proportionality test [in relation to] the primary assessment requires a further reduction. On the particular facts of this case, the costs of this application, I am of the conclusion that the primary assessment, it is proportionate, and I am not minded to make a further deduction on the basis of proportionality.”
Accordingly, the final costs payable in respect of the section 306 application remained at £47,500.
64. Having well in mind the injunctions that I have set out in Section E above, I have nevertheless concluded that
the Master’s decision to entertain no further proportionality reduction is one that cannot be sustained:
The Master attached too much weight to the fact that Mr Malmsten resisted Ms Bohinc’s application. It may very well be right to say that Mr Malmsten should have attended the shareholders’ meeting that had been called and so avoided the need for a section 306 application altogether. It may also be right to say that Mr Malmsten had no good grounds for resisting the application when it was made. I am quite prepared to consider the matter on that basis, for the fact is that (by themselves) these matters say nothing about the quantum of costs that it was appropriate for Mr Malmsten to pay in this case. Of course, these factors strongly point to the incidence of costs resting on Mr Malmsten. But that is precisely what the Registrar ordered. The question before the Master was not the incidence of costs, but their amount.
(2) What is more, the Registrar ordered costs on the standard basis. He clearly did not consider that there was anything, in Mr Malmsten’s conduct, that made this a matter for assessment on the indemnity basis.
(3) In these circumstances,
faced with what was undoubtedly a narrow and straightforward application, if the Master was going to use factor (d) (any additional work generated by the conduct of the paying party) as the reason for effecting no proportionality deduction, he needed to identify how Mr Malmsten’s conduct resulted in additional costs to Ms Bohinc.
(4) The point can be put in the following way: there can be no doubt that Ms Bohinc was entitled to her proportionate costs, both because Mr Malmsten should not have fought her application and because he lost. To that extent, there is a clear nexus between the Registrar’s costs order and Mr Malmsten’s conduct. But, as a starting point,
given the narrowness and straightforwardness of the application – resulting in a clearly correct outcome after a hearing of half-an-hour (including a ruling and submissions on costs) – costs of £47,500 require some justification, and pretty cogent justification at that.
The costs are – simply by reason of the narrowness and straightforwardness of the application in relation to which they were incurred – prima facie disproportionate.
If it could have been shown that – for example – the frequent reference of questions to counsel by Ms Bohinc’s solicitors was in some way caused by Mr Malmsten’s conduct, that would be a matter to take into account.
the fact is that Mr Malmsten’s acknowledgement of service (with an accompanying witness statement) occurred late in the day: on 2 August 2017, the day before the hearing. The frequent resort to counsel cannot be explained on this basis, nor indeed any of the disproportionate costs arising between instruction of Ms Bohinc’s legal team and 2 August 2017.
I conclude that the Master’s reliance on factor (d) was not justified by the circumstances before him and that the Master’s decision on proportionality is, for this reason, wrong in law.
(6) I do not consider that factor (b) is particularly relevant in the present case. Of course, the application was of importance to Ms Bohinc, as it affected the fate of the company she was very much interested in. As a result, no doubt, her solicitors instructed very experienced company law counsel, and I would not regard that as inappropriate. However, this cannot justify the considerable number of hours spent on what was, I reiterate, a narrow and straightforward application.
Accordingly, I find that Ground 7 succeeds. The Master’s failure to make a deduction to reflect the disproportionality of the costs claimed by Ms Bohinc was a clear error of law, lying outwith the (very considerable) discretion afforded to him by the costs rules.
66. For the reasons I have given, Grounds 1, 2 and 7 succeed. Grounds 3, 4, 5 and 6 fail. Accordingly, Mr Malmsten’s appeal succeeds.
67. I am reluctant, given the costs that have already been incurred, to remit the detailed assessment to another costs judge, unless that course is unavoidable. Had only Grounds 1 and 2 succeeded, then such remission would indeed have been unavoidable. I am not in a position to re-assess Ms Bohinc’s bill of costs, extracting, on an item-by-item basis, matters unrelated to the section 306 application.
68. However, Mr Malmsten has also succeeded on Ground 7, and I do consider that I am in a position to effect a proportionality analysis without remitting the question of costs to another costs judge. This is because such an exercise does not involve, as I have explained, an item-by-item assessment, but rather taking a step back and asking whether, in light of the various factors that go to proportionality, the sum of £47,500 ought to be reduced on the grounds of proportionality. I consider that I can carry out such a proportionality assessment despite the presence, in the figure of £47,500, of costs that should not be recoverable at all by Ms Bohinc, provided that – when making such an assessment – I bear this fact in mind (as I do).
69. I consider that the sum of £47,500 should be reduced to a sum of £15,000 (plus, obviously, VAT). My reasons for reaching this figure or – to put it another way – for reducing the sum of £47,500 by some £32,500 are as follow [sic]:
(1) I consider that the approach a court must take when considering proportionality is well-put in Friston:
“What still remains a relative mystery, however, is how the adjustment ought to be made. Whilst no more than his own thoughts on the matter (which could well be wrong), the editor believes that it is no coincidence that those factors that are listed in CPR 44.3(5) are precisely those factors that would be of especial importance to clients of legal services providers. Clients do not care about reasonableness, necessity, time spent and other such niceties; indeed, they are often aghast at the so-called reasonable fees that their legal services providers charge. They care about more fundamental – usually commercial – matters, such as the amount at stake, how difficult the litigation is, how badly (or well) their opponents are behaving, etc. These are the factors that are listed in CPR 44.3(5) and are the factors that will tend to govern the extent to which clients are prepared to put their hands in their pockets. If this is right, then – by analogy with other tests that govern the amount of costs – the test could well be the amount that a hypothetical reasonable litigant of adequate but not extravagant means would, in all the relevant circumstances, regards as bearing a “reasonable relationship” to the factors in CPR 44.3(5). Conceptually, this is not a difficult test to apply because – whilst an oversimplification – it boils down to a very simple question: “Focusing on what really mattered to the litigants, what would a reasonable client have been prepared to pay in all of the relevant circumstances?””
(2) It is, however, necessary to sound a warning against too client-centric an approach to proportionality. The law is, unfortunately, both complex and complex to navigate: that is why clients need lawyers in the first place, and it is necessary to appreciate that the costs figure arising out of a detailed assessment or even in a summary assessment cannot simply be disregarded. The costs appearing in such an assessment have been professionally compiled and must be given due weight. The position is a fortiori when there is an approved or agreed costs budget in place.
(3) So, as it seems to me, the starting point for the proportionality assessment will be the figure put forward by the legal representative, after an item-by-item review if this has occurred. Thereafter, it is a question of the extent to which – knowing the way lawyers charge, and the fact that, to at least some extent, the client will have been informed of this – this figure fails the proportionality test. A judge assessing such figures may have regard to “like” cases and to what the other side has charged its client, but at the end of the day the application of the proportionality criterion is intended not as a test for ensuring that the costs are indeed reasonable or even necessary, but as a separate and self-standing control.
The costs for the section 306 application made by Ms Bohinc are, without any doubt, excessive. That is, no doubt, in part because the Master included as recoverable costs which, so I have found, fell outwith the costs order made by the Registrar.
It may well be that such costs represent services to Ms Bohinc that were valuable to her in terms of general advice regarding the company of which she was majority shareholder, but these were certainly not costs that Mr Malmsten should pay, as I have found. Aside from that, I find that there is no justification for the extent to which counsel was consulted nor for the number of hours spent by Ms Bohinc’s solicitors. These costs were entirely disproportionate given the nature and complexity of the application.
(5) I accept that these proceedings were of importance to Ms Bohinc and, to be clear, I am certainly not envisaging any discount because her solicitors went to experienced (and expensive) counsel versed in corporate law. I also accept that Mr Malmsten was not a co-operative litigant: partly, that may be due to his status as a litigant in person, but I am also quite prepared to accept the Master’s finding that Mr Malmsten was trying to be awkward. Indeed, that conclusion is rather supported by the very late attempt by Mr Malmsten to re-open the Registrar’s order, a matter I have described in Section C above. However,
I consider that – perhaps more by luck than judgment – Mr Malmsten’s conduct in this case did not actually have an effect on the level of costs, as I have already noted.
(6) In reaching a figure of £15,000, I have been cautious to err on the side of generosity to Ms Bohinc. My initial reaction to the costs for the section 306 application was that it would be difficult to justify costs in excess of £12,000 inclusive of VAT. But I am conscious that I am applying a broad-brush test at the end of a detailed assessment which I have not carried out, and have therefore concluded that the sum of £15,000 plus VAT is the appropriate figure to set.
That, therefore, is my conclusion in relation to this appeal:
(1) The appeal is allowed in relation to Grounds 1, 2 and 7. Grounds 3, 4 and 5 fail.
(2) I do not remit the matter back to a costs judge for further detailed assessment, but order that Mr Malmsten pay Ms Bohinc the sum of £15,000 plus VAT in settlement of the costs of the application.
(3) That, of course, leaves the costs arising out of the detailed assessment itself, which I anticipate will require further consideration by counsel and, if necessary, further written submissions to me for me to resolve on the papers.
(4) I am conscious, also, that Mr Malmsten’s challenge to the proper form of the order remains live. Until that matter has either been withdrawn by Mr Malmsten or otherwise disposed of by the Registrar, I will not make any final order on this appeal. It seems to me that the incidence of the costs of the detailed assessment, referred to above, may very well turn on whether Mr Malmsten’s challenge to the order is or is not successful. Were it to be successful, then a certain amount of work, both in relation to the detailed assessment and this appeal, will have been thrown away: and (as presently advised) I fail to see why Ms Bohinc should bear such costs thrown away. Of course, if the application to the Chief Registrar is withdrawn, this matter does not arise.