HHJ Auerbach upholds decision to reduce “reasonable” base costs of £115,906.09 to £75,000 on grounds of proportionality having regard to each of the factors in CPR 44.3(5).
SARAH JANE REYNOLDS v ONE STOP STORES LIMITED (HHJ Auerbach, the County Court at Norwich and at Cambridge, 21 September 2018)
CPR 44.3(5) : PROPORTIONALITY
CPR 44.3(5)
“if the learned District Judge had simply taken the amount of the settlement automatically to be the measure of the sums in issue, that would have been wrong. But that is not what he did. He was alive to the facts that the Claimant’s credibility was in issue, that the medical evidence varied, that there was surveillance evidence, and that the experts ultimately all deferred to the trial Judge on the credibility issue.” [92]
This was an appeal against a decision on proportionality by District Judge Reeves in the County Court at Norwich and Cambridge. In short, having assessed reasonable base costs at £115,906.09 the District Judge made a further reduction on grounds of proportionality to £75,000.
Some important features of the case:
In addressing the issue of proportionality the District Judge commented that:
“[the matter settled] very much closer to the defendant’s figure; not anywhere near where the claimant was putting their case. So, if there’s a question of reasonableness one has to say that a party who overstates their case, and then settles at an amount on which they originally pleaded, then one has to say that it’s their conduct that must be looked at. The defendant, one can say without too much of a problem, was consistent.”
On the issue of complexity and conduct he said:
“Well, the litigation itself isn’t complex; it is the medical opinion that was divergent, and ultimately it would appear that that became less bold, otherwise it would not have settled on the first day of trial by negotiations if the claimant believed their case was so strong for which it would be in the region of 2 to 300,000. It was not. They came down; the defendant came up to settle. That would suggest on the face of it more reasonable conduct by the defendant. One could say that, had the claimant taken a more reasonable stance, using a hindsight test and I do accept that, then the costs of the hearing could have been avoided.”
He found there to be no issues of non-monetary relief or wider factors of any relevance to be taken into account, concluding:
“So, I am left with a situation where the claimant has overstated their case; has increased the value of their claim; has fought it on the basis of £300,000; has had it cost budgeted having increased the value on £300,000; and then on the day of trial has accepted a much reduced figure than it was originally seeking….
“…In my judgment a proportionate sum as a base cost before the additional ones, should be a sum of £75,000 …”
The claimant appealed the decision on the following grounds:
The District Judge erred in considering proportionality by reference to the amount of the settlement of £50,000, and in drawing on his view that the value of the claim had been overstated. He should have considered proportionality relative to a claim for special damages of £174,975.60, together with general damages.
The District Judge erred in finding the litigation not to be complex. He should have considered it complex, having regard to the involvement of multiple experts who were to give oral evidence, and by comparison with other claims of similar value in the County Court.
The District Judge wrongly failed to recognise that the litigation had been prolonged by the conduct of the defendant only substantially increasing its offer at the doors of the Court. Rather, he wrongly viewed the claimant’s conduct in relation to settlement as unreasonable, and that of the defendant as consistent.
The District Judge wrongly treated the issue of proportionality “as a discretionary one rather than an issue of judgment” and erred in failing to “attribute appropriate weight” to each of the five factors in CPR 44.3(5); and to have reduced the award on an arbitrary basis “without regard to the component parts of the rule, and with neither a mathematical calculation nor an explanation of how the weighting of the various factors resulted in the final figure.”
Ground 1: the District Judge had been perfectly entitled to focus on the fact that, for most of the claim’s life, it had been valued at no more than £50,000, and that was the figure at which it settled; and he was entitled, on the materials before him, to take a view that the claimant had overstated her case.
Ground 2: the District Judge’s view that the litigation was not complex was perfectly permissible, and he took account of the fact that the medical opinions diverged.
Ground 3: the District Judge was entitled to take the view that he did of the conduct issues, in circumstances where the claimant had litigated for some four years and then settled for only £15,000 more than she was originally offered.
Ground 4: the District Judge had gone through the rule 44.3(5) factors and then come to his overall conclusion on proportionality. He was not required to perform a detailed reassessment of the costs claimed, by reference to proportionality, or to apply some mathematical formula.
In the course of his judgment HHJ Auerbach made a number of observations on the issue of proportionality and its relationship to the costs budgeting process:
53. …the wording of Rule 44 does not prescribe at what stage or stages in the conduct of a detailed assessment the Court should address proportionality. However, Sir Rupert Jackson, in his final report, envisaged that, under the new regime, the impact of proportionality would be determined only after the detailed assessment by reference to reasonableness had been completed. The assessing Judge could then consider whether the total figure is proportionate, “alternatively some element within that total figure.” That is also the approach envisaged in the passage from the Harrison case, that DJ Reeves cited in his decision.
53. …the Court may, in a given case, focus on the proportionality of one or more elements of the overall costs, or it may consider the proportionality of the overall provisional total, taken as a whole. The rule leaves it open to the assessing Judge to decide, given the nature of the issues in the particular case, what approach (or mixture of approaches) is more apposite.
54. …proportionality, at the detailed assessment stage, applies to all of the costs under assessment, both those which were, at the costs budgeting hearing, incurred costs and those which were budgeted costs. That is, I think, clear from the language of Rule 44. It does not restrict the application of the proportionality principle to any particular element of the costs submitted. The observations in Harrison at paragraph 52 are also to that effect; and, in particular, the budgeted costs are susceptible to proportionality review, notwithstanding that, upon initial consideration, the Court will not depart from the budget without good reason.
55. This does not, however, mean that the distinction between incurred and budgeted costs, and/or what happened at the case management stage in a given case, are irrelevant at the assessment stage. Rule 3.15(4) provides that, whether or not the Court makes a costs management order “it may record on the face of any case management order any comments it has about the incurred costs which are to be taken into account in any subsequent assessment proceedings.”
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58. The Judge conducting the detailed assessment may not know precisely what impact proportionality had on the approved budgeted amount, but will know that it will (or, at any rate, should) have been considered. Further, although the case managing Judge cannot approve incurred costs, they must take them into account when considering the (reasonableness and) proportionality of the budgeted costs. And any comments of the case managing Judge, touching on the proportionality of incurred costs, must be taken into account by the assessing Judge, although they do not fetter what the assessing Judge may do.
59. The fact that the Court, when conducting a detailed costs assessment, may bring proportionality to bear on all of the costs, does not, in my view, mean that there is a form of double counting, by the Court as it were further cutting down for proportionality, costs which may have already been cut down for proportionality. Rather, the Court is simply applying, and then later reapplying, the same filter at two different stages. At the assessment stage it does so with the benefit of different information, and bringing hindsight to bear, which it is entitled to do.
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63. …the list [of factors in CPR 44.3(5)] does not set a series of discrete hurdles, each to be considered in turn, and in isolation from the others. Rather, the Court must decide whether the costs bear a reasonable relationship to these factors, viewed in the round. The Court must still, in my judgment, consider the salience of each of them in the given case, but it only then decides on proportionality by looking at the overall picture which they paint, taken together. So, for example, costs which might look worryingly disparate when compared, in isolation, to the sums in issue, might ultimately be found proportionate, once the implications of the complexity of the particular litigation have also been factored in.
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70. …neither Rule 44.3(5), nor any other part of the rule, requires the Judge to apply any particular mathematical formula or algorithm. It simply contains none. It does not do so where it could have – for example it could have provided that costs are not proportionate to the extent that they exceed a certain multiple of the sums in issue; but it also refers to factors which are not inherently quantitative, such as complexity and public importance, and which simply could not be amenable to the application of a rigid formula. It plainly cannot be right that, on a given set of facts, or underlying figures, a particular proportionality impact (whether in absolute or percentage terms) must necessarily follow.
71. Further, the overriding requirement is that the costs “bear a reasonable relationship” to the Rule 44.3(5) factors. This masterly choice of phrase itself confers a degree of latitude on the assessing Judge in coming to a discretionary value judgment. It is designed, it seems to me, to provide a temper to the rigours of the “trump card” status of proportionality, and its role as a safeguard for payers, so that, without detracting from that, it need not bear oppressively on payees.
72. Further, while the list of matters in Rule 44.3(5) is, as such, exhaustive, and the Court has to correctly construe what each of them means, in judging whether the costs in question bear a reasonable relationship to them, the Court does not decide this in a vacuum, but in all the relevant circumstances. That, it seems to me, is both unavoidable, and in any event is contemplated by Rule 44.4(1), which refers to proportionality as well as to reasonableness. Indeed, it seems to me that the items in the list at 44.4(3) potentially come in to the general picture as well, although some of them may be seen as more relevant to reasonableness, and others to proportionality, and there is also a degree of overlap with Rule 44.3(5).
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74. …the need to engage with the 44.3(5) factors, and then to come to a holistic view of whether the costs bear a reasonable relationship to them, requires the Court, in my judgment, to identify any particular features of the case in hand that are thought to be pertinent in respect of each of them – or to identify if there are none; and to convey its view of how they interact or work in harness in the given case, so as to inform its overall conclusion on proportionality. In going through this process, the Court must apply a correct understanding of what each of these factors actually means. The Court should also indicate any wider background or circumstantial features which have contributed to its view of how those factors play out in the instant case.
75. However, whilst the Court needs to consider the significance that it attaches to those factors that it finds are salient in the given case, and how they interact, it must do so in a qualitative or value-judgment sense. It is not required to do so by assigning each factor a precise numerical weighting, scoring it in some way, or performing any other kind of mathematical calculation. Further, where the Court is applying proportionality to a global provisional total, rather than to an individual element, it is bound, inevitably, to paint with a somewhat broader brush.
76. In presenting its decision, in order that the parties have a sufficient understanding of its reasons, the Court must demonstrate that it has engaged with the rule in the required manner, and followed the above approach. If the provisional total is found disproportionate, and a different final figure found proportionate, the final figure must be one that can be seen to be in keeping with the Court’s reasoning leading up to it, and not perverse or irrational. But the Court does not have to set out a precise mathematical calculation by which it is reached.
The Sums in Issue
89. First, the correct approach to the construction of the rule is, as such, a question of law. But, as with all questions of construction, the phrase must be understood objectively within the context of the instrument in which it is found. These rules do not themselves define what “sums in issue” means – but the concern of these particular rules is, of course, the issue of proportionality of costs. The approach to take to the “sums in issue” must therefore be determined through that lens.
90. The general intention is not hard to grasp. Other things being equal (and the inclusion of the other factors in the list recognises that they may not be) proportionality dictates that the costs should bear a reasonable relationship to the amount at stake. It must also be right that what the assessing Judge needs to consider is a reasonable view of the sums in issue. That may fall within a range.
91. I also consider that, in principle, what is a reasonable view of the sums in issue falls to be decided, objectively, by the assessing Judge, on all the material available to them when the assessment is conducted. That may include an element of hindsight. Nor can there be any rigid approach to the effect that in every case the right answer (or range) must come from one particular source.
The task of the assessing Judge is to decide what is a reasonable view of the sums in issue, drawing on any relevant material in all the circumstances of the particular case, and then how that feeds into the determination of proportionality.
Only if they draw on irrelevant considerations, omit relevant considerations, or otherwise reach a perverse view, should an appellate Judge intervene.
92 In this case,
if the learned District Judge had simply taken the amount of the settlement automatically to be the measure of the sums in issue, that would have been wrong. But that is not what he did. He was alive to the facts that the Claimant’s credibility was in issue, that the medical evidence varied, that there was surveillance evidence, and that the experts ultimately all deferred to the trial Judge on the credibility issue.
It is also clear that he was aware of the course of the offers and counter-offers (Mr Foster laid this out and also referred to a counter-offer that had been made by the Claimant at some point of £70,000).
93. The learned District Judge also appears to have considered what the claim was being valued at by the Claimant, based on the revised schedules of loss, commenting at one point (page 7 of the transcript): “taken to trial for 200,000 and settled at 50.” Further, Mr Foster argued before him that the claim was worth “an awful lot more than £50,000”, and that “it only became worth as little as £15,000 following the service of the surveillance evidence when Dr Munglani started to wobble” (page 18 of the transcript). Mr Dunne also later suggested to DJ Reeves that, with “good general damages” it was pleaded at “at least 200,000” which, Mr Dunne submitted to him, was “a bold assertion” (page 62 of the transcript).
94 Further, after an extended exchange with Mr Foster in which the learned District Judge maintained (correctly) that he was entitled to apply proportionality to budgeted, as well as incurred, costs, DJ Reeves observed (page 26 of the transcript) that this was:
…only a problem in certain cases, and that’s where the recovery is entirely at odds with the costs incurred. Every other case, it works beautifully. And that’s why we’re here today; this was a relatively minor incident but the ramifications were quite significant according to the claimant. It was pushed for five years, it was going to a three-day trial, there was heavily opposed medical evidence and the claim was increased to [sic] 50 to 200,000, the defendant stuck to his guns, it kept to the trial, and then I have no way of knowing whether it was pragmatic to avoid future costs or whatever, a slightly increased offer was put, and settled. Well, what a surprise. And there is guidance to certainly in the lower cases where for example it’s been in the fast track, and for example somebody’s been pursuing something like £20,000 damages and they’ve been awarded 1500. There’s loads of authorities. That’s all down to proportionality. But no, I can easily see why it got to this stage, it’s not difficult. That’s always one of the great advantages of 20/20 hindsight. When you sit up here and you look at it as it’s now turned out, you rest upon your client’s instructions, you’re guided by the medical evidence and you have to follow your client’s instructions on withdrawal. Hence six medical reports or seven medical reports per expert, all incrementing it forward. The psychiatrist was the only one I think who was actually consistent throughout, but then again he’s explaining that you’re dealing with a person of a particular bent, and that hadn’t altered, but it was the other one, Mr Munglani, where in fact there was a change taking place. Now I understand that. But that’s – that’s why budgeting doesn’t work in these cases, because there is a change in the complexion.
95. Further on, there was also discussion of the issue fee for the application to increase the value of the claim, and the recitals in the Tomlin order, with DJ Reeves commenting: “It’s an application which – well, with hindsight is demonstrated to be without merit.”
96. It is against all of that background that the learned District Judge then addressed, in his decision on proportionality, the “sums in issue”, in the terms that I have described.
In my judgment it is clear that he did not take a mechanistic view based on the settlement amount or the amount originally claimed on the claim form. He highlighted the settlement amount, because he regarded it, in all the circumstances, as reflective of an underlying reasonable valuation of the claim.
He was also entitled to express his view that the claim had been overvalued, drawing as it did, on his reasoned appreciation of all the material before him, not just the amount of the settlement.
He was also entitled to take a view that this was (unusually in his stated experience of the new rules in operation) a case in which the impact of proportionality on the provisional total should be significant.
97. I therefore find no error of law or perversity in this part of DJ Reeves’ decision, and ground 1 fails.
Complexity
98. …First, I observe that the rule simply refers to the “complexity of the litigation.” “Complexity” is also an ordinary-language word, and not defined further in the rule. Once again, the Court should construe it objectively in the context of the purpose of the rule concerned.
The Court should therefore consider it by reference to whether the litigation was complex, in ways that could reasonably be expected to have an impact on costs levels. Beyond that, the rule does not require the assessing Judge to deploy any particular kind of comparative yardstick.
99. In this case it was, unsurprisingly, not contested that the nature of the issues required expert medical evidence; but it was not suggested before DJ Reeves (or before me) that this fact, by itself, made this litigation complex in the relevant sense. Rather, it was said, for the Claimant, that particular features of the medical evidence itself – especially the changing views of Dr Munglani, and the extent of the differences between experts, leading to oral expert evidence being permitted at trial – should have led to the conclusion that the litigation was complex in a way which impinged on proportionality in the Claimant’s favour.
100. It is clear to me that the learned District Judge plainly had a good grasp of the particular features of the expert evidence in this case. He was aware of the number of reports, and of their varying contents. But he considered that the underlying litigation was not complex, and he took a view that the fact that the medical opinion was “divergent” did not make it so, in this particular case, observing that it “ultimately became less bold”. He plainly set this in the context of his view of the fair value of the claim; but he was fully entitled (indeed, obliged) to consider the relation of these aspects to one another.
101. Once again, I conclude that DJ Reeves reached a reasoned view, drawing on all the materials available to him, which he was fully entitled to reach. Ground 2 therefore also fails.
Conduct
102. …The focus of Rule 44.3(5)(d) is specifically on whether, in the given case, additional costs have been generated by the conduct of the paying party. The specific argument advanced for the Claimant in this case, was that the Defendant had, unreasonably, failed to table its offer of £50,000 until the start of the trial, thereby putting the Claimant to the additional cost of fighting the matter to trial.
103. When the point was canvassed during the course of the hearing before him, DJ Reeves remarked on the high number of medical reports, adding: “Taken to trial for 200,000 and settled at 50. And on the face of it that one would almost say the Defendants were perfectly entitled to defend this” (transcript page 7). In giving his decision he observed that the Defendant’s conduct was reasonable. In also expressing a critical view of the Claimant’s conduct in this regard, he did not, in my judgment, err in law.
In judging whether the criticism of the Defendant’s approach to settlement was well-founded, he was fully entitled to set that within the context of the wider conduct and evolution of the litigation (and, as I have noted, conduct of the parties generally is a contextual factor referred to in Rule 44.4).
104. Mr Hogan argued, further, however, that DJ Reeves’ criticism of the Claimant’s conduct in relation to settlement was misplaced. The increase of £15,000 on the Defendant’s earlier offer was a significant one in both percentage and absolute financial terms for her. She reasonably held out for it, he said. But what the District Judge had to consider, I repeat, was whether the Defendant’s conduct was unreasonable. He considered that in the context of all the circumstances of this case, including the Claimant’s overall approach to the litigation. He was fully entitled to do so. I add that, even had he thought that the Claimant’s approach to settlement had itself been reasonable, it would not have necessarily followed that he should therefore have concluded that that of the Defendant was unreasonable.
105. Ground 3 of this appeal therefore also fails.
The General Approach
106. As I have already indicated, DJ Reeves did not err in taking proportionality at the end, and in the round, nor in applying it to the whole of the provisional total, that is, to both incurred and budgeted costs. He did not fail to consider each of the 44.3(5) factors in turn, and he properly then turned to draw the threads together, coming to a decision on proportionality in the round. I also consider that he sufficiently conveyed how those factors interacted and fed into his view on proportionality, when giving his oral decision, building on the earlier discussions during the hearing. In short, it is quite clear that he considered that the costs were disproportionate to the sums in issue (about which he took a properly-reasoned view), and that this was not a case where the complexity of the litigation, additional work generated by the paying party’s conduct, nor any other factors in the Rule 44.3(5) list, had a countervailing impact, such as to lead to a different overall conclusion.
107. The learned District Judge was not bound, in addition, to apply some mathematical formula or algorithm, to arrive at the final costs figure. The question I ask myself, on appeal, is whether the figure he arrived at – £75,000 – was consistent with the evaluative conclusion he had come to in his decision thus far. My answer is this.
108. First, DJ Reeves, properly, rejected the argument that it would be wrong to apply proportionality to the budgeted costs. Mr Hogan, however, submitted to me that a relevant consideration, when applying proportionality, was the relative proportions of the costs under assessment attributable respectively to incurred and to budgeted costs. But the breakdown of the budgeted and incurred costs was summarised in the Precedent Q (also in my bundle), and the learned District Judge would have obviously appreciated the picture.
Nor do I consider that he was obliged, in his decision, to identify, or separately determine, sub-amounts of his final award, attributable to incurred and to budgeted costs; nor that the relative proportions of incurred and budgeted costs under assessment in this case were such that it was not open to him to make a final award in the amount that he did.
109. The learned District Judge also considered the submission that the Claimant’s budget had been, earlier, subjected to what Mr Foster had called “swingeing” reduction; but he properly concluded that this fact did not of itself make the reduced costs more defensible. He, rather, properly considered, first, whether the provisional total of just under £116,000 costs reached in his assessment was proportionate, but “struggle[d] to say … that they do resemble a reasonable relationship.” He described why he considered the costs to be disproportionate to the sums in issue. The tenor and substance of his overall analysis, naturally pointed, in my judgment, to his conclusion that a significantly lower figure was proportionate in this case. The award of £75,000 was, I conclude, wholly consistent with DJ Reeves’ overall reasoning, and flowed from it.
110. Mr Hogan observed that £75,000 was precisely 1 ½ times the settlement amount and the original claim limit. He said that it rather looked as if the learned District Judge had effectively applied a tariff. But that criticism is in my view not merely speculative but wrong. For reasons I have given, specifically in relation to ground 1, I am satisfied that DJ Reeves did not take a mechanistic approach of that sort. If, however, in arriving at his final figure in this case, he took account of its relation to his view of the reasonable valuation of the underlying sums in issue, there was nothing wrong about that at all, given his view of the overwhelming significance of that to proportionality in this particular case. That does not, however, amount to the application of a tariff.
111. Ground 4 also, therefore, fails.
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