PROPORTIONALITY: THE EMPEROR’S NEW CLOTHES

In the Jackson Report proportionality is dealt with in Chapter 3, pages 27-39 and Lord Justice Jackson’s proposed wording for a new rule in relationship to proportionality has been adopted, as announced by Lord Neuberger, President of the Supreme Court, but then Master of the Rolls. The proposals for Jackson implementation change almost daily. What follows is the position as at 23 January 2013. As things progress this piece will be updated and notification will be via Twitter @kerry_underwood

The current rules are that on a standard basis assessment the court will “only allow costs which are proportionate to the matters in issue” (CPR 44.4(2)(a)). When the Court of Appeal was asked to interpret what “proportionality” meant in Lownds v Home Office [2002] EWCA Civ 365 it held: “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 that Part 44.5(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 costs 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.”

The new rule will be CPR 44.4(5) and will come in to effect on 1 April 2013 and will read:

“44.4(5) Costs incurred are proportionate if they bear a reasonable relationship to:

(a)    the sums in issue in the proceedings;

(b)   the value of any non-monetary relief in issued 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.”

These definitions are not straightforward. Take “the complexity of the litigation.” Fine – but what figure is to be put on this? A 50% uplift? Or a line by line examination of the work done due to “complexity” which takes one back to the Lownds test?

Likewise “any additional work generated by the conduct of the paying party.” Is that any work, such as denying liability or obtaining their own expert’s report? Or is it only to be misconduct that triggers extra fees?

Lord Neuberger summarized the aim of the new test as:

“effectively reversing the approach taken in Lownds. In this way, as Sir Rupert said, disproportionate costs, whether necessarily or reasonably incurred, should not be recoverable from the paying party. To put the point quite simply: necessity does not render costs proportionate”.

Lord Neuberger went on to say:

“As such it seems likely that, as the courts develop the law, the approach will be as Sir Rupert described it:

“….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 rule 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”.

He added:

“It would be positively dangerous for me to seek to give any sort of specific or detailed guidance in a lecture before the new rule has come into force and been applied. Any question relating to proportionality and any question relating to costs is each very case-sensitive, and when the two questions come together, that is all the more true. The law on proportionate costs will have to be developed on a case by case basis. This may mean a degree of satellite litigation while the courts work out the law, but we should be ready for that, and I hope it will involve relatively few cases”.

Surely the whole point of proportionality is to give a broad-brush approach as to what is a proportionate level of costs to incur to recover, say, £25,000.00, or £50,000.00 or whatever.

True it is that no two cases are the same, but most litigation is routine and involves predictable factors. Most litigation is not test litigation and does not involve any wider factors, such as reputation or public importance.

If each case must be considered on its merits, then inevitably the courts will be looking at what work was it necessary and what work was it reasonable to carry out, but this is of course what is supposed to be forbidden under the new rule, as it is simply a return to Lownds. Indeed everything comes back to Lownds, maybe because it was a well-thought out judgment which addressed all of the issues and dealt with them. Why re-invent the wheel?

Unless specific, detailed advice is given, then what is the point of proportionality? Why should the country’s most senior judge not say:

“I have spoken with my judicial colleagues and reviewed the evidence and unless factors (d) and/or (e) apply I would expect a party never to recover more in costs than a sum equal to 40% of damages in a personal injury claim, 20% in a commercial claim……”

etc, etc.

As Simon Gibbs has said:

“Indeed, it is difficult to see why the answer to the issue of what is a proportionate level of costs to recover £25,000.00 should normally vary from case to case”. And

“I have yet to meet a costs practitioner who believes that the new proportionality test is workable. More worryingly, I have yet to meet a costs judge who is able to explain by what margin, if any, a Bill of Costs in relation to routine litigation that has been assessed at £75,000.00 applying the reasonableness test should then be reduced down to if the amount in dispute was only £25,000.00.”

True proportionality is achieved by fixed costs, or capped costs and of course contingency fees are the purest form of proportionality.

Absent fixed or capped costs no jurisdiction has ever succeeded in developing a consistent judicial approach to proportionality. That is unsurprizing as it is an entirely meaningless word in a financial context when not applied as a strict mathematical formula.

Proportionality = The Emperor’s New Clothes, which is why no court has ever applied it.

It is the costs equivalent of having the Ogden Tables without any of the figures filled in, or a crossword where the setter has not thought out the answers.

Now, Lord Neuberger is a very good judge indeed and has the chance in his new post of President of the Supreme Court to achieve greatness.

I believe that he knows that the piecemeal implementation of what was in any event a deeply flawed report is likely to be a disaster, and that he is laying the ground for what may turn out to be massive judicial intervention to prevent the civil justice system falling into chaos.

Predictions of “satellite litigation” and “a period of slight uncertainty” by the judiciary about a change in the law are hardly statements of judicial approval.

Specialist costs counsel Andrew Hogan, commenting on the model now adopted said:

“The notion of a “long stop” discount test of proportionality, is a recipe for satellite litigation, as it will introduce chronic uncertainty into the assessment of costs, both in terms of when such a deduction will be applied and in terms of what the quantum of deduction might be. Perhaps, more significantly, it is even more disappointing that even now, some 15 years after Lord Woolf ‘borrowed’ the concept of principle of proportionality from European Union law, it remains a nebulous and uncertain concept, hard to define and even harder to apply, which is conceptually very odd, when one considers that the stated aim of Jackson was to reduce perceived disproportionate costs to a proportionate level. If you can’t define proportionality, how can you judge whether you have succeeded or not in moving from a disproportionate model of costs to a proportionate one?”

I leave the last word, for now, to Master Haworth of the Senior Court Costs Office, who, speaking at the LexisNexis Costs and Litigation Funding Forum on 31 October 2012, said that the new rule on proportionality was vulnerable to court challenge:

“It’s going to be left to decisions up and down the country to determine what is proportionate”,

which of course utterly defeats the point of proportionality.

 

 

NHS LITIGATION AUTHORITY: HOW IT MISLED PARLIAMENT

One year ago I wrote about the 2010-2011 NHSLA Report to Parliament and suggested that its statement that “after large increases in previous years we saw new claims volumes for newly reported clinical claims rise by around 30% in 2010-2011″  was misleading and that the truth was very different. (Click here for original piece: http://kerryunderwood.wordpress.com/2011/08/25/nhs-litigation-authority-has-it-misled-parliament/ )

The press picked up on the NHSLA statement and lurid headlines followed with this being used as yet another example of the compensation culture.

I said then that “No such increase ever occurred” and that the true figure, based on other statistics was between 6.67% and 7.51%, an increase indeed, but consistent with previous increases.

The reason behind the apparent increase was a change in the reporting methods, something tucked away on Page 12 of the report, whereas the headline figure was contained in the opening statement of Mr Steve Walker, the then Chief Executive, but no longer in that position.

I said:

“Of course next year, based on this year’s higher figure and using the same, new, recording procedure the percentage increase will revert to a true figure, so it is just this one year when the percentage increase is distorted upwards”.

Now it is next year and the 2011-2012 Report has been published.

Was I right?

Yes.  This year’s report shows that the number of new claims rose by 6% with clinical claims rising by just 5.6% and non-clinical claims by 6.3%.

These figures are very similar indeed to last year’s true figures, and actually show a slight drop in the rate of increase in the number of claims, and indeed this year’s report recognizes that this year’s increase is “lower than each of the previous three years” (Page 11).

Nevertheless, Mr Tom Fothergill, Director of Finance, persists with the fiction that there was a large rise in claims last year, saying:

“The number of new claims received in the year rose by 6%, a significant increase but a substantially lower one than in 2010-2011.” (Page 11) and

“As the graph indicates, clinical and non-clinical claims grew at a similar rate (5.6% and 6.3% respectively) after the sudden sharp rise of over 30% in clinical claims in the year before” (Page 11).

Mr Fothergill, like Mr Walker before him, knows full well that there was no “sudden sharp rise” – indeed he goes on to say:

“Part of the growth in claims volumes in recent years is attributable to the earlier reporting of claims….”.

In fact the whole of the apparent additional jump last year, over and above the rise of 6% or so, is explained by a change in the reporting system.

Misleading Parliament is a very serious matter.  In this case it is even more serious than normal as the misleading 2010-2011 Report to Parliament was the current Report throughout the period that Parliament debated and voted upon the Legal Aid Sentencing and Punishment of Offenders Bill, which became law 3 months ago.  That Bill, now the Legal Aid, Sentencing and Punishment of Offenders Act 2012, largely abolished legal aid for clinical negligence cases and also, through abolishing recoverability of conditional fee success fees, made it far harder for claimants to bring claims.

I am not saying that the outcome of the Parliamentary debates would have been different had this misleading report not been published.

I simply do not know.  However, we all know that this was a highly controversial Bill which suffered a record number of defeats in modern times in the House of Lords.

I am not expecting banner headlines in the Daily Mail or The Telegraph.

“NHS claims rise lowest in 4 years”

but I do think that there should now be a Parliamentary Inquiry in to this matter.

If a public body has misled Parliament in a way that has affected the passage of legislation that affects millions of people then that is a most serious matter indeed.