Decision on the new Costs Proportionality Test Leapfrogged to Court of Appeal

Following the controversial costs decision in BNM v MGN Limited [2016] EWHC B13 (Costs), the Court of Appeal will now hear a fast-tracked appeal.

The Jackson reforms in April 2013 introduced widespread changes to the way legal costs could be recovered between parties. One such change was the introduction of a "proportionality" test, found at CPR 44.3(2).

This test is a reversal of the prior regime, whereby each costs item was assessed only if the whole figure was considered disproportionate. The factor of necessity is now ignored in the new regime. The detailed assessment of BNM v MGN Limited [2016] EWHC B13 (Costs) heard in June was considered by many to be the first real test of proportionality.

BNM v MGN concerned a privacy action that developed after details of a relationship between a teacher and a footballer became known to a national newspaper. The claimant sought an injunction and damages. The terms of the settlement included an award of £20,000 in damages against £241,817 for the Claimants legal costs, including a success fee of 60%, counsel's success fee of 75%, an ATE premium of £58,000 and IPT of £3,480.

Senior Costs Judge Master Gordon-Saker reduced the sums by a significant amount on a line-by-line basis. He then went on to apply the test of proportionality to the remaining figure, going on to reduce the base costs and counsel's fee by more than half. Of note is the further reduction of the Claimant's costs in spite of the fact he had held them "reasonable". Special criticism was reserved for the ATE premium which was deemed disproportionate for a claim that settled for £20,000.

Many see this ruling as a bellwether that the new test will be applied in ways that could potentially severely diminish a party's costs, even if it is decided the costs were reasonably incurred. The ATE insurer stated that "the implications for this judgment are that the rule of law will only be open to those who can afford it."

Such is the impact of the decision that an appeal has been leapfrogged to the Court of Appeal for an expedited hearing, possibly by Christmas. The main issue will be the degree to which proportionality should be applied to costs thought to be reasonable.

We will providing a prompt update on this significant forthcoming decision.