Court of Appeal rules on Proportionality Test but gives no further guidance

The long-awaited Court of Appeal ruling in BNM v MGN Ltd [2017] EWCA Civ 1767 has arrived and now ruled that the old proportionality test should have been applied at the costs stage. However, no further guidance was given by the Court as to how the new proportionality test will be applied going forward.

Just over a year ago, we reported that the Court of Appeal was to hear an appeal on the case of BNM v MGN Limited [2016] EWHC B13 (Costs). (The initial expectation that this was going to be a fast-tracked appeal turned out to be very much wishful thinking.) The original costs decision was seen to be the first real indication as to how the new test of proportionality, introduced by Lord Justice Jackson in April 2013, would be applied by costs judges going forward.

In the Lower Court costs decision, Senior Costs Judge Master Gordon-Saker reduced the sums in the Claimant's Bill of Costs on a line-by-line basis and arrived at a figure of £167,389.45 (from £241,817), which he considered to be "reasonable." (The total sum received by the Claimant was £20,000 in the proceedings.) But then, moving on to apply the new test of proportionality, he cut still further to reduce these costs by around half. This included significant reductions to counsel's fees and the ATE premium.

The issue under appeal was whether Master Gordon-Saker was right to apply the new test in the first place, given that the Claimant benefitted from a pre-commencement funding arrangement (i.e. one entered into before April 2013, when the new rules came in).

The Court of Appeal judges have now ruled unanimously that Master Gordon-Saker was not correct and the old proportionality test should have been applied. Thus, the additional liabilities of the success fee and ATE premium, as well as the base costs should not have been reduced in the way that they had. The costs certificate has been set aside and the amount originally found to be reasonable has now been remitted for consideration under proportionality in the correct way.

Many across the industry had also been waiting for pointers by the Court as to how they may expect the new test of proportionality to be applied going forward in its decision. However, those waiting for any obiter indicating what to expect were, alas, left disappointed as their Lordships stuck strictly to the question that had been put before them.

The litigation industry continues its wait for a more firm decision from the Court as to how to apply the new proportionality test. Lord Justice Jackson pointedly did not allow for a practice direction to assist in interpreting the new regime, saying this should be left firmly to judges' discretion. Guidance has been slow in arriving however, although three forthcoming conjoined appeals involving this issue look set to add clarity to this issue soon.

Once we receive further decisions we will provide more updates. 

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