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The costly effect of incurring disproportionate costs

It is now over two years since the majority of the Jackson reforms came into force on 1 April 2013 and we are now seeing the courts take a different approach to the issue of proportionality of costs in litigation.

It should first be noted that when the court exercises any of its powers, consideration must be given to the overriding objective. The overriding objective is set out in part 1 of the Civil Procedure Rules and it states that cases must be dealt with justly and at a proportionate cost. The court must deal with cases in a proportionate way with regard to the amount of money involved, the importance of the case, the complexity of the issues and the financial position of each party.

Since 1 April 2013 and where costs are to be assessed on the standard basis, the court is taking an approach that if the costs are disproportionate to the issues in dispute, regardless of whether those costs were reasonably and necessarily incurred, there is a likelihood that those costs will be disallowed or reduced.

The effect of such an order by the court is that in the event that a party is successful in their case, they run a very real risk of not recovering a significant percentage of their costs.

The recent case of Savoye v Spicers [2015] EWHC 33 (TCC) highlights the approach the courts are now taking. In this case the sum claimed by Savoye was £889,300.00. Akenhead J handed down judgment in favour of Savoye for the full sum of £889,300.00. Akenhead J then invited the parties to exchange written submissions concerning the costs. Savoye’s total costs bill was £201,790.66.

Savoye’s solicitors sought to argue that the conduct of Spicers meant that costs should be awarded on the indemnity basis (and therefore there would be no requirement for the costs to be proportionate, leaving Spicers to argue that the costs claimed were unreasonable). Akenhead J rejected the argument that the costs should be assessed on the indemnity basis and therefore the costs were to be assessed on the standard basis.

Akenhead J reduced Savoye’s costs from £201,790.66 to £96,465.00, a reduction of £105,325.66 and stated “I am led to the inevitable conclusion that a costs bill of over £200,000, albeit in relation to a claim worth just under £900,000, must be considered to be disproportionate”. Whilst, there are many factors to take into account when assessing costs, and it is likely to remain the position that in certain cases a bill in the region of £200,000.00 is proportionate in relation to a claim worth £900,000.00, this case highlights the current approach the courts are taking in relation to proportionality of costs.

Further, it is unlikely to be the case that the courts loosen their approach to costs and if anything, we are likely to see tighter controls on costs coming into force.

At Bolt Burdon we have a team of litigation specialists that are able to offer a ‘city’ service, without charging ‘city’ prices. Please contact Jonathan Copping at jonathancopping@boltburdon.co.uk or 020 7288 4755 for any queries about this article or with any commercial litigation enquiries.

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