Lownds v Home Office

JurisdictionEngland & Wales
Judgment Date21 March 2002
Neutral Citation[2002] EWCA Civ 365
Docket NumberCase No: B1/2001/1643
CourtCourt of Appeal (Civil Division)
Date21 March 2002
Between
Home Office
Appellant
and
Lownds
Respondent

[2002] EWCA Civ 365

Before

The Lord Chief Justice of England and Wales

Lord Justice Laws

Lord Justice Dyson and

Master Hurst

Case No: B1/2001/1643

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL COURT)

ON APPEAL FROM LEEDS COUNTY COURT

(HIS HON. JUDGE LIGHTFOOT)

Royal Courts of Justice

Strand,

London, WC2A 2LL

Mr Alexander Hutton and Mr Mark Friston (instructed by the Treasury Solicitor)

appeared for the Appellant

Mr Graham Robinson (instructed by Lester Morrill, Leeds)

appeared for the Respondent

Lord Woolf CJ: This is the judgment of the Court

INTRODUCTION

1

Although this appeal only relates to a detailed assessment of costs in a relatively modest action, it raises issues of principle which have a direct bearing on the policy on which the effectiveness of the Civil Procedure Rules depends. That policy is that litigation should be conducted in a proportionate manner and, where possible, at a proportionate cost. The policy is reflected in the Overriding Objective set out in CPR 1.1 which provides:

"(1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly.

(2) Dealing with a case justly includes, so far as is practicable—

(c) Dealing with the case in ways which are proportionate

(i) to the amount of money involved;

(ii) to the importance of the case;

(iii) to the complexity of the issues; and

(iv) to the financial position of each party;"

2

Proportionality played no part in the taxation of costs under the Rules of the Supreme Court. The only test was that of reasonableness. The problem with that test, standing on its own, was that it institutionalised, as reasonable, the level of costs which were generally charged by the profession at the time when the professional services were rendered. If a rate of charges was commonly adopted it was taken to be reasonable and so allowed on taxation even though the result was far from reasonable.

3

The requirement of proportionality now applies to decisions as to whether an order for costs should be made and to the assessment of the costs which should be paid when an order has been made. Part 44.3 which deals with the making of an order for costs does not specifically use the word proportionate but the considerations which should be taken into account when making an order for costs are redolent of proportionality. Parts 44.3 (4) and (5) provide as follows:

"(4) in deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including—

(a) the conduct of the parties;

(b) whether a party has succeeded on part of this case, even if he has not been wholly successful; and

(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36).

(5) the conduct of the parties includes—

(a) conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim."

4

Part 44.4 provides for two basis of assessment. The first is the standard basis and the second is the indemnity basis. In both cases the court will not allow the recovery of costs which have been unreasonably incurred or costs which are unreasonable in amount. The important distinction between the standard basis and the indemnity basis is that on an assessment on the standard basis the court will only allow costs which are proportionate. Part 44.4 (2) provides:

"Where the amount of costs is to be assessed on the standard basis the court will—

(a) only allow costs which are proportionate to the matters in issue; and

(b) resolve any doubt which it may have as to whether costs were unreasonably incurred or reasonable and proportionate in amount in favour of the paying party.

(Factors which the court may take into account are set out in rule 44.5)"

5

Part 44.5 is in the following terms:

"44.5-(1) The court is to have regard to all the circumstances in deciding whether costs were –

(a) if it is assessing costs on the standard basis –

(i) proportionately and reasonably incurred; or

(ii) were proportionate and reasonable in amount, or

(b) if it is assessing costs on the indemnity basis –

(i) unreasonably incurred; or

(ii) unreasonable in amount.

(2) In particular the court must give effect to any orders which have already been made.

(3) The court must also have regard to –

(a) the conduct of all parties, including in particular –

(i) conduct before, as well as during, the proceedings; and

(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;

(b) the amount or value of any money or property involved;

(c) the importance of the matter to all the parties;

(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;

(e) the skill, effort, specialised knowledge and responsibility involved;

(f) the time spent on the case; and

(g) the place where and the circumstances in which work or any part of it was done.

(Rule 35.4(4) gives the court power to limit the amount that a party may recover with regard to the fees and expenses of an expert.)

6

The fact that when costs are to be assessed on an indemnity basis there is no requirement of proportionality and, in addition, that where there is any doubt, the court will resolve that doubt (as to whether costs were unreasonably incurred or were reasonable in amount) in favour of the receiving party, means that the indemnity basis of costs is considerably more favourable to the receiving party than the standard basis of costs.

7

Prior to the CPR coming into force it was already possible for a court to make an indemnity order for costs. This did no more, however, than to reverse the burden of proof in respect of disputed items of costs. The advantages of an indemnity order over a standard order are now far more significant.

8

The new requirement of proportionality, which is in mandatory and unqualified terms in Part 44.4(2), is important in itself, since it should discourage parties from incurring disproportionate costs as those costs will not be recoverable unless an indemnity order is made. This restriction on costs should encourage parties to conduct litigation in a proportionate manner, which is an important objective of the CPR. The contrast between standard costs and indemnity costs is also important because of the impact it has on offers to settle, whether under Part 36 or otherwise, by claimants. A defendant, unlike a claimant, does not need to have an additional or particular incentive to make an offer to settle, since an offer to settle is likely to result in his obtaining an order for costs in his favour if the claimant does not obtain a better result than that which was offered. (See Part 36.20). A claimant does need to have an incentive to make an offer to settle since if he succeeds in an action he is normally entitled, without making any offer to settle, to his standard costs and interest. It is in order to provide the required incentive that Part 36.21 provides that the claimant who obtains a more favourable result than that contained in his Part 36 offer can receive interest at a higher rate and an indemnity order for costs from the latest date when the defendant could have accepted the offer without needing the permission of the court.

9

The encouragement of settlement of disputes, preferably without the need to commence proceedings, is an important objective of the CPR. The contribution which the new requirement of proportionality in the case of standard orders for costs makes to the early resolution of disputes is an added reason why the role of proportionality is so fundamental to the proper functioning of the CPR.

10

Because of the central role that proportionality should have in the resolution of civil litigation, it is essential that courts attach the appropriate significance to the requirement of proportionality when making orders for costs and when assessing the amount of costs. What has however caused practitioners and the members of the judiciary who have to assess costs difficulty is how to give effect to the requirement of proportionality. In particular there is uncertainty as to the relationship between the requirement of reasonableness and the requirement of proportionality. Where there is a conflict between reasonableness and proportionality does one requirement prevail over the other and, if so, which requirement is it that takes precedence? There is also the question of whether the proportionality test is to be applied globally or on an item by item basis, or both globally and on an item by item basis. These are the questions which directly arise on this appeal and explain why this judgment is so important.

THE FACTUAL BACKGROUND OF THIS APPEAL

11

The appeal is brought by the Home Office against the decision of His Honour Judge Lightfoot of 10 July 2001 at Leeds County Court dismissing an appeal against the order made on an assessment of costs by District Judge Bellamy on 26 January 2001. The order was made in an action for clinical negligence brought by the claimant, who was a prisoner, against the Home Office. The claimant relied upon two separate causes of action. The first was based upon the failure of the prison service adequately and timeously to diagnose...

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