Additional Liabilities….. above the law of proportionality?

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Posted on: December 28th, 2016 by Brett Anderson

On the last working day before Christmas Master Rowley handed costs practitioners a gift in the handing down of his judgment in King v Basildon & Thurrock University Hospitals NHS Foundation Trust. This case considered the relationship between the new proportionality test under CPR 44.3 and additional liabilities which remains a controversial area. This was previously looked at in some detail by Master Gordon-Saker in the case of BNM v MGN 2016 in what I believe is a very inconsistent and confused judgment.

In what now feels like the by-gone era that existed before Lord Jackson got involved in laying the foundations for fixed costs, the Courts would assess the proportionality of costs without reference to the additional liabilities. This was laid out in the Costs Practice Direction and applied routinely without question by the Courts.  There is now some doubt as to whether the wording of both CPR 48.1 and CPR 44.3 will now permit Proportionality to be assessed without reference to the Additional Liabilities or, indeed, if it was ever intended that that should be the case. Whilst the recovery of Success Fees and ATE premiums is now less relevant, there remain some areas of litigation as well as some old legacy cases to which this issue remains a crucial element of the funding of the case and therefore, clarity is much needed.

The approach of Master Gordon-Saker  in BNM was to apply a strict interpretation of the rules preventing the peripheral rules within the old Costs Practice Direction relating to the assessment of additional liabilities being imported into the new rules via CPR 48.1. My view is that, in the wording of the rules as they stand, that is correct. He concluded therefore that when making an assessment as to whether costs are proportionate or not, there was nothing in CPR 44.3 that would indicate that the costs to be considered should not include any additional liabilities.

The reality is that in including additional liabilities in the consideration as to whether costs are proportionate, it creates the obvious scenario (which was the case in BNM) that costs are found to be disproportionate solely because of the additional liabilities. It follows that reductions made to bring costs back to a proportionate level are merely an attack on the additional liabilities even if reductions are in-fact taken from elsewhere; again as was the case in BNM. The result is that no longer will a success fee be able to compensate adequately for cases which fail. No longer will a winning party expect to recover the ATE premium despite such premium properly reflecting the risk to a pool of risk that the insurer has underwritten and, consequently, offering only limited protection to the Insured.

In the case of King, Master Rowley expressly went against the finding of Master Gordon-Saker in the BNM v MGM 2016 case in finding that Additional Liabilities will not be considered when assessing the proportionality of costs. Master Rowley disagreed with Master Gordon-Saker and stated that the rules were written with the expectation that there would be no recovery of additional liabilities and therefore was intended to be considered without reference to additional liabilities.

I believe Master Rowley’s approach in King is common sense but not necessarily properly reflected in the wording of the rules. Nonetheless, as we’ve seen in the recent appeal ruling in Qader and others v Esure Services Ltd, the poor wording of the rules is not a hurdle so insurmountable that the correct policy cannot be applied.   Hopefully this will be the position adopted by the judiciary from this point forward as I believe it represents the fair and proper application of additional liabilities and proportionality in litigation.


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