Earlier this year, the case of BNM v MGN  caused a stir among costs practitioners, as the Court used the proportionality test to dramatically reduce the winning party’s costs award.
The Claimant (BNM) lost a mobile telephone, which later fell into the hands of the Sunday People newspaper (MGN). The phone contained information regarding BNM’s relationship with a premiership footballer. BNM issued a claim for damages plus an injunction to prevent any confidential information from the phone being used. The claim settled at an early stage, with MGN paying £20,000 and agreeing not to use any confidential information. BNM claimed costs totalling over £240,000.
The Court assessed BNM’s costs and found that the reasonable costs were around £167,000. However, bearing in mind the level of damages, the Court held that the reasonable costs were disproportionate and in the end awarded BNM only £83,964.80 – only a third of the total costs claimed.
What is the test?
Prior to April 2013, the test was what was known as the Lownds test. The Court would look at the costs and decide whether the total sum was reasonable and proportionate.
If the costs as a whole were found to be proportionate, then the Court would go through each item to consider whether it was reasonably incurred and that the costs for that item were reasonable. If, on the other hand, the costs as a whole appeared disproportionate, the Court would consider whether the work in relation to each item was necessary and, if necessary, that the cost of the item was reasonable.
The rules changed in April 2013, reversing the process. The Courts begin by considering the bill of costs item by item, assessing the reasonableness and proportionality of each item. Once this is complete, they look at the overall figure that is left, and make a decision as to whether the overall figure is reasonable and proportionate. The Judges have used their discretion on what is reasonable and proportionate as there have not been clear guidelines on this.
What does BNM v MGN show?
The case shows that the proportionality test should be applied as follows:
- Proportionality is to be considered after a thorough assessment of reasonableness of the costs.
- There is no rule preventing costs exceeding the sums in issue. However, the costs must bear a reasonable relationship to the sum (this will depend on the facts of each case – eg a £20,000 claim can sometimes be extremely complex both factually and legally).
- The proportionality test applies to additional liabilities where they are claimable (eg success fees where the CFA was entered into prior to 1 April 2013, or in defamation cases).
Why is this case important?
This is the first time a Judge has used the proportionality test to massively slash a party’s costs. We have seen it again since to an even greater extent in the case of May v Wavell Group plc . Here, the Claimant’s costs were £208,000, and were reduced on detailed assessment to £99,655.74. Applying the proportionality test, the Court further reduced the costs to £35,000 plus VAT!
Solicitors and costs practitioners have been rather startled by the change in practice, and are concerned that parties may in the future have exorbitant amounts of costs cut on assessment.
Unsurprisingly, the receiving parties in both cases have appealed. The appeal in BNM v MGN has been expedited and is expected to be in the Court of Appeal in the coming months. May v Wavell Group will follow. Keep your eyes peeled on our blog for updates!