Cost Law Commentary

Proportionality and Costs - A Rising Issue?

Proportionality comes into play in a number of respects in relation to both costs payable by a client to a practitioner, and costs between parties in litigation. The Legal Profession Uniform Law (LPUL)[1] specifically includes proportionality as a factor in assessing what costs are to be paid by a client to their practitioner.  The test[2] for recovery of legal costs in the LPUL is

Costs which are:

  1. Fair and reasonable in all the circumstances;
  2. Proportionately and reasonably incurred; and
  3. Proportionate and reasonable in amount.

Thus, the concept of proportionality is introduced.  This is a significant change, and it will be interesting to see how the Costs Court approaches this concept.

Both the LPUL and the Legal Profession Act 2004 (Vic) provide that, where a practitioner has failed to make the disclosures required by the relevant Act, a Taxing Officer may reduce the costs payable to the practitioner by an amount proportionate to the failure to disclose.

S 24 of the Civil Procedure Act  2010 (Vic) provides:

A person to whom the overarching obligations apply must use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to—

(a)     the complexity or importance of the issues in dispute; and

(b)     the amount in dispute.

The Cost Court members have referred to this provision when considering what allowances should be made in party/party taxations, and also when considering the costs of the taxation itself.

The approach to proportionate costs

Looking to the UK, where proportionality has been a factor in cost assessment for some decades, a primary issue is whether the test is applied globally, on an item by item basis, or both.  Previously, the approach taken was to assess the costs first for reasonableness, and then look at the total amount as to whether it was proportionate.  The new position[3] is to consider each cost for both reasonableness and proportionality.  Therefore, costs which are disproportionate may be disallowed or reduced even if they were reasonably or necessarily incurred.

What are the factors which are considered in determining proportionality?  The UK approach is that costs incurred by a party are proportionate if they bear a reasonable relationship to:

  • the sums in issue in the proceedings;
  • the value of any non-monetary relief in issue in the proceedings;
  • the complexity of the litigation;
  • any additional work generated by the conduct of the paying party; and
  • any wider factors involved in the proceedings, such as reputation or public importance.

Proportionality and the Civil Procedure Act 2010

Proportionality was considered in Yara Australia Pty Ltd v Oswal[4], where the Court of Appeal emphasised that practitioners have an overarching obligation to conduct litigation in a manner proportionate to the matters in issue, and that “it will be no answer that the practitioner acted upon the explicit and informed instructions of the client”, if there is failure by the practitioner to use reasonable endeavours to comply with the overarching obligation to ensure costs are reasonable and proportionate.

The Court expressed concern as to the proportionality of representation and material, given the amounts in issue and the nature of the application, and of its own volition sought submissions from the parties as to whether there had been a failure to meet the CPA obligations to use reasonable endeavours to ensure the costs incurred were reasonable and proportionate.

The Court noted that the concept of costs being proportionate is at the core of the legal reforms introduced by the CPA, and that section 24 imposes a positive obligation on both solicitors and counsel to take steps to ensure that costs are not excessive.  One aspect of the overarching purpose, which is the focus of the court, is “cost effective resolution of the real issues in dispute”, and this involves the court dealing with a matter in a manner proportionate to the “complexity and importance of the issues and amount in dispute”.

An objective evaluation of the steps taken by a legal practitioner involves weighing the legal costs expended “against the complexity and importance of the issues and the amount in dispute, in order to determine whether the parties used reasonable endeavours to ensure that costs were proportionate”.

The Court’s powers, where there is a contravention of obligations, include sanctions and cost orders.  Such powers are not confined to cases of incompetence or improper conduct, but extend to breaches of the overarching obligations.  Cost orders can include orders that the practitioners bear some or all of the costs of the opposing party, or an order restricting the costs which the practitioner can charge to their own client.

The first aspect of the particular case considered was whether the level of representation by counsel was reasonable and proportionate.  The factors relevant include the complexity or importance of the issues, the likely costs of the proceedings, the amount in dispute, the benefits achieved by the level of representation and the manner in which the hearing was conducted.  The Court found that oral submissions of the lead senior counsel narrowed the focus of the application.  It was also noted that the overall litigation is likely to be “immensely complex and expensive”, and this was grounds for separate representation of parties.

The costs must be proportionate to the specific application, and it was not an answer that the overall costs in the litigation would be very substantial.  The Court found that there had been a breach of the overarching obligation to ensure costs were reasonable and proportionate. It refused to make an order for indemnity costs, and has invited further submissions on the appropriate costs orders.

Proportionality and Cost Orders

The CPA provisions were considered, in the context of the award of costs, in Hansen v Hennessy (No 2)[5].  Lansdowne AsJ noted the obligation to use reasonable endeavours to keep costs reasonable and proportionate.  She had regard to what claims made in the matter could objectively be said to have been arguable on the evidence, and the conduct of the defendant.  She also considered the overall likely costs, as being disproportionate with the amount in issue.  Finally, she considered particular work, including steps taken beyond what would normally be required, and an affidavit of the plaintiff, as to whether this particular work was proportionate and should be allowed.

The Court apportioned costs in Fitzpatrick v Cheal[6], having regard to proportionality, on the grounds that the ultimate outcome obtained by the plaintiffs was disproportionate to the overall costs of the litigation.  Regard was also had to the fact that the defendant has succeeded on some factual matters.

Ward J considered the obligation on parties to take reasonable steps to resolve or narrow disputes and to assist the court in furthering its overriding purpose of facilitating the just, quick and cheap resolution of the real issues in dispute.  He observed that “the ultimate touchstone in exercising the discretion as to costs is that of fairness between the parties”.

Proportionality was considered in the context of an awards of costs in Agar v McCabe[7]  and Agar v McCabe (No 2)[8].  The proceedings involved a review of review of an application for release of subpoenaed documents and associated costs order, in a proceeding challenging a speeding fine.  T Forrest J noted the decision of Hobson Bay City Council v Viking Group Holdings Pty Ltd[9] and observed that proportionality in an award of costs has an additional dimension in criminal proceedings, in that it must be considered in the context of achieving a just outcome, with the punishment being proportionate to the offence.  It is therefore appropriate to consider the total outcome of fines and costs, in considering the proportionality of the costs sought to be awarded.  It can be assumed that, were there is simply an order for costs to be taxed, the Taxing Officer must take this overall outcome into account in taxing costs.  His Honour considered that proportionality and consistency were mandatory matters to be considered when awarding costs in criminal matter.  Whilst he upheld the Magistrate’s cost order, he declined to order costs against the appellant, finding that the effect of such an award, where an on the spot fine was approximately $180, would make the total pecuniary outcome of the whole proceeding, disproportionate to the seriousness of the offence.

In Bleyer v Google Inc[10], McCallum J observed that disproportionality was a species of abuse of process. She ordered that the proceedings be permanently stayed having regard to the complexity of the matters in issue and evidence adduced by the defendant as to its likely costs of the proceedings. She also had regard to the fact that the plaintiff was unlikely to be able to enforce any award of damages given that any judgement would not be able to be enforced in the United States.

In Freeburn v The Cake Decorators Association of NSW Inc. (No 2)[11], an application was made to stay proceedings on the basis that the likely costs would be disproportionate to the matters in issue. The proceedings involved a claim of defamation where any damages awarded were likely to be nominal, the claim against the defendants was weak, and the court found that the costs of the proceedings was beyond the means of all of the party’s. In addition a number of cost orders had already been made against the plaintiff.

The court dismissed the proceedings, finding that they were an abuse of process on the grounds that the legal costs of the court resources required to determine the claim would be out of proportion to the interest at stake.

Whilst the decision is a New South Wales District Court decision, it includes a useful analysis of recent superior court decisions which suggest that the concept of proportionality is relevant in current litigation, referring to obiter comments in the recent High Court decisions of Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd[12]; Tajjour v New South Wales[13] regarding case management and the use of resources.

Proportionality and Disclosure under the LPA

Palese v Malouf[14] deals with a reduction in costs proportionate to the failure to disclose information to a client, as required by the Legal Profession Act.  The proper approach is to consider the seriousness of the breach, and then turn to the question of proportionality.  The assessment of the seriousness of the breach is considered in the context of the policy behind the duty to disclose, which, in relation to disclosure about costs, is to enable a client to understand what the ultimate costs might be.

[1] Legal Profession Uniform Law Application Act 2014 (Vic)

[2] S 172 (UL)

[3][3] Adopted as a result of Lord Justice Jackson’s Review Of Civil Costs

[4] [2013] VSCA 337

[5] [2014] VSC 115

[6] [2012] NSWSC 932

[7] [2014] VSC 309

[8]  [2014] VSC 333

[9] [2010] VSC 386

[10] [2014] NSW SC 897

[11] [2014] NSWDC 173

[12]  (2013) 250 CLR 303 at [39]

[13] [2014] HCA 35

[14] [2014] NSWDC 65