PROPORTIONALITY IN COSTS

Date01 December 2011
Published date01 December 2011

This article examines the principle of proportionality in the context of the recent amendments to the Rules of Court by the Rules of Court (Amendment No 3) Rules 2010. It will be suggested that proportionality is a fundamental concern of civil proceedings and that the principle has a particularly important bearing on access to justice.

I. Introduction

1 If there was any doubt that a court is required to take into account the principle of proportionality1 in exercising its discretion to award costs, such uncertainty has been unequivocally removed by the Rules of Court (Amendment No 3) Rules 20102 (“the 2010 Amendment Rules”). Much of this article will focus on para 1(2) of Appendix 1 of O 59, which has been amended to incorporate “the principle of proportionality”. Other related developments to be covered include a new emphasis on the parties‘ conduct in attempting to resolve their dispute by mediation or other form of dispute resolution, and the broadening of the court‘s discretion to award costs against the plaintiff on his application for summary judgment where the defendant has obtained unconditional leave to defend the action.3

II. Principle of proportionality

2 The principle of proportionality raises the question of whether the process engaged to achieve a particular objective is justified by that objective‘s potential benefits. Put more literally, is the cost or effort necessary to achieve the desired result proportionate to the benefit to be gained? Although the principle has long been established in European civil law, it became a primary element in the reform of England‘s Civil Procedure Rules (“CPR”) in the late 1990s. Rule 1.1(2) of the CPR

formulates proportionality as an “overriding objective”. It provides that: “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 …” In the specific context of assessment of costs, r 44.5(1) of the CPR provides that the court is to determine whether costs on the standard basis are proportionately and reasonably incurred and proportionate and reasonable in amount.4

3 Although the principle of proportionality was not expressly formulated as a consideration prior to the 2010 Amendment Rules,5 Singapore‘s rules of civil procedure have increasingly reflected facets of proportionality. General case management including conferences with the court,6 differentiated case management, specialised management of certain cases, other judicial management schemes and court-related dispute resolution ensure that cases are allocated appropriate (proportionate) attention and resources according to their specific needs.7 Over the last ten years, various rules of court have been amended to emphasise that litigants can no longer assume that they will recover costs simply on the basis of success. For example, O 59 r 5 of the Rules of Court8 empowers a court to take into account the conduct of the litigants both before and in the course of proceedings, attempts at alternative dispute resolution9 and compliance with pre-action protocols and practice directions in determining the amount of costs to be awarded (irrespective of the outcome of the litigation). Order 59 r 6A penalises a party in costs (whether or not he is successful in the case) if he raises a claim or issue which he has failed to establish so that he “has consequently unnecessarily or unreasonably protracted, or added to the costs or complexity of those proceedings”. In cases heard by a Magistrate‘s Court and in motor accident actions where no injury has been caused (“NIMA” claims), there is a fixed scale of costs calibrated according to the sum “settled” or “awarded” or (in Magistrate Court cases, where the plaintiff has failed) “claimed”.10 The intention of these and other procedural measures is to encourage parties to assess the viability of litigation as well as the manner in which they pursue their cases in the context of costs recoverability or liability. What they do has

to be measured against (or must be proportionate to) what they will receive or pay.

III. Position under O 59, Appendix 1, para 1(2) prior to the amendments

4 Prior to the introduction of the 2010 Amendment Rules,11 O 59, Appendix 1, para 1(1) and (2) (which appear under “Costs on Taxation”),12 provided as follows:

(1) The amount of costs to be allowed shall (subject to any order of the Court) be in the discretion of the Registrar.

(2) In exercising his discretion the Registrar shall have regard to all the relevant circumstances, and in particular to -

(a) the complexity of the item or of the cause or matter in which it arises and the difficulty or novelty of the questions involved;

(b) the skill, specialised knowledge and responsibility required of, and the time and labour expended by, the solicitor;

(c) the number and importance of the documents (however brief) prepared or perused;

(d) the place and circumstances in which the business involved is transacted;

(e) the urgency and importance of the cause or matter to the client; and (f) where money or property is involved, its amount or value.

5 While the proportionality principle is not expressed here, facets of it are evident from the criteria. For example, with regard to sub-paras (a) and (b), higher costs may be justified by reason of the complexity or novelty of the issues and the additional skill and effort necessary for presenting the case. Similarly, time expended on obviously significant documents ordinarily justifies a higher sum than work on less important items of evidence (see sub-para (c)). Expenses may also be justified according to the location in which the issues arose and the circumstances of the dispute (see sub-para (d)). Again, the extent of the party‘s need to pursue litigation and the amount of money or value of the property at stake should be a key consideration in determining whether the costs incurred were justified (see sub-paras (e) and (f)). Despite the implied significance of proportionality in these criteria, the

rules do not expressly compel the taxing registrar to apply the proportionality principle.13 As the taxing registrar is required to exercise his discretion to award costs (on a standard basis) on the principle of reasonableness formulated in O 59 r 27(2),14 proportionality could only have operated to the extent that it was taken into account in determining reasonable costs. Order 59 r 27(2) states:

On a taxation of costs on the standard basis, there shall be allowed a reasonable amount in respect of all costs reasonably incurred and any doubts which the Registrar may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the paying party … .

6 According to this rule, the taxing registrar is required to consider whether the item of costs claimed has been reasonably incurred and, if so, what is a reasonable amount in respect of that item. Although proportionality is not mentioned, it is conceivable that a cost which is out of proportion to the issues in the case or the value of the claim may not have been reasonably incurred and/or not reasonable in amount. For example, assume that the plaintiff claims $100,000. The case involves issues of complexity requiring expert evidence. The plaintiff arranges for three experts of international standing to give evidence. The cost of procuring this evidence is $300,000, three times as much as the claim amount. The taxing registrar may determine that it would have been reasonable for the plaintiff to have engaged a single expert for this purpose and that the costs for doing so should not have exceeded $50,000. Such a decision involves proportionality to the extent that the engagement of additional experts was not strictly necessary and therefore could not justify an award of costs greatly in excess of the claim amount. Ie, the claim for $300,000 in costs was not reasonably incurred and not reasonable in amount.

7 However, the concepts of reasonableness and proportionality may not be consistent where the scope of reasonableness is limited to the needs of litigation. Taking the above example, assume that all three experts were necessary because they gave evidence on highly specific issues requiring their individual expertise (ie, the costs of engaging these three experts were reasonably incurred). Assume also that the costs claimed ($300,000) are reasonable in amount as they fairly reflect the expenses of procuring, preparing and presenting the expert evidence. As the costs are reasonably incurred and reasonable in amount, they might be allowed by the taxing registrar even though they greatly exceed the claim amount. In contradistinction, the principle of proportionality would require a substantial reduction in the amount of costs (despite

their reasonableness) because they are disproportionate to the claim amount. Although the taxing registrar has the discretion to reduce the sum of $300,000 pursuant to the criteria in O 59, Appendix 1, para 1(2)(f) (which requires him to take the value of the claim into account),15 he would be entitled (in the absence of any provision declaring proportionality to be a paramount principle) not to do so or to deduct an insignificant amount.16

8 Interestingly, the principle of proportionality in the context of litigation costs was only recently addressed by the High Court in VV v VW.17 Although this case involved arbitration proceedings, its general observations on litigation costs highlighted the difficulties prior to the introduction of the 2010 Amendment Rules.18 The plaintiffs claimed $927,000 in respect of a contractual dispute. The defendant raised two defences and ten counterclaims for an amount of $20m. In the course of the proceedings, the arbitrator...

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