The High Court has significantly reduced a party’s costs in a case which will be regarded as a new authority on rules around proportionality.
In Malmsten v Bohinc, The Honourable Mr Justice Marcus Smith slashed the appellant’s sum of £47,500 to £15,000, after finding the costs incurred in making a section 306 Companies Act application had been excessive.
In particular, the judge found no justification for the extent to which counsel was consulted, nor for the number of hours spent by the appellant’s solicitors. Both costs were adjudged 'entirely disproportionate' given the nature and complexity of the application.
The judge accepted the costs figure arising from a detailed assessment could not simply be disregarded, but said the application of the proportionality criterion was intended 'not as a test for ensuring that the costs are indeed reasonable or even necessary, but as a separate and self-standing control'.
The underlying claim was a shareholder dispute where one party considered the other had acted in breach of his duties as director.
Counsel for the appellant Ernst Malmsten, said the former solicitors for respondent Lara Bohinc were not ‘au fait’ with principles involved and had to learn how to use the online filing system. It was submitted that Bohinc’s former advisers instructed experienced counsel 26 times and spent 230 hours of solicitor’s time. The judge accepted this was a ‘factually accurate’ description of the conduct of litigation. A costs bill of almost £75,000 was sought, which Malmsten (then unrepresented) said was ‘quite excessive’. On assessment, Master Whalan came to a final figure of £47,500 net of VAT.
The appellant argued it was not proportionate to award such a sum in a dispute which was litigated for less than than three weeks and was listed for and resolved in a 30-minute hearing.
The judge, sitting with assessor Master Rowley, said it was incumbent on a costs officer to give effect to court orders, and in this case Master Whalan had failed to do so in his detailed assessment.
The judge added: ‘Some effort needs to be made in differentiating between the section 306 application work and the non-section 306 application work: the Master, however, drew no such distinction.’