COSTS BUDGETING, PROPORTIONALITY AND GROUP LITIGATION

In Various Claimants -v- Sir Robert McAlpine & others [2015] EWHC 3543 (QB) Mr Justice Supperstone (sitting with Master Leslie & Chief Master Gordon Saker) considered costs budgeting within a Group Litigation Order.

“Recognising that this is a complex case which raises a number of difficult legal and factual issues, nevertheless, in our view, the costs appear to be disproportionate. In reaching this conclusion we have had regard not just to the monetary value of the claims, and general and aggravated damages, but also to the important non-monetary remedies”

KEY POINTS

• The court is able to budget the costs of all the parties subject to a Group Litigation Order.
• The court found that some of the proposed costs were disproportionate, even having regard to the complexity, numbers of claimants and issues involved.

THE CASE

The action was against a number of construction firms relating to the alleged “blacklisting” of workers.  Different groups of claimants were pursuing different causes of action, and there were different defendants.  There are a number of different firms of solicitors acting for the claimants and the defendants were separately represented. A Group Litigation Order had been made.

THE APPROACH IN HOME OFFICE -v- LOWNDS

The court considered the approach in Home Office -v- Lownds.

1. Lord Woolf CJ, delivering the judgment of the court, stated at paragraph 31 that in assessing costs the CPR required “a two-stage approach”. He said:

“There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This in turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner.”

1. At paragraph 36 Lord Woolf added:

“Based on their experience costs judges will be well equipped to assess which approach a particular case requires. In a case where proportionality is likely to be an issue, a preliminary judgment as to the proportionality of the costs as a whole must be made at the outset.”

THE JUDGMENT IN RELATION TO COSTS BUDGETING

1. Pursuant to paragraph 6 of the order of Master Gordon-Saker (see para 4 above) the parties have set out in writing their points of agreement and objection to each others’ budgets. We are therefore in a position to identify which phases have been agreed and which have not been agreed. In a Schedule of approved or agreed costs budgets, which we annex to this judgment, we have (1) recorded any agreed figures, and (2) where no figure has been agreed, set out the total figure for the phase we consider to be reasonable and proportionate. In some instances the figures are less than the sum offered or indicated by the opposing parties.

2. In relation to the phases which have been agreed, but in respect of which we consider the total figure to fall outside the range of reasonable and proportionate costs we have recorded that by an asterisk against the relevant figure in the Schedule. On the detailed assessment of costs in due course careful consideration will no doubt be given as to whether there will be good reason to depart from the agreed figures (Rule 3.18(b)) in respect of the costs which we consider to be disproportionate or unreasonable.

3. Turning then to the approach we have adopted when considering costs which are not agreed, we note that it is common ground that this is an important case for all parties, that raises serious allegations and involves complex issues of law and fact. It is of high value in monetary terms and there are issues of reputation and the wider public interest in play.

4. The court is presently concerned with 28 lead or reserve cases. The Claimants’ incurred and estimated costs total in the region of £22m, and the Defendants’ in the region of £27m, aggregating just short of £50m. There are in all approximately 570 claims. The parties did not dissent from the suggestion of Master Gordon-Saker that total costs are likely to be in the region of £100m-150m when adding the costs of the individual claims (incurred and estimated), additional liabilities and VAT.

5. Further, in considering budgets for costs after 2 October 2015 we have had regard to the following:

i) The number of counsel and solicitors, and the overall size of each party’s legal team, including the level of counsel and grade of solicitors required at each phase.

ii) Which firm is said to be leading a particular exercise.

iii) The number of hours of work claimed/reasonably required.

iv) Hourly rates.

v) The costs which were incurred before 2 October 2015 (see para 30 below).

When considering the above we have also had regard to the factors set out in Rule 44.4(3) (see para 12 above), and PD 3E, para 7.3 (see para 11 above).

1. Applying the two-stage approach in Home Office v Lownds (and in accordance with paragraph 7.3 of PD 3E) we have first considered whether the proposed budgeted costs of each party as a whole appear disproportionate. Recognising that this is a complex case which raises a number of difficult legal and factual issues, nevertheless, in our view, the costs appear to be disproportionate. In reaching this conclusion we have had regard not just to the monetary value of the claims, and general and aggravated damages, but also to the important non-monetary remedies. Having taken the view that the costs are disproportionate, accordingly we have gone on to consider whether the work post-2 October 2015 in relation to each phase in the common costs budget of each firm of solicitors is necessary and whether the total figure for each phase is reasonable.

2. In conducting this exercise we have borne in mind the decision of Pennycuick J in Simpsons Motor Sales (London) Ltd v Hendon BC [1965] 1 WLR 112 and his statement at 118 that:

“… one must envisage an hypothetical counsel capable of conducting the particular case effectively but unable or unwilling to insist on the particular high fee sometimes demanded by counsel of pre-eminent reputation. Then one must estimate what fee this hypothetical character would be content to take on the brief.”

1. In the recent case of Kazakhstan Kagazy plc v Zhunus [2015] EWHC 404 (Comm) Leggatt J, in a ruling on applications for payments on account of costs pursuant to CPR 44.2(8), made observations at paragraph 13 that we consider to be equally apt in the present case governed by the old rules:

“In a case such as this where very large amounts of money are at stake, it may be entirely reasonable from the point of view of a party incurring costs to spare no expense that might possibly help to influence the result of the proceedings. It does not follow, however, that such expense should be regarded as reasonably or proportionately incurred or reasonable and proportionate in amount when it comes to determining what costs are recoverable from the other party. What is reasonable and proportionate in that context must be judged objectively. The touchstone is not the amount of costs which it was in a party’s best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party’s own account and not recoverable from the other party…”

1. We have not heard submissions in relation to costs incurred pre-2 October 2015, but nevertheless we consider, having regard to the figures that we have seen and our knowledge of this case, that we should record by way of comment (as we are entitled to do pursuant to PD 3E, paragraph 7.4, see para 11 above) that we are of the view that the costs set out in each Precedent H for that period are disproportionately high.

2. When considering reasonable and proportionate costs post 2 October 2015 we have taken into account the costs that have been incurred before that date, and have proceeded on the assumption that of such incurred costs only those which are reasonable and proportionate will be allowed on detailed assessment.

Conclusion

1. For the reasons we have given we make a costs management order in accordance with Rule 3.15(2) in the terms set out in the Schedule annexed hereto.

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THE COSTS BUDGETS IN DETAIL

SCHEDULE OF AGREED AND APPROVED

PHASES AND COSTS BUDGETS

THOMPSONS

O H PARSONS

LEIGH DAY

GUNEY CLARK RYAN

 MACFARLANES

HERBERT SMITH FREEHILLS (BAM)

 WRAGGE LAWRENCE GRAHAM (AMEC)

EVERSHEDS (LEND LEASE)

 PAUL HASTINGS LLP (EMCOR)