Costs

Group Action - Costs-only proceedings - Order for costs

Motto and others v Trafigura Ltd and another: Court of Appeal, Civil Division (Lord Neuberger MR, Maurice Kay VP and Lord Justice Hughes): 12 October 2011

The defendant companies were members of the Trafigura group of companies, who were independent oil traders and extractors and traders in ores and minerals. They chartered a tanker carrying contaminated naptha which was treated with caustic soda so as to make the naptha suitable for blendstock petrol. The treatment produced over 500 cubic metres of a contaminated alkaline water solution (the slops).

The defendants looked for businesses that could process the slops and eventually landed in Abidjan, Côte d'Ivoire. They subsequently appointed a local contractor and a shipping agent in Abidjan to handle the slops, who, it was later alleged, fly-tipped the waste at locations around the city. In the following weeks, tens of thousands of people in the area reported suffering from a range of similar symptoms, including breathing problems, headaches, vomiting and diarrhoea. The claimants were the victims and groups of victims who approached a firm of solicitors in the United Kingdom (Leigh Day) to represent them and investigate the events in Abidjan.

Leigh Day, after carrying out some initial investigations, decided to act for, and issue proceedings on behalf of, those who claimed to have suffered personal injury as a result of fumes from the chemical waste. Leigh Day identified prospective claimants by instructing individuals who were paid a commission of 3% of the damages awarded to any claimant they found. Once a claimant agreed to instruct Leigh Day, he was subjected to a medical examination. All claimants instructed Leigh Day under a conditional fee arrangement (CFA).

Under those arrangements Leigh Day charged a success fee of 100%. As a correlative to those arrangements, the claimants took out after-the-event insurance (ATE), the premiums for which were normally recoverable from the defendant in a successful claim. A total of 29,614 claimants instructed Leigh Day. There were negotiations between the parties and those led, in September 2009, to a settlement agreement, by which the defendants agreed to pay damages of £30m. The terms of the settlement were approved by the High Court, which also ordered that the defendants would pay the costs of the claimants on a standard basis, to be subject to detailed assessment, if not agreed.

The defendants paid the £30m, but Leigh Day's distribution of that sum among the claimants was delayed by an injunction granted by a Côte d'Ivoire court restraining the distribution. The injunction was subsequently discharged and Leigh Day resumed distribution of the damages.

Leigh Day then prepared and served its final bill of costs, which came to over £104m. That sum included success fees for both solicitors and counsel of 100% and an ATE premium of over £9m. The parties agreed that a costs judge should determine a number of preliminary issues before the detailed assessment of costs was carried out. Judgment in the preliminary issues was delivered in which the judge found, inter alia: (i) that the overall base costs appeared to be disproportionate, and so he was not precluded from deciding that an item or number of items were in fact proportionate and that the test of necessity would not, therefore, apply to those; (ii) that Leigh Day's costs of registering claimants and administering their claims, from their inception until the settlement was provisionally agreed, were recoverable; (iii) that the defendants' arguments that Leigh Day had failed to comply with the spirit of the Pre-Action Protocols and that that failure had served to increase their costs, were unsustainable; (iv) that it had not been possible to deal with the proportionality of the costs associated with the medical reports; (v) that the claimants could recover the costs of investigating claims that were subsequently abandoned; (vi) that the costs of advising and taking instructions on the settlement agreement, and then in distributing the payout, were recoverable, but costs incurred under that head would not be recoverable to the extent that they were incurred after the date when the injunction restraining distribution was first awarded; (vii) that the costs incurred in establishing and setting up the CFAs and the ATE premium, as well as the costs of subsequent dealings with the ATE insurers, were recoverable; (viii) that the appropriate level of the claimants' representatives' success fee should be reduced from 100% to 58%; and (ix) that the ATE premium of £9,677,554 was recoverable in its entirety. Both parties appealed and cross-appealed.

The court was asked to consider whether the judge had erred in his findings.The court ruled: (1) It was established law that the court had to ask whether the total sum claimed appeared disproportionate. If it found that it was, then the court had to be satisfied that the work in relation to each item was necessary, and that the cost of the item was reasonable (see [43]-[48] of the judgment).

Having concluded that the base costs claimed by the claimant appeared to be disproportionate, the judge had erred in concluding that he did not have to apply the test of necessity to each item (see [43] of the judgment).

The defendants' appeal on that issue would be allowed (see [51] of the judgment).

Lownds v Home Office [2002] 4 All ER 775 followed; Giambrone v JMC Holidays Ltd (formerly Sunworld Holidays Ltd) [2003] 1 All ER 982 distinguished; Francis v Francis and Dickerson [1955] 3 All ER 836 considered; Argyll (Duchess) v Beuselinck [1972] 2 Lloyd's Rep 172 considered; U v Liverpool City Council [2005] All ER (D) 381 (Apr) considered.

(2) The judge had been entitled to reach the view that the vetting costs were recoverable. With the proviso that only those costs covered by the relevant claimant's CFA would be recoverable, each item fell to be assessed in the normal way, namely that it would be subject to the tests of necessity and reasonableness (see [60]-[64] of the judgment). The defendants' appeal on that issue would be dismissed (see [64] of the judgment).

(3) On the facts, there were no grounds for challenging the judge's finding that Leigh Day had not fallen very far short of their duty to comply with the spirit of the Pre-Action Protocols, and that the defendants would still have been free to argue their case in respect of items they alleged to be unnecessary or unreasonable (see [68]-[74] of the judgment).

The defendants' appeal on this issue would be dismissed. That conclusion did not, however, affect the court's conclusion that the necessity test still had to be applied in accordance with Lownds v Home Office [2002] 4 All ER 775 (see [73] of the judgment).

(4) There had been clear evidence that had entitled the judge to conclude that it had not been possible to deal with the proportionality of the costs associated with the medical reports, so there had been no grounds for accepting the defendants' contention that the judge should have disallowed the costs of the medical reports. Following the court's earlier conclusion on the proportionality of costs, those costs would only be recoverable in so far as they had been necessary (see [75]-[76] of the judgment).

The defendants' appeal on that issue would be dismissed (see [76] of the judgment).

(5) The judge's finding that the claimants could recover costs in respect of the abandoned claims in so far as it had been reasonable and proportionate to plead, investigate and pursue them, had been unexceptionable. However it was not correct that the defendants were precluded from challenging those costs attributable to an abandoned claim because they agreed that the claimants should recover all their costs on a standard basis.

Once again, the costs attributable to an abandoned claim would have to be measured by the test of necessity (see [78]-[87] of the judgment). The defendants' appeal on that issue would be dismissed (see [88] of the judgment). Shirley v Caswell [2000] All ER (D) 807 considered; Lahey v Pirelli Tyres Ltd [2007] All ER (D) 165 (Feb) considered.

(6) In principle, and subject to the tests of reasonableness, proportionality and, where it applied, necessity, a claimant was entitled to recover the costs of advising and taking instruction on a settlement agreement and then in distributing any payout, as those plainly formed part of the costs of proceedings.

However, it was open to a party to argue, and for a court to find, that the parties had agreed a departure from the normal rule. It was also clear that a judge could conclude that there should be a cut-off date after which no further costs of distribution could be claimed, although care had to be taken not to penalise a claimant unfairly by depriving him of the right to recover costs which had been reasonably and necessarily incurred solely because they were incurred later than they should have been (see [92]-[93], [99] of the judgment).

In the instant case, the wording of the settlement agreement indicated that the parties had not agreed to deviate from the normal rule. In any case, the judge had found that it had not been possible at that stage to deal with the proportionality of the costs associated with the settlement agreement and distribution of the payout. There were no grounds for questioning that conclusion. However, there was substance in the argument that the judge should not have imposed a cut-off date after which the claimants could not recover the costs associated with advice, instructions and distribution of the payout.

First, distribution of the payout was held up by circumstances beyond the claimants' control. Second, neither party had argued in favour of such a cut-off date (see [93]-[102] of the judgment).

The defendants' appeal on that issue would be dismissed. The claimants' appeal against the cut-off date would be allowed. Accordingly the cut-off date would be discharged (see [97], [102] of the judgment). Krehl v Park 10 Ch App 334 followed; Clarendon Villas (26), Hove Trusts, Re, Copeland v Houlton [1955] 3 All ER 178 followed.

(7) The expenses of getting business, whether advertising to the public as potential clients, making a presentation to a potential client, or discussing a possible instruction from a potential client, should not normally be treated as attributable to, and payable by, the ultimate client or clients.

Rather, such expenses should generally be treated with as part of a solicitor's general overheads or expenses, which could be taken into account when assessing appropriate levels of charging such as hourly rates. In the case of a CFA, until it was signed, the potential claimant was not merely not a claimant: he was not a client. When advising a potential claimant on the terms and effect of the CFA, the solicitors were acting for themselves, not for the potential claimant: the solicitors were negotiating with him as a prospective client, not for him as an actual client.

However, the precise dividing line between recoverability and irrecoverability in that area was, perhaps inevitably, somewhat blurred and subjective (see [108], [110], [114] of the judgment).

It followed that because, as in the case of interest paid on money borrowed to pay for litigation costs, the costs incurred in connection with negotiating a CFA and ATE insurance were ultimately attributable to the need of a litigant to fund the litigation as opposed to the actual litigation itself, those costs were not recoverable (see [107]-[108] and [112]-[114] of the judgment).

The defendants' appeal on that issue would be allowed (see [114] of the judgment).

Hunt v RM Douglas (Roofing) Ltd 132 Sol Jo 935 followed; Garbutt v Edwards [2006] 1 All ER 553 considered.

(8) It was clear that the reasonableness of the size of the success fee was to be judged in the context of the time that it was agreed, and subsequent events should not influence the court's assessment of its reasonableness. The question for the judge when considering the reasonable figure or figures for success fees was ultimately a value judgment, based on the retrospective assessment of the risk of failure at the date the fee was determined (see [119], [132] of the judgment).

Although the risk had to be precisely quantified in order to arrive at a specific success fee, the exercise had inevitably been one that involved the costs judge evaluating and weighing the various weaknesses and strengths of the claimants' case. It was the role of the appeal court not to ask whether it would have arrived at the same figure as the costs judge, but whether that judge, when assessing the figure as a reasonable fee, had ignored or misunderstood the evidence, taken irrelevant evidence into account, erred on any point of law, arithmetic or principle, or had reached a conclusion that had been plainly wrong (see [132]-[132] of the judgment).

In the circumstances, the judge had not made any errors in retrospectively assessing the claimants' prospects of success (see [133] of the judgment).

The defendants' appeal on that issue would be dismissed. For the same reason, the claimants' appeal on that issue, namely that the success fee should not have been reduced from 100%, would also be dismissed (see [133] of the judgment). U v Liverpool City Council [2005] All ER (D) 381 (Apr) followed; Hanif v Middleweeks (a firm) [2000] Lloyd's Rep PN 920 considered; Callery v Gray, Russell v Pal Pak Corrugated Ltd [2001] 3 All ER 833 considered.

(9) Given that the judge's assessment of the claimants' prospects of success accorded very closely with the claimants' own figure, upon which the ATE premium had been calculated, there was no basis for saying that the claimants were unreasonable for having insured on that basis. There were accordingly no grounds for interfering with the judge's decision to fix the ATE premium in the amount he had (see [138]-[143] of the judgment).

The defendants' appeal on that issue would be dismissed (see [144] of the judgment).

Christopher Butcher QC, Richard Hermer QC and Benjamin Williams (instructed by Leigh Day & Co) for the claimants; Charles Gibson QC, Nicholas Bacon QC, Malcolm Sheehan and Daniel Saoul (instructed by Macfarlanes LLP) for the defendants.