Motto V. Trafigura
Has an Elephant Entered the Room?

Proportionality

SCJ Hurst initially ruled that he had “no hesitation” in finding that the £49 million base costs claimed had the appearance of being disproportionate³. This is not particularly surprising when compared to the £30 million recovered in damages for the Claimants; the base costs claimed represent approximately 163% of the damages recovered.

When determining the costs as disproportionate, SCJ Hurst decided that finding the overall costs disproportionate did not preclude finding that an item or number of items claimed were in fact proportionate and therefore the test of necessity should not apply to those items. Perhaps somewhat unsurprisingly, the Defendant appealed this aspect of the decision.

Following due consideration of the Court of Appeal Judgment in Home Office v Lownds⁴ and the High Court decision of Giambrone & Ors v. JMC Holidays⁵, the Court of Appeal decided that the principles expounded in Giambrone could not be utilised in conjunction with Lownds. Consequently, regardless of the complexity of the case, where the base costs are found to be disproportionate, the test of necessity is applied to each item. Only those items found to be necessary are allowed and even then, only to a reasonable degree.

Usefully, the Judgment included the following guidance on the application of the necessity test:

Fortunately, it appears clear that when applying the test of necessity, one should view the position from the view available at the time the work was done rather than as appears at the Assessment. This is indicated in the following obiter dictum comment of the Judgment:

From an initial viewpoint, this part of the Judgment certainly seems to give Lownds more punch and clarity!

However, will it mean that Detailed Assessments will take longer where the costs are found to be disproportionate? Possibly, since the Judgment indicates that the Court will no longer be able to deal with items on a broadbrush approach because the necessity of each individual item has to be considered and decided upon.

Does this mean that where allegations of disproportionate costs are made, the Points of Disputes and negotiations should avoid dealing with the items claimed in the Bill in a broadbrush manner⁶? Potentially, since the approach doesn't stack comfortably with an item-by-item Assessment.

Where an allegation of disproportionately incurred costs is likely to be well founded, perhaps it will be best for the Receiving Party to consider why each item was necessarily incurred and be prepared to argue the same! Failure to consider and/or appreciate the significance of this could result in some unexpected reductions.

Funding

Funding related costs have been a highly contentious issue for some time. Paying Parties are invariably loathe to agree them and often rely on the SCCO decision of Woolley v. Haden Building Services Limited (No. 2)⁷ to support their position. In response, Receiving Parties will generally quote the recent case of Bollito v Arriva⁸ and refer to the Court of Appeal decision of Callery v. Gray⁹ and Master O'Hare's attached report as supporting the recovery of such costs.

Due in part to the conflicting case law and also because of the divergence of views on the matter, whether a party recovers funding costs is often down to the size of the Judge's foot! A precedence seems overdue and has been called for since at least the time of Woolley, where Master Rogers stated:

 

And the Court of Appeal says...... Not Recoverable!

Conditional Fee Agreements (CFA)

Analysis of the Judgment indicates that the Court of Appeal decided that the costs of negotiating the CFA is akin to negotiating the Solicitor's terms of business. MR Lord Neuberger likened the issue to that of a prospective contractual provider of services or goods charging for agreeing the terms of the contact; it simply wouldn't happen or be acceptable. Whilst it is certainly hard to escape the logic of the decision, it seems to miss the point that, unlike providers of other services, if a Solicitor fails to properly ensure the retainer is in place and that the Client fully understands their liabilities etc., the Solicitor may ultimately find themselves recovering nothing...not even quantum meruit¹⁰. Additionally, if the Paying Party are to continue to raise challenges to the operation of the indemnity principle and enforceability/validity of the retainer, surely it becomes reasonably necessary to spend additional time with the Client to ensure that the costs don't fail to be recovered due to some technicality or oversight. Although, as the Judgment points out, when negotiating the terms of the CFA, the Solicitors are acting for themselves and not for the potential Claimant. The issue is compounded by the view that at the time of setting up the CFA, the Client isn't actually a Claimant or a Client and therefore couldn't be charged. Unfortunately, the Judgment does not cover the issue of retrospective retainers.

To reinforce his decision, MR Lord Neuberger indicated that time spent on funding should be likened to advertising and the costs of obtaining Clients included within the Solicitor's firm's overheads.

In conclusion, the decision indicates that the time spent identifying a potential Claimant, discussing the CFA, drawing up the CFA and ultimately the signing of the CFA is not recoverable. However, the Judgment does not go into the position of investigating other methods of funding e.g. writing to any pre-existing legal expense insurers and considering the Claimant's insurance policies. Arguably, this is not a task which could be considered as 'negotiating' the terms of the retainer with the Client

After the Event Insurance (ATE)

The time spent discussing the progress of the litigation with the ATE insurers and taking their instructions is not recoverable from the Paying Party. The cost in having the discussions and taking the instructions is incurred to ensure that the Claimants were not at risk; it's collateral to the litigation, not a cost of the litigation itself. In any event, it also seems that this view fits in comfortably with the fact that, technically, the ATE insurer is not actually a party to the Proceedings.

Whilst the Judgment covers reporting and correspondence it doesn't actually touch on the costs associated with setting up the ATE insurance and/or checking the policy documents. Logically, it might be argued that these are costs separate to the litigation, however, it is notable that this aspect was not touched upon specifically.

Codes of Conducts

One further point which might provide some comfort for Receiving Parties is that the Judgment confirmed that just because something is required to be done by a Code of Conduct does not mean that it cannot be charged for.

Success Fees

It is perhaps useful that the Court of Appeal has taken the time to confirm that the Solicitor's success fee and the Counsel's success fee don't have to be the same, but they can be. It is a mistake to believe that they have to be the same. The level of reasonable success fee will depend on the factors at the time the CFA's were entered into.

Regarding the calculation of the success fee, the Court indicated that whilst individual risks may be given different quantifications with the eventual success fee calculated by multiplying out the risks, this will not always produce a realistic figure. Some items are intrinsically linked and therefore it would be inappropriate to look at them in isolation; the case as a whole should be looked at. Of particular interest was the suggestion that where a CFA is entered into at the outset of the dispute, some discount ought to be given for the possibility that the case might reach early settlement.

Generally, when looking at and assessing the appropriate success fee level, you put yourself in the Solicitor's position at the time the CFA was entered and consider the level of information known to them at that time. Thus, you are not expected to use hindsight after the event as this was pretty much assumed to be irrelevant. However, the Judgment indicates that some use of hindsight may be warranted:

Be careful what you say in private correspondence about the prospects of success! Usually by the time that Counsel becomes involved and signs up to a CFA, there will be more information, documentation and evidence than was available at the time the Solicitor entered the case. Sometimes the risks will be the same or higher and on other occasions they may be lower. The Court of Appeal recognised Counsel's predilection to err on the side of caution in their formal advice and it is not always possible to know exactly what information Counsel was in possession of. Thus, consideration should be given to the significance of any other evidence which may indicate that Counsel had a more favourable view of the case than first appeared, e.g. correspondence with the ATE insurer. On the other hand, the same significance should not be given to public statements made inflating the prospects of success.

If you do decide to challenge the level your success fee has been assessed at, make sure you can prove at least one of the following:

1. The Judge ignored or misunderstood relevant evidence;
2. The Judge took irrelevant evidence into account;
3. The Judge went wrong on any point of law, principle or arithmetic;
4. The Judge reached a conclusion which was plainly wrong.

Without proof of the above, and even if the Appellant Court would calculate the figure in an alternative way or come to a slightly different figure, you are unlikely to have the success fee changed.

Vetting Costs

SCJ Hurst initially found that the reasonable and proportionate costs associated with the collection, assessment and management of each of the claims were recoverable in principle dependant upon the terms of the CFA for each case.

The Claimants' Solicitors had utilised a number of agreements with slightly different wording employed within the CFA's. Some were stated to run “from the date you first instructed us”, whilst others were stated to run “from the date of this agreement”. Where the CFA stated “from the date you first instructed us”, the costs were recoverable from the date of the first meeting whereas where the CFA stated “from the date of this agreement”, costs could only be claimed from the meeting immediately prior to the Claimant signing the agreement. The Court of Appeal agreed with SCJ Hurst's findings and added:

Consequently, this appears to reinforce the principle that if you want to recover any costs for work done prior to entering the retainer, it is important to make sure that this is specifically agreed with the Client and clearly set out within the retainer¹¹.

Interestingly, SCJ Hurst also found that the Claimants were, in principle, entitled to recover the costs of liaising with and supervising the representatives used to collect prospective Claimants, to assist prospective Claimants in making their claims and to communicate with the Claimants on behalf of the Solicitors during the Proceedings. This appears to indicate that communications with agents prior to and during Proceedings to obtain prospective Clients and facilitate obtaining instructions is recoverable. The Court of Appeal agreed, subject to the test of necessity being satisfied for these items.

Abandoned Claims

When the Claimants' Solicitors initially started to investigate the claim, potential Claimants and the problems/symptoms caused by the alleged illegal fly-tipping of 528 tonnes of chemical waste, there appeared to have been a myriad of potential medical ailments caused ranging from miscarriage, childbirth deformity, gynaecological symptoms to skin irritation, headaches and nausea. Initially, the Claimants pleaded all the possible heads of loss, however, following investigations and consideration of expert evidence, the Claimants ultimately acknowledged that the fumes could have only caused a range of short term low level flu like symptoms and anxiety.

The Court of Appeal found that each Claimant had succeeded in their personal injury claim, recovering substantial damages and obtaining an unconditional order for the costs of the Proceedings on the standard basis. Thus, in the absence of special facts, the Claimants were entitled to recover the costs for items which had been reasonably (necessarily) incurred (to the extent deemed reasonable and proportionate). Therefore, where a Claimant had a genuine and reasonable belief that they had suffered a specific problem as a result of the chemical waste, the costs of investigating/making the claim were recoverable to the extent that it was necessary, reasonable and proportionate.

Due to the particular facts of the claim, the Court did not find it unreasonable to plead all the possible heads of damage with a view to amending them out/ not pursuing them rather than adding to the Pleadings later down the line¹². It was reasonable and sensible to include any loss/damage identified by the Claimants¹³ and to pursue and investigate the same. Thus the costs of the same are recoverable¹⁴.

The question for the Court when considering 'abandoned claims' (i.e. where damages for ailments were ultimately not pursued) is at what point is it no longer reasonable (and in this case necessary) to pursue a particular head of claim further. From that point, the costs associated with the 'abandoned claim' will not be recoverable.

Undoubtedly, this will be of particular importance to those types of cases (e.g. Clinical Negligence and Industrial Disease) where it is often necessary, reasonable and prudent to investigate different problems which ultimately transpire to be unrelated to the matter at hand.

Settlement and Distribution

It is worth noting that the work involved in dealing with the settlement monies and distributing the same in the case of Motto was certainly considerably more than would be required in a 'run of the mill' claim. However, the Judgment contains an important principle on this point which may be of applicability to any other case, regardless of size and/or complexity.

The Defendant argued that the costs of advising and taking instruction on the settlement agreement and then distributing the settlement fund was not recoverable. Their argument was two-fold; firstly, the terms of the Settlement Agreement precluded such recovery and secondly, under general principle, a successful Claimant in whose favour an unqualified costs order has been made cannot recover these costs. The Court disagreed and helpfully provided the following clarification:

Arguably, this principle can be extended to costs associated with effecting costs' agreements following Applications and, for instance, the necessary letters sent after the date of a Court Order which are reasonably required to effect that particular Order.

The Judgment also makes it clear that where you wish to limit the general principle on recovery of costs associated with distribution, any Agreement needs to be specific and clear in the intention.

Medical Reports

The Judgment confirms that costs of, and associated with, medical reports are recoverable to the extent that they are reasonable and proportionate (and in this particular case, necessary). These costs include:

1. Costs of instructing Doctors
2. Relevant administration costs
3. Costs of drafting reports

However, it does not include the following:

1. Training Doctors
2. Amending defective reports
3. Defective translations of medical reports

Pre-Action Protocols

The Defendants maintained that the Claimants' Solicitors had failed to comply with the Practice Direction - Pre Action Conduct¹⁵ and thus an appropriate reduction should be made when assessing the recoverable costs. The PDPAC provides for derogation from the Protocol where circumstances make it inappropriate to comply. Having considered the matter, the Court found that, whilst the Claimants had failed to comply, there was a good reason and in any event, the Claimants had acted reasonably following the issue of Proceedings to provide as much time and information as possible. Additionally, there was no proof that the Claimants' failure to adhere to the PDPAC had actually increased costs.

The nub of the point seems to be: if you are not able to follow the appropriate Pre-Action Protocol, make sure you have a good reason, act reasonably following the issue of Proceedings so that the Defendant is not disadvantaged and don't incur more costs than you have to!