In the matters of Group Seven Limited -v- Nasir and ors & Equity Trading Systems Limited -v- Notable Services LLP and ors  EWHC 629 (Ch) Morgan J has provided some helpful and detailed comments as regards proportionality and other issues in assessing the costs budgets of a number of parties in two actions which have are being managed together with a view to them being tried together at the beginning of 2017. A costs management conference took place on 2 March 2016 and in advance of this, 6 separate costs budgets were prepared totalling over £13m.
Group Seven issued a claim following fraud allegedly committed by the First and Second Defendants (Mr Nasir and Mr Yi). The claim against the further Defendants was in relation to their dishonest assistance in the breach of trust or for unconscionable receipt of trust monies belonging to Group Seven. Equity Trading Systems Limited (ETS) brought the same claim against the further Defendants and also claimed against Notable Services.
ETS’s claim was to recover monies which were to be paid back to Group Seven following the settlement of another action after ETS (under its previous name of Larn Limited) received €100m in the course of the alleged fraud. Group Seven and ETS were both represented by the same firm of solicitors although different solicitors acted for each party up to the present point but a single solicitor would be used moving forwards. The Swiss Bank made Part 20 claims against three of the other Defendants. Claims were also made by both parties against the Swiss Bank and Mr Louanjli on the grounds that Mr Louanjli made false statement and the Swiss Bank, as his employer, was responsible for his wrongdoings.
Group Seven claimed the principal sum of €9.2m (approx. £7.08m) and ETS claimed €11.98m (£9.22m).
The total budgeted costs totalled £13,325,721; broken down as follows: -
(1) Group Seven - £3,576,249.77;
(2) ETS - £1,476,925.95;
(3) Mr Nasir - £1,251,955.43;
(4) The Notable Defendants - £1,779,566.85 + £116,630.87 = £1,896,197.72;
(5) The Swiss Bank – (for both actions) £3,724,954.56;
(6) Mr Louanjli - (for both actions) £1,399,438.
No part of any of these budgets was agreed and whilst it was noted that a Costs Management Order (CMO) need not be made if the litigation could be conducted fairly and at proportionate cost, Morgan J was not so satisfied and thus went on to consider the budgets. Morgan J decided that the following factors would need to be considered in the course of the process: -
(1) the proportionality of the sums in the budgets;
(2) whether there should be a single budget for Group Seven and ETS;
(3) the solicitors' hourly rates
(4) counsel's fees;
(6) various other matters;
(7) what should be done in relation to incurred costs?
He dealt with each in turn, as follows: -
The proportionality of the sums in the budgets
Morgan J considered the factors laid down in CPR 44.3(5) and recent decisions on proportionality at the costs management phase where the value of the claim was similarly high. His consideration of recent cases suggested that a figure of around £3.5m would be an appropriate sum as a total of Group Seven and ETS's costs and that the claimed figure of over £5m was indeed disproportionate.
In considering the factors in 44.3(5) Morgan J observed that:-
He did not consider the claim to be complex as the dispute was principally one of fact. Further there had previously been a 30 day trial in the earlier proceedings against ETS (then, Larn), and thus there should already be a thorough understanding of the underlying issues. Finally, whilst there was to be a defence of ex turpi causea but again found this to be a primarily factual dispute but not particularly complex.
He would allow a contingency to account for any difficulties which may arise as a result of the Defendant's conduct rather than dealing with it in relation to proportionality.
There were no issues of public importance and whilst some of the parties' reputations may be slightly affected by the result, this was not a significant consideration here.
The fact that the matter related to the issue of fraud did not warrant separate consideration as it had been dealt with in considering the elements of CPR 44.3(5). Further the award of indemnity costs at conclusion, if appropriate, would address the finding or non finding of fraud.
As well as the Claimants' costs, those of the Swiss Bank were also considered to be very high in light of the issues they would need to address. The remaining Defendants' budgets were not considered to be disproportionate.
Notably Morgan J did not consider in this case that it was necessary to consider the total budgets as whilst there was a possibility that one party could end up liable for all parties’ costs, his principal role was to "consider the proportionality of the amount of the budget so that the court feels that it would be appropriate to award the budgeted sum to the receiving party and require it to be paid by the paying party”.
Single budget for Group Seven and ETS?
There had been some suggestion that Group Seven and ETS should have been required to submit a single budget, however this was not deemed necessary. The parties did intend to use the same solicitor moving forwards but did not intend to use the same counsel. In relation to counsel, Morgan J did not deem the slight differences between the claims to justify the use of different leading counsel. Whilst he went on to say that as the assessed budgets would relate to costs for both Group Seven and ETS a single budget could be prepared moving forwards, he confirmed that he would not take issue with two budgets.
The solicitors' hourly rates
The rates claimed by the various parties ranged from £121 to £575. Morgan J did not consider that the Claimants required City solicitors (and did note that they had not instructed City firms) but that as a foreign entity it was reasonable for the Swiss back to have instructed a City firm. Accordingly he awarded the Swiss Bank City rates (A: £409, B: £296, C: £226, D: £138). Mr Louanjli was awarded A: £330, B: £229, C: £165, D: £121 to account for the importance of the matter to him. An enhancement on the Central London rates for the remaining parties was awarded; allowing A: £365, C: £210, D: £132; there was no Grade B work to account for. Where parties were claiming less than these rates they were of course allowed at no more than the rates as claimed.
The fees for the trial preparation and trial phases for Group Seven, ETS and the Swiss bank were seen to be excessive. Morgan J therefore considered the actual work he expected to be undertaken for counsel under these phases with reference to the amount of days in preparation and attendance at the 40 day trial. He also noted that different rates should be allowed for the Claimants and the Swiss Bank to reflect the difference in the issues and allowed the following: -
(1) Group Seven and ETS (together) leading counsel: brief fee of £200,000 plus refreshers of £5,500 per day for 36 days, making a total of £398,000;
(2) Group Seven and ETS (together) junior counsel: brief fee of £100,000 plus refreshers of £2,750 per day for 36 days, making a total of £199,000;
(3) Swiss Bank leading counsel: brief fee of £125,000 plus refreshers of £5,000 per day for 25 days, making a total of £250,000;
(4) Swiss Bank junior counsel: brief fee of £65,000 plus refreshers of £2,500 per day for 36 days, making a total of £155,000.
A refresher fee plus 50% was awarded for the PTR and maximum hourly rates as £500 for leading and £275 for junior counsel.
The fees for counsel within trial preparation and trial phases were agreed by Morgan J as claimed for Mr Nasir, the Notable Defendants and Mr Louanjli.
Five of the seven budgets contained contingencies and the parties were asked to look again at these figures. Morgan J opined that some could be agreed and some may be reviewed with a view to deciding what, exactly would be required in this regard.
Prior to this hearing, detailed correspondence had passed between the parties with disputes, offers and counter offers for certain phases and elements of the budgets. However Morgan J noted that he was not required to deal with these issues, or conduct a detailed assessment of the costs. Rather, once the budgets had been revised in accordance with his judgment he would be able to make a final assessment as to whether the revised budgets fell within the range of reasonable and proportionate costs.
What should be done in relation to incurred costs?
Comments had previously been made by Morgan J in relation to hourly rates for solicitors and counsel as well as proportionality. Whilst he did have reservations in relation to the costs of disclosure claimed by the Swiss Bank, he did not want to make any specific comments and preferred to leave this for the costs judge if it came to this.
In relation to the incurred costs as a whole, the approach taken in CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd  EWHC 481 (TCC) and GSK Project Management Ltd v QPR Holdings Ltd  Costs LR 729 of suggesting a proportionate figure was not considered appropriate in this case. Morgan J stated in this regard that he did not “feel that I could confidently and accurately identify a reasonable and proportionate figure for incurred costs nor do I feel able to say that if a costs judge later allowed a higher figure that it would necessarily be appropriate to deduct the difference between the budgeted figure and the costs judge's higher figure from some other figure for future costs which I am otherwise prepared to approve as reasonable and proportionate”
The parties were ordered to amend their budgets and contingencies in line with the judgment and to submit revised documents within 14 days for a final review in order to consider whether they fell within the range of reasonableness and proportionality.
Costs Lawyer’s Thoughts
Whilst this judgment does provide an insight into the thinking of Morgan J, it does not appear to provide many specific conclusions and does request that the parties go away and amend the budgets themselves in order for him to consider whether the total amounts were reasonable and proportionate. Further, a number of the decisions which one would generally expect to see at a CCMC were deferred to the conclusion of the claim or Detailed Assessment; with this in mind, one wonders whether this may in fact have been a case where costs would have been saved by dispensing with costs budgeting and addressing all of the issues at Detailed Assessment?
Notably, in contrast to the a above, Morgan J specifically chose to refer to hourly rates when the same should not be considered at the point of costs management. Thankfully the amendments to the CPR which came in on 6 April 2016 (a summary of these changes can be found here) now expressly states at PD 3E 7.10 that it is not the role of the court to either fix or approve the hourly rates at the costs management hearing.
A link to the judgment of Morgan J can be found using the following link