Background
The underlying matter related to an appeal against an order that sanctioned restructuring plans under Part 26A of the Companies Act 2006. The dispute related to the plan companies of the Petrofac group and two dissenting creditors, Saipem and Samsung.
The appeal was ultimately allowed, and it was agreed that the Respondents should pay the Appellants’ costs of the applications on the standard basis. However, an agreement could not be reached on the sum of an interim payment on account of those costs. The total initially claimed by the Appellants totalled £6,231,195, of which the Appellants sought 60%, amounting to £3.75 million. The Respondents deemed £500,000 to be more appropriate.
The breakdown provided by the Appellants was deemed insufficient by the Respondents, as they had provided a simple list of the sums billed by their solicitors, counsel and financial advisors. The Appellants requested a detailed breakdown, as an N260. The Respondents objected, stating that they consider the N260 to not be appropriate for the Court to determine the sums payable and explained that an N260 could also not be prepared within the necessary timeframe. The Court ultimately intervened and directed the Appellants to serve and file a schedule of costs with sufficient detail for the Court to determine the amount of a payment on account.
The breakdown provided
The following day, the Appellants’ Solicitor provided a breakdown which contained two tables summarising invoices received and a folder containing copies of those invoices. The table broke down the sums charged into profit costs and disbursements, but not further detail was available. The invoices included some minor detail, including some details of tasks undertaken and hourly rates, with the highest rate shown as £1,096 per hour.
In relation to disbursements, the majority related to fees to Counsel and all but one of the invoices did not contain any description of the services provided. The overall sums claimed in the breakdown totalled £6,405,924.
The issues raised
The Respondents considered both the £6.4 million claimed and the information provided to be unreasonable. The sums claimed were deemed disproportionate to a claim that only lasted 8 days in court, and the lack of detailed narratives in conjunction with work being claimed more than the guideline hourly rates were the primary causes of concern. Issues were also raised with the recoverability of the ‘Financial Advisory’ fees and the costs of expert evidence, as the Appellants did not contest the evidence of the Respondents.
The Appellants argued that the costs were proportionate, as the claim to be extinguished was valued at $1 billion, and the Respondents had incurred costs of $111 million. Regarding the narratives, it was suggested that the narratives that were disclosed were not intended to be, and they claimed were privileged. The complexity of the litigation was referenced to justify the rates claimed and the fees for financial advisers, as they contended that the claim was ‘bigger and more complicated than Thames Water’.
The considerations
It was identified that CPR 44.2(8) permitted the Court to order a party to pay a reasonable sum on account of costs when ordering costs to be paid subject to assessment, unless there is good reason not to do so.
The test in Excalibur Ventures LLC v Texas Keystone Inc was considered appropriate to determine the reasonable figure in the circumstances, and R (Factortame) v Secretary of State demonstrated that it was for the receiving party to demonstrate the costs claimed are reasonable.
The view of Leggart was considered from Kazakhstan Kagazyp plc v Baglan Abdullayevich Zhunus, where it was found that the test for reasonableness was an objective one, and is the lowest sum the receiving party could have been reasonable expected to spend to haver its case conducted and presented proficiently.
In relation to the guideline hourly rates, it was found in Samsung Electronics Co Limited v LG Display Co Ltd that a clear and compelling justification must be given to depart from the guideline hourly rates. The Guidelines were considered to be a helpful starting point at detailed assessments.
The Court’s findings
The Court immediately dismissed the arguments that the costs of the plans incurred by the Respondents had any bearing on the reasonableness of costs, stating that the possibility that a paying party has paid its own lawyers disproportionately high fees does not make the fees by the receiving party reasonable and proportionate.
It was considered that the information provided by the Appellant is inadequate to conclude with any degree of confidence that they may recover £6.4 million at assessment. Whilst the narratives were provided alongside the bills and may have been privileged, no efforts were made to amend the narratives to provide a non-privileged summary of the work completed.
In relation to the guideline rates, it was identified that the sums claimed were close to double the guideline rates. Whilst some uplift may be justifiable, no justification had ben provided. Similar findings were reached in regard to Counsel’s fees and the financial advisory work. The lack of information required the Court to err on the side of caution when determining a reasonable payment on account.
The Court found that they were unable to estimate that the Appellant would be likely to recover 60% at assessment with any real confidence. However, they considered it likely that the Appellant would recover more than the £500,000 offered by the Respondents. An appropriate sum, in light of the uncertainty, was considered to be £2.2 million.
Analysis
This matter shows the importance of furnishing the Court with sufficient detail when making a request for a payment. Had the Appellants in this claim provided the Court with substantially greater detailed, which would have improved the Court’s confidence, they would likely have been able to receive a significantly greater payment on account.
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