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Motto v Trafigura, Court of Appeal, 12 October 2011

20 October 2011
The issues

Costs – CFA – proportionality – ATE premium.

The facts

The claimants brought a group action for personal injuries against the defendant companies. The claim arose out of the alleged fly-tipping in August 2006 of 528 tonnes of chemical waste from a tanker by a local contractor at locations around Abidjan in the Ivory Coast. 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 actions were subsequently settled. A number of issues had arisen out of the costs of the proceedings. The claimant’s bill of costs for solicitors and counsel, including success fees and an ATE premium of over £9million, amounted to over £104million. A number of preliminary issues fell to be decided in respect of costs. The appeal before the Court of Appeal arose in respect of the determination of a number of those issues, namely:

  1. Proportionality
  2. Vetting costs
  3. Pre-action protocol
  4. Cost of funding
  5. Success fee
  6. ATE premiums.
The decision

1. Proportionality
The judge had found that the base costs of £49million had the appearance of being disproportionate, but that when carrying out the detailed assessment, he would not be thereby precluded from deciding that an item or number of items were in fact proportionate and that the test of necessity should not apply to them. He thereby departed from the test in Lownds. He had been wrong to do so. As a matter of principle, the rule laid down in Lownds accorded with principle. The effect of the reasoning of Lord Woolfe had been that if the total costs claimed appeared to be disproportionate, they were in effect rendered proportionate by allowing only those items which were necessary, and then only in a reasonable sum. The judge had been wrong to depart from that approach for practical reasons as well. It was an approach well understood amongst those concerned with assessing costs and was generally accepted as representing the law. In the area of legal costs it was particularly important that the law was simple and clear and that the court should adopt a consistent approach.

Thirdly, the test represented a good way of maintaining a degree of discipline on the thinking and actions of lawyers when advising or acting for their clients in contemplated or actual litigation.

2. Vetting costs
‘Vetting’ covered the registration of the claimants and the administration of their claims from their inception until the time that the settlement was provisionally agreed. The judge had found that the claimants were entitled to recover the reasonable and proportionate costs associated with the collection, assessment and management of each of the claims. With regard to the period prior to the signing of the CFA the judge had found that this depended on the particular wording of the CFA in use. Those CFAs which ran “from the date you first instructed us” would cover the costs from the first meeting. Those that stated that they ran “from the date of this agreement” would include the meeting with the client immediately prior to the signing of the CFA, during which the CFA explanation was given. The claimants, according to the judge, had been entitled to recover their reasonable and proportionate costs prior to each claimant’s admission to the group register. In respect of whether the associated costs were disproportionate, the judge took the view that he did not have sufficient evidence at this stage to deal with the question of proportionality.

It was necessary to import into the judge’s reasoning the concept of necessity, because the claimants could only recover in respect of an item of the bill if it was necessary to have incurred it, given the finding as to proportionality. He had also plainly been entitled to reach the conclusion that he did not have sufficient evidence as to the proportionality of the cost of the items there referred to. He had also been entitled to take the view he had as to recovery of the vetting costs insofar as they had been incurred for a specific claimant. Any CFA which limited the client’s liability to work done after the CFA is entered into cannot extend to work done before that date. Solicitors and their clients could agree terms otherwise. However, when it came to generic costs, for instance the costs of investigating or establishing the defendant’s liability, the question of interpretation of the wordings of the CFAs did not have very much force because such items would have been incurred for the benefit of all actual or potential claimants and would have been incurred irrespective of when a claimant was entered onto the claimant’s register. Subject to necessity and proportionality, such items were recoverable in principle.

3. Pre-action protocol
The judge had rejected the defendant’s argument that the claimants had failed to comply with the spirit of the pre-action protocols and had issued proceedings precipitately. The judge found that it was not unreasonable for the claimant’s solicitors to have issued the proceedings quickly and that in any event the costs had not been increased by virtue of the proceedings having been issued speedily. On the evidence, the judge had been entitled to take that view.

4. Cost of funding
The issue was whether the costs of and connected with the work undertaken by the claimant’s solicitors, counsel, costs draftsmen and insurers in establishing and setting up the conditional fee agreements and / or the ATE insurance policies were recoverable and whether the costs of subsequent dealings with the ATE insurers were recoverable. The judge found that they were and the defendants appealed.

The defendants relied on the well established general rule, most clearly considered in Hunt v Douglas Roofing, that the cost of funding litigation in the sense of interest paid on the monies borrowed to pay solicitors bills submitted in connection with the litigation was not recoverable under the old rules relating to costs. The judge rightly took the view that this principle applied equally in relation to the CPR. However, he held the cost of drafting and preparing the CFAs and explaining them to potential claimants was recoverable, as were the costs of negotiating and arranging the ATE insurers.

Whilst the judge was correct to take the view that the costs claimed under this head were distinguishable from the interest in a case such as Hunt, nonetheless, monies paid on monies borrowed to pay litigation costs and costs incurred in connection with the CFA or ATE insurance were ultimately attributable to the need of a litigant to fund the litigation, as opposed to the actual funding of the litigation itself. The time, expertise and effort devoted by solicitors to identifying a potential claimant and negotiating the terms on which they were to be engaged by the claimant in connection with the litigation could not be properly described as an item incurred by the client for the purposes of the litigation and the judge had been wrong to find otherwise. Until the CFA was signed, the potential claimant was not merely not a claimant, but was not a client. And 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 of the potential client should not normally be treated as attributable and payable by the ultimate client of clients. Rather, such expenses should be taken as part of a solicitor’s general overheads, which could not be taken into account when assessing appropriate levels of charging, such as hourly rates.

In addition, the costs incurred by the claimant’s solicitors in discussing the progress of the litigation with the ATE insurer and taking instructions in that connection were not recoverable from the defendants. The cost incurred in having such discussions and taking such instructions was not so much a cost of the litigation as a cost collateral to the litigation, being a cost incurred to ensure that the claimants were not at risk on costs.

5. Success Fee
The success fee had been claimed at 100%. The judge found that the claimant’s solicitors should have reconsidered their risk assessment and success fee when the CFAs had been superseded or new CFAs were entered into and after certain stages in the litigation and moreover that the risk assessments undertaken by the claimant’s solicitors did not justify the success fee claimed. He decided that the appropriate level of success fee would have been between 100% and 47%, depending on when a claimant entered into the CFA and he fixed a single percentage of 58% for both solicitors and counsel. This represented a 62% chance of success.

In order to arrive at an appropriate success fee, it was necessary to attribute quantitative risk assessments to the potential problems. At first sight it appeared logically sound to multiply out those risk assessments in order to arrive at the overall risk. In the context of legal proceedings such an approach was open to attack in principle. Not only was the precision accorded to the prospects artificial, but the implicit assumption that each of the risks was entirely self contained or insulated from the other risks was very questionable. Nevertheless, there is nothing wrong with the judge’s analysis and the conclusion that he had arrived at. He had not been obliged to fix the same level of success fee for solicitors and counsel, but it did not follow that he was wrong to have done so in this case.

6. ATE Premium
The judge had allowed the ATE premium in its entirety. He had had evidence as to how the premium was calculated, including the assessment of the claimant’s prospects of success at 65% and the eventual premium rate of just under 62%, being a 53.8% risk premium rate allowing 15% for administration and profit. The assessment of risk at 65% could not be said to be too cautious given the judge’s assessment of the prospects at 63%, as implied by the 58% success fee. Whilst the premium was startlingly high, there was no expert evidence of policies providing similar cover available on the market at lower premiums. No criticism had been made of the actual mechanism used by First Assist to calculate the premium. Although the defendants had criticised the claimants for not entering in a policy with a variable premium rate, there was no evidence that having done so would have resulted in a lower overall cost and on the evidence before the judge there was no basis for saying the claimants were unreasonable in not insuring on the basis they had.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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