Petromec Inc v Petroleo Brasileiro SA Petrobras & Ors

MRS JUSTICE GLOSTER: This is an application by the defendants, which I shall refer to as Petrobras, for an order that the claimant, Petromec, make a payment in the sum of £1,500,000 on account and before assessment of the costs which I ordered to be paid pursuant to paragraph 2 of my order dated 16 June 2006, that order following my judgment dismissing the claimant's fraudulent and negligent misrepresentation claims.

For the detail of the background facts and the procedural history of this matter I refer to my judgment. In summary, in dismissing Petromec's fraud claim I held that no false representations had been made in either of the letters relied upon by Petromec, that none of the Petrobras personnel whom Petromec alleged had knowledge of the alleged falsity of the statements did have such knowledge, that Mr Efromovich was not induced by the two letters (dated respectively 11 October and 25 October 1999) in his decision not to attempt to detain the P36 in Canadian waters, and, that Petromec did not establish causation or loss and damage in any event. I held that, if the threat to detain P36 had been implemented, Petrobras would have obtained an injunction or otherwise would have obtained a release of P36 and would have not entered into the global payment agreement and I also held, for similar reasons, that Petromec's negligent misrepresentation claim also failed because Petromec had not established its case on reliance, causation and loss.

Accordingly, I ordered that Petromec should have paid the defendants' costs of and incidental to defending its fraud claim on the standard basis and that such costs were to be the subject of a detailed assessment if not agreed. It is worth mentioning that on 16 June 2006, although Petromec did not consent to the order for costs which I made, there was no opposition to such an order and no submissions were made to the effect that it was not appropriate that I should make the order for costs to be paid of and incidental to defending the fraud claim on the standard basis.

The sum, as I have said, that is the subject matter of this application for an interim payment is £1.5 million. Petrobras' total costs of defending the fraud claim are set out in considerable detail in a costs schedule that has been exhibited to a statement of Mr Williams, solicitor acting for Petrobras and an employee at Linklaters. The costs schedule shows that in relation to the costs of the fraud trial Petromec has incurred costs in the sum of £2,995,107.23. That is an estimate. A costs draftsman is at the present time engaged in preparing a more detailed costs schedule for the purpose of the detailed assessment.

That sum of almost £3 million deducts the sum of £110,609.22 to reflect costs which Petrobras properly accepts it is not entitled to recover. Those are costs which were awarded against it, that is to say, the costs of and incidental to the claimants' specific disclosure application decided at the case management conference of 11 February 2005 and the costs of and incidental to a specific disclosure application made by the claimants and decided at the case management conference on 29 July 2005. It is also accepted, for the purpose of the interim application, that a similar sum in the region of, say, £111,000 should be notionally deducted from the claim to reflect the notional sum which Petromec might be entitled to in respect of its costs of and incidental to those two applications which the court ordered that the defendants should pay.

Prior to the issuing of this application Petrobras' solicitors, Linklaters, wrote on 10 July 2006 to Petromec's solicitors, Curtis Davis Garrard (CDG), asking whether Petromec consented to making a payment on account of costs. That letter referred to a previous order made on 11 February 2005 following the 2 February 2004 judgment of Moore-Bick J, as he then was. Moore-Bick J ordered that Petromec should make a payment of an amount of costs on account pursuant to CPR 44.3(8) notwithstanding that the detailed assessment had not taken place.

Linklaters invited CDG to agree that in the circumstances a similar approach should apply to the costs of the fraud claims. No response was received from CDG and on 24 July 2006 Linklaters pressed the latter for a response. CDG responded as follows. On 25 July 2006 it refused to consent to an order, without giving any reasons for its refusal. Linklaters subsequently pressed for an explanation, in particular, as to whether Petromec objected to any payment on account as a matter of principle or objected only to the amount that had been requested. On 28 July 2006 CDG replied, simply stating that they were not prepared to consent to such an order and that they did not believe that it was necessary for them to give any reason for Petromec's decision, saying that, as and when an application was issued and evidence was served, they would respond in due course.

On 28 July, not surprisingly, Linklaters stated that the absence of any explanation was unhelpful and confirmed that if Petromec wished to have any further information in relation to the application it would be provided. CDG then replied on 1 August saying that their client's position was clear and that Petromec was not prepared to consent to any order in the terms proposed. Accordingly, the application before me was issued on 18 September 2006.

Nothing was heard from CDG until 17 November 2006 when they raised, for the first time, substantive arguments in relation to Petrobras' claimed entitlement to the order sought. CDG proposed that Petrobras withdraw their application on terms that the security for costs that Petromec had provided by way of bank guarantee in the sum of £1.5 million be paid into court. Linklaters rejected CDG's arguments of principle and pressed Petromec to serve any evidence in response as soon as possible, the deadline for service having already expired.

It was only on 28 November 2006, this hearing having taken place on 4 December, that the claimants served a witness statement of Miss Calnan, a partner in CDG who had not in fact been involved in the earlier trial, which exhibited a large number of previous witness statements and affidavits and skeleton arguments. That was then responded to by Mr Williams.

The application is made under CPR 44.3(8), which provides that, where the court has ordered a party to pay costs, it may order an amount to be paid on account before the costs are assessed. As set out in the rule, the discretion is unfettered; however, guidance on the "normal rule" to be applied following a full trial was laid down by Jacob J in Mars UK v Teknowledge Limited [2000] FSR 138. The guidance which he gave as to the approach to be adopted has been followed in a number of first instance decisions. Jacob J held that the normal rule was that, following a full trial, an order for costs on account should in general be made. He set out the relevant principles at page 153 of the judgment as follows:

Mars was a case like this one where there had been a full trial and where the judge hearing the application for an interim payment of costs prior to assessment had been the judge who had dealt with the full trial.

In Dyson Limited v Hoover [2004] 1WLR 1264 the issue as to whether an interim payment should be ordered arose in somewhat different circumstances. In Dyson what had happened was that the claimant, after succeeding on liability in its claim against the defendant for patent infringement, elected for an inquiry as to damages claiming, at least initially, the sum of £21 million. The parties, however, prior to the trial of the inquiry for damages settled on terms whereby the claimant accepted a payment into court of £4 million, obviously substantially less than the figure that originally had been claimed. The court ordered that the defendant should pay the costs of the inquiry, to be assessed on a standard basis if not agreed, and the claimant submitted a bill of costs in the sum of £2.5 million incurred in preparation for the inquiry. Before the costs judge had had any opportunity to assess the costs the claimant applied for an interim payment on account of 50 per cent to 60 per cent of its costs under CPR rule 44.3(8).

The application came on before Laddie J, who had not been involved in the trial or in the inquiry. Laddie J held that, whatever might be the position following a full trial where the judge who was being asked to make the interim payment had been the trial judge, different considerations applied, where that was not the case and the judge hearing the costs application had not heard the trial or the inquiry as to damages. I refer in particular to paragraphs 15 and 16 of Laddie J's judgment and paragraphs 29 to 37. He made it quite clear that, what he was saying in that case, in relation to the approach to be adopted in exercising the discretion under CPR rule 44.3(8), applied to the situation where the judge has not had the benefit of having heard the whole trial or the inquiry as to damages. He held that the approach adopted in Mars was not necessarily appropriate where the judge had not heard the whole trial or inquiry as to damages or where he was not in the position of a costs judge exercising his discretion pursuant to CPR 47.15.

He held that in circumstances where the judge had little knowledge of the issues between the parties CPR rule 44.3(8) should be taken at its face value, there being no presumption either for, or against, ordering an interim payment under the rule and that the court accordingly should simply consider an application for an interim payment on its own merits and that the party asking the court to exercise the discretion in its favour had to justify it. In other words, he held that the normal rule as articulated in Mars that generally an interim payment should be made did not apply in the case before him.

In objecting to the application for interim payment, Mr Nicholas Vineall QC, in his helpful submissions on behalf of the claimant, Petromec, made a number of points. First of all, he submitted that the case here was more analogous to Dyson v Hoover. He submitted that because the separate fraud trial was necessitated by the defendants' nondisclosure, which only came to light during the preliminary issues trial before Moore-Bick J, and because I had not been involved in that first trial and therefore could not know the circumstances in relation to which disclosure was not made, I was in a position analogous to Laddie J in Dyson. Accordingly he submitted that it was more appropriate that the costs judge, with the benefit of all the detailed information before him, should deal with the issue as to whether all or only some portion, or none, of the “override” costs in relation to the fraud trial should be recovered.

In relation to those costs he submitted that the result of the late disclosure was that additional and unnecessary costs were incurred as a result of the fraud trial and the preliminary issues trial not being heard together. He submitted that it was only because of the late disclosure during the preliminary issues trial that the fraud allegations were made and therefore it was not possible for Moore-Bick J to deal with the fraud issues. He submitted that the duplicated costs of the second trial and the additional costs caused by a second trial were to a large extent the result of the alleged defects in disclosure and that the costs judge would be in a much better position, with the benefit of a detailed bill, to determine whether any costs should be disallowed and to determine the inter-relationship between the fraud trial before me and the preliminary issues trial before Moore-Bick J. He submitted that the extra “override” costs, as he referred to them, should be disallowed, but that the extent to which that should be the case should be a subject for the costs judge to decide.

Next he submitted that, given the offer by the claimants to pay into court the £1.5 million security for the costs provided by way of bank guarantee, it was not appropriate in the exercise of the court's discretion that any interim payment should be made. Third, he submitted that no order in any event should be made in circumstances where Petrobras is fully secured by the bank guarantee and where Petrobras has not yet commenced detailed assessment proceedings in respect of the costs ordered on 16 June 2006.

Next he submitted that if an interim payment were to be ordered then reduced payment should be ordered and Petromec should not recover the entirety of its costs for a number of reasons: first, because of the way in which the fraud claim arose as a result of Petrobras' nondisclosure and the unnecessary override costs of the fraud trial; second, because generally Petrobras' approach to disclosure was wholly unsatisfactory and this court should mark its displeasure of that with a deduction in respect of costs; third, he said account should be taken of the costs orders made at earlier procedural hearings and, fourth, he said that, in any event, the Petrobras’ costs as set out in the schedule of costs were excessive.

In support of his submission that it was not appropriate for me to hear this application and that the approach of Jacob J in the Mars case should not apply, Mr Vineall contended that it had not yet been ascertained who was the paying party, because what is referred to by the parties as Petromec's costs claim has still to be determined. The costs claim is a claim for the various costs of the upgrade in circumstances where the GPA was not a binding agreement. I reject this contention. In my judgment, the fact that there is an outstanding issue between the parties as to what is the quantum of the costs claim does not on its own, or taken together with the other points made by Mr Vineall, provide any reason why I should not determine this application or why I should not make any order for payment on an interim basis. The fraud claim, as indeed were the preliminary issues, has been dealt with entirely separately from the costs claim. There is no basis for the suggestion that there should be no order in relation to the costs of the fraud trial until such time as the trial of the costs claim has taken place. The existence of the future costs claim provides no justification for me not to adopt the approach taken in Mars or to reduce the interim payment.

Accordingly I reject Mr Vineall's submissions that it is not appropriate for me as the trial judge dealing with the fraud issues to resolve these matters. Of course Moore-Bick J, as he then was, was the person who was best acquainted with the circumstances in which late disclosure arose during the course of the first trial, but, on any basis, he is not in a position either to be able to resolve this application or to deal with the detailed costs assessment. Nor is he going to be in the position of determining whether the defendants should be deprived of any proportion of the costs as a result of the late disclosure that led to the second fraud trial.

On the contrary, in my judgment, the fact that I heard the fraud trial and the fact that I was in a position, as the trial judge in that trial, to determine the extent to which the late disclosed material played a part in the fraud trial, and the extent to which it was reasonable for Petromec to rely on that material, means that I am the judge who is in the best position to determine if, and whether as a matter of principle, Petrobras should be deprived of any proportion of their costs in respect of the fraud trial as a result of that late disclosure. It is unreal to suggest that the costs judge, even after receiving the benefit of detailed information relating to how the costs were incurred, would be in a better position than I would be to decide as a matter of principle if, and, if so, to what extent, Petrobras should be deprived of any part of its costs of the fraud trial.

In my judgment, that type of decision is essentially one for the determination by the trial judge who heard the fraud allegations. So I reject Mr Vineall's first submission that such issues of principle should be decided by the costs judge at the hearing of the detailed assessment. Having said that, that ruling will not prevent the costs judge from addressing specific details in relation to the costs incurred in relation to that disclosure exercise. As it was put by leading counsel for the plaintiffs, Mr Hancock QC, the nuts and bolts of the assessment and whether any particular item of costs was not reasonably or not properly incurred (for example, correspondence in relation to the particular points) will be a matter for the costs judge. But as a matter of principle it must be one for this court to decide.

I turn now to the substance of the matter as opposed to the procedural point as to which tribunal is to decide the issue. I deal first with Mr Vineall's point that in circumstances where there has been an offer of the payment of the security ordered (£1.5 million) into court, that affects the exercise of the court's discretion with the result that no order should be made. It does not seem to me that the fact that Petromec has offered to pay the amount into court in lieu of a payment on account, meets the application for an interim payment. The only practical advantage which a payment into court would have over and above the security presently ordered is that interest would accrue on the payment thereby mitigating any problems of undersecurity.

However, although there was no evidence either way on this point, there clearly is a potential for a differential between the rate of interest which any payment into the court would attract and the rate of interest which, theoretically at any rate, Petrobras would have to pay to borrow the money to pay its solicitors in the meantime. But be that as it may, it seems to me that there is no reason to disapply what Jacob J referred to as the normal rule, namely, that where a litigant has been successful and has been awarded the costs in his favour, there should be a payment on account pending assessment. Why, I ask rhetorically, should Petrobras be kept out of sums which they will almost certainly recover on a detailed assessment pending such assessment?

In my judgment, the general approach articulated in Mars is clearly applicable here. To say that this is a situation in which I, as the trial judge of the fraud issues, know nothing about the facts of the case, as was the case in Dyson v Hoover, is fanciful. It is in the interests of justice that payments are made to solicitors and that a party is not kept out of monies to which it is legitimately entitled in respect of its costs. One is driven to the conclusion that, as Jacob J put it in Mars, Petromec is simply seeking to put off the evil day. For similar reasons I reject the suggestion that, because of the security for costs which is in place, Petrobras should just be left to the benefit of their security. To be fair, Mr Vineall did not seriously argue this point but was content to approach the matter on the basis of Petromec's offer to pay the £1.5 million into court.

The next point made by Mr Vineall was that my discretion should be exercised differently from the way in which it was exercised in Mars because no detailed assessment proceedings had been commenced within three months, as Petrobras were required to do under CPR 47.7. He complained that, if that had been done in due time, a costs judge could now be in a position to hear any application for an interim order with the benefit of a detailed bill of costs and that again was a reason for not exercising my discretion in Petrobras’ favour. I am sceptical as to whether, even if a detailed assessment had been commenced within the three-month period, an assessment would by now be taking place. An expert costs draftsman was engaged by Linklaters sometime in late October or early November to start the detailed assessment. But, given the complexity of the litigation, the costs draftsman expects that the preparation of the schedule will take several months with the result that the matter is unlikely to come before a costs judge before 2007. So even if the matter had been started within three months of the costs order (that is to say by the end of September/beginning of October) it is extremely unlikely that there would have been any hearing by early December 2006 in front of a costs judge.

Moreover, Petromec did not apply for any order that Petrobras be required to commence detailed assessment proceedings, as the former were entitled to do under CPR 47.8(1). Had they been so keen (which I suspect they were not) to have a detailed assessment they could have easily applied under this rule. The fact that accordingly there was, at least in theory, a noncompliance by Petrobras with its obligation under 47.4 does not seem to me to be a reason why I should exercise my discretion differently and not adopt the approach that was taken in Mars.

Moreover, as Mr Hancock pointed out, in all cases where the judge is asked to make an interim order, necessarily the court will not have before it a detailed assessment. One has here the advantage of, if not a complete breakdown of the costs, at least a fairly detailed schedule running to a number of pages to support the application. Mr Vineall criticised the schedule but, in my judgment, it certainly provides sufficient material for the purposes of this application. For those reasons I reject these points made by Mr Vineall in support of his contention that no order should be made.

I turn next to the further quantum issues that he raised in relation to the application and in particular to the quantum issues which he informed the court that Petromec intends to take on the detailed assessment. The first submission is that the defendants' costs should be limited to an award of costs in relation only to the additional costs that would have been incurred in or about October 2003 had the preliminary issues and the fraud claims been tried together. In other words, the court is asked or will be asked to assume that the preliminary issues and the fraud claim had been tried together and any additional costs that can be ascribed to the fact that they were held separately, Mr Vineall submits, should be disallowed. This is, as I have said, based on the assertion that Petrobras has incurred additional costs because of the late disclosure during the trial of a document which is said to give rise to the fraud claim.

The fact of the late disclosure is recorded in paragraph 140 of Moore-Bick J's judgment of 2 February 2004, to which I refer. The document in question was a letter from Anderson Consulting to Petrobras of 8 October 1999 which makes reference to five projects, including one in Canada, which was a reference to P36 and to Anderson's understanding that the proposed work would include ascertaining the facts underlying these five contracts. Petromec's case is that had the document been disclosed on 28 February 2003 (which is the date when disclosure in relation to the preliminary issues took place), then Petromec would have amended its case to plead the fraud claim at that stage. Petromec contends that there would have been a variation of the order relating to the preliminary issues so that the fraud claim would have been heard together with the various other preliminary issues and preparation for the trial of the fraud claim would have been cheaper than it has in fact turned out to be. Accordingly it is submitted that Petromec should not be required to pay the added or “override” costs, which Petromec says have been caused by the fact that Petromec put forward the fraud claim later than they would otherwise have done.

In my judgment, largely for the reasons put forward by Mr Hancock, these submissions are unsustainable. The first submission made by Mr Hancock is that it is too late for Petromec to take this point because this is essentially an argument that should have been taken on or before 16 June 2006 when I made an order that the claimants should pay the defendants' costs of and in relation to the fraud trial. I accept that a party's conduct is relevant both in deciding what order to make about costs pursuant to CPR 44.3(4)(a) and in deciding the amount of costs on an assessment; see CPR 45.5(3)(a). However, as was established Aaron v Shelton [2004] EWHC 1162 QB (see in particular paragraphs 20 and 21 in the judgment of Jack J), in relation to costs relating to a matter concerning the conduct of the opposing party, it is the party seeking to rely on the alleged misconduct of the opposing party's duty to raise conduct matters before the trial judge making the costs order where it is appropriate to do so. In circumstances where the complaining party does not do so, it is not open to him when costs come to be assessed to raise the matter under CPR 45.5(3) as a wholesale ground for the reduction of the costs which he would otherwise have to pay.

In my judgment, that is essentially the case here. If Petromec had wanted to allege in front of the costs judge, on a detailed assessment, that there was to be a wholesale reduction in the costs that Petromec was to pay because, if there had been proper disclosure at an earlier stage, then a large proportion of the costs of the fraud trial could have been avoided because the fraud trial could have been tried with the preliminary issues then, that is a submission that clearly and on any basis should have been made to me as the trial judge at the end of the fraud trial. That submission raised a clear issue of principle which, as I have said, I was in a position to determine. In circumstances where no such contention was put forward at the costs hearing before me it is not open to Petromec to raise the point, as it were, through the back door, on the detailed assessment of costs before the costs judge. To do so would amount to an abuse of process of the type referred to in Henderson v Henderson [1843] 3 Hare 100 at 115, a well-known passage, and also of the type referred to in Yat Tung Investment Co Limited v Dao Heng Bank Limited [1975] AC 581 at 590. In my judgment, if that was going to be the tactic here then Petromec could and should have asked on 16 June 2006 at the hearing before me for the order as to costs (which they now say they are going to apply for in front of the costs judge), namely that Petromec pay only the additional costs that Petrobras would have incurred had the fraud claim been tried in October 2003 together with the preliminary issues. In my judgment, it is highly unsatisfactory that in relation to matters of that sort a party should seek to keep his powder dry.

Accordingly, for that reason alone, I would have rejected the argument put forward by Mr Vineall that, in exercising my discretion as to whether to make an interim payment, I should take account of that matter. However, it is important that I express my view about the issue so that the point does not resurface at the detailed hearing of the costs application. In my judgment, even if the argument had been raised in June 2006 that the court should make an order disallowing Petrobras any of its costs on the grounds of late disclosure of the Anderson document, I would not have made an order in Petromec's favour to reflect Petrobras’ late disclosure.

In my judgment, Mr Hancock is right on the chronology of the matter when he submits that, even if there had been disclosure of the Anderson document in 2003, the claimants would not have got their act together to plead a fraudulent misrepresentation claim so as to be ready to bring that claim on in October 2003. As will be clear from the judgment of Moore-Bick J, as he then was, the hearing in 2003 related to a number of issues, not limited to whether or not the agreement to enter into the GPA was a binding agreement between the parties. There were various other issues that were raised for determination as part of the preliminary issues.

I consider that it is extremely unlikely that, even if the Anderson document had been disclosed in 2003 there would have been added to the long list of preliminary issues the fraud claim issue. In my judgment, it is much more likely that the court would have said that the fraud issue should be tried separately in any event, once it had been determined whether or not the parties had contracted to enter into the GPA. Moreover, as Mr Hancock submitted, the document itself was not in the forefront of the argument when it came to the fraud trial, but even if an application had been made to amend the statements of case in February 2003 it is unrealistic to suppose that a fraud trial could have been heard by October 2003. There would have been need to amend both the Particulars of Claim and the Defence and the reply. There would also have needed to be an application for the fraud trial to be held at the same time as the preliminary issues. Furthermore I am not satisfied on the chronology that there would have been time to have prepared the fraud claim before the October trial date. The fraud allegations necessarily widened the scope of the trial, and a further three weeks, at least, on top of the four weeks that were set aside for the trial of the preliminary issues would have had to have been found at relatively short notice. Again, as I have already said, the fraud claim was only necessary if Petromec failed on their case to the effect that the GPA has a valid and binding agreement. In my judgment, the overwhelming likelihood is that Moore-Bick J would have directed that the fraud claim should come on subsequently. Even if the issues had been tried together, which in my view is unlikely, the fraud allegations raised wider issues and it is speculative the extent to which, if at all, any expense would have been saved by having the fraud claims tried with the preliminary issues or whether there would have simply been additional costs.

The suggestion put forward in Miss Calnan's witness statement that two-thirds of the costs of the fraud action would have been saved if the fraud trial had been tried along with the preliminary issues hearing I regard as wholly unreal and unsubstantiated. Miss Calnan was not involved with the matter at the stage of the preliminary issues and in fact only took over the fraud claim when it was close to trial. She does not attempt to substantiate this figure. Accordingly, even if arguments to that effect had been made to me at the delivery of the fraud trial judgment, I do not consider that I would have made any order depriving the defendants of the benefit of the costs order.

In any event, and importantly as is obvious from my judgment, I rejected the fraud claim in its entirety. In particular, I rejected the argument at every stage, including at the reliance stage. The fraud claim was, to put it at its most charitable, extremely weak and in those circumstances, although it was unfortunate that the Anderson document was not disclosed until a very late stage, that would be no reason to deprive the defendants of the costs of the fraud claim. As Mr Hancock submitted, the fraud claim failed because Petromec could not establish that it was well-founded. The reality is, as Mr Hancock submitted, that it should not have been pursued in the first place. For all those reasons, even if it were open to me to revisit my costs order (which I do not think that it is), I do not consider that it would be appropriate to make any revision to the order that I earlier made.

Mr Vineall relied on some general complaints about disclosure but, in my judgment, it is not necessary for me to deal with those because none of the points that are referred to in the evidence would in any event have persuaded me to disallow certain costs of the defendants on the general grounds of their alleged misconduct. Again, I make it clear that if there is any specific point in relation to whether or not costs incurred by the defendants were reasonable or proper, or otherwise exceptional, and therefore fall to be disallowed, that is a matter that the costs judge can deal with as part of the nuts and bolts exercise that he will have to perform on assessment.

I turn now to the specific points made by Mr Vineall in relation to the schedule of costs. He has helpfully produced a schedule setting out the equivalent figures for costs incurred by the claimants and their solicitors. Obviously, there may be differences depending on the firm that is used, the nature of the allegations and in particular the type of organisation that is the client organisation. In summary, the claimants' costs of the fraud trial come to a figure (including disbursements of about £100,000) of £1.6 million, as compared with the almost £3 million figure to which I have already referred of the defendants.

Against that, on the one hand, of course, the claimant is a special purpose vehicle company and the client effectively was Mr Efromovich, with whom the claimants' solicitors were dealing, as opposed to the defendants, Petrobras, which were, as my judgment described, a  cumbersome organisation with, certainly in those days, a somewhat bureaucratic structure such that one can imagine that taking instructions and statements from past and present witnesses might well have been an extremely laborious business.

In my judgment, looking at the detailed schedule which has been exhibited in the evidence before me, I do not consider that Mr Vineall's criticisms are well-founded. He complained in particular about the number of hours and the costs of the claimants' disclosure exercise. However, the reality here is that the claimants sought and obtained stringent orders for disclosure in relation to the fraud trial, which clearly involved on the defendants' part a considerable amount of work ensuring that the defendants, as state organizations, and their special purpose vehicles had adequately disclosed documents which, as was obvious from the trial documents before me, emanated from numerous files in numerous departments at Petrobras. This involved not only trips to Brazil but also work performed and supervised by Linklaters' partners in Brazil as well as in London.

In the context of the amounts claimed I do not consider the detailed figures that are set out in the costs schedule and the hours involved (at least at first sight) to be excessive, surprising or extraordinary. Again, I make it clear that I am not fettering the discretion for the decision of the costs judge when he comes to review the nitty-gritty, ie the detail of the hours involved or the work involved. All I can say is, looking, as one does, with one's experience of this type of litigation, at the figures and the hours worked and the categories of persons involved do not strike me as prima facie surprising, excessive or unreasonable.

The second complaint made by Mr Vineall was that counsel's costs totalling £1.5 million for the defendants, as compared with the £500,000 figure for the claimants, was excessive and that the comparison itself showed that to be so. However, as Mr Hancock pointed out, the only evidence relied upon to support the submission, as the claimants' schedule shows, is that Petromec's counsel fees are less. As Mr Hancock also pointed out, Petrobras are a substantial state company accused of fraud. As he submitted and as I accept, it was reasonable for Petrobras to defend a serious charge of this type in the best and most appropriate way that they considered fit. I see every reason why the defendants should choose to employ a city firm such as Linklaters with the consequent costs of employing a firm of that nature as well as leading and junior counsel of their choice.

The fees of counsel are a matter that is determined by the market and, in the light of the work that clearly was involved in the preparation and also the hearing of this case, I do not myself regard the figures there set out as prima facie unreasonable or excessive. Again, I make clear that I am not fettering or constraining the costs judge from looking at individual items when he comes to deal with the detailed assessment. The point of principle that I am addressing is that, in a case of this sort, I do not regard the employment of counsel and the utilisation of counsel to the extent that counsel were clearly utilised here as prima facie unreasonable or excessive. Accordingly, I accept Mr Hancock's submission that one cannot characterise the costs of defending these very serious fraud allegations as excessive or disproportionate to what was involved.

I conclude, in the exercise of my discretion, that there is a very real likelihood, indeed I would characterise it as a probability, that at least £1.5 million will be recoverable upon the detailed assessment. What I propose to do is notionally deduct from that figure the sum of £110,000 to reflect Petrobras' undoubted liability pursuant to earlier case management orders to pay certain costs of Petromec; and Mr Vineall fairly accepted that such a figure was an appropriate one for the notional set-off. Secondly, I propose to deduct another £100,000 by way of caution, bearing in mind that the authorities suggest that one should as a judge hearing an interim payment adopt a cautious and conservative approach to such applications. I do so not because I have any conviction that the figure will come down from £1.5 million, but because I think it is appropriate that a conservative approach should be adopted; it may be that on a detailed assessment the costs judge may come to the conclusion that certain aspects of the retention of counsel, for example, or certain aspects of the way in which the litigation was conducted were not reasonable. I regard my approach as an extremely conservative approach, given, as I have said, that the total amount of costs sought is almost £3 million. Accordingly, I will make an order in those terms, which (if my arithmetic is right) is a figure of £1.29 million. Accordingly I so order.