Motto & Ors v Trafigura Ltd & Anor

This judgment supplements my judgment dealing with Key Issue 14, the ATE premium, handed down on 12 April 2011.

At paragraph 104 of that judgment I summarised Mr Bacon’s submission that the original figure of £14.6 million put forward as the figure for the Defendants’ costs was the figure for costs actually billed to Trafigura. The client had been billed for other costs outside the events in Abidjan. At paragraph 136 I noted Mr Williams’ submission that the original figure of £14.6 million supplied by the Defendants’ Solicitors had remained unchanged through the exchange of Points of Disputes and Replies over the course of 12 months, and had been relied on by the Defendants to compare with the Claimant’s costs claim. The judgment concluded:

The Defendants chose the second option, and Mr Nurney signed his ninth witness statement on 2 June 2011. That witness statement went into considerable detail (in 20 exhibits) and dealt with the various heads of costs where it was suggested that incorrect figures had been used in arriving at the Defendants’ costs figure of £14.6 million.

Mr Day signed a witness statement in response on 10 July 2011, expressing surprise that it was only at this late stage that the Defendants’ Solicitors had analysed the detail of their costs figure.

Mr Nurney signed his tenth witness statement in response to Mr Day on 13 July 2011. In that statement he adjusted the figures for the Defendants’ costs further by making certain concessions. The final figure being put forward for the Defendants’ costs being £10,541,291.54.

It is necessary to look at the correspondence between the parties which deals with the question of insurance and the amount of the Defendants’ costs. During the course of argument I was taken to the following:

In a letter of 28 February 2007 (2(2)/12/920) from Macfarlanes to Leigh Day, which was not referred to in argument, Macfarlanes explained:

In another letter, dated 5 August 2008 (2(2)/12/921), from Macfarlanes to Leigh Day it was stated:

On 1 September 2009 Macfarlanes wrote to the Listing Officer in the Queen’s Bench Division (2(2)/12/922), copying the letter to Leigh Day, enclosing their clients’ pre-trial check-list, costs estimate and trial timetable. The letter concludes:

That letter was accompanied by a document dated 1 September 2009, headed “Defendants’ Estimate of Costs”:

In his eighth witness statement of 1 November 2010 Mr Nurney stated:

At the hearing before me on 6 December 2010 Mr Gibson informed me:

On 10 December the following exchange took place:

It was at the hearing before me on 27 and 28 January 2011 that the Defendants first sought to argue that the figure of £14.6 million was not the appropriate figure on which the First Assist premium should be calculated. Mr Williams pointed out that this was a new point which had not been raised in the Points of Dispute:

Mr Bacon explained:

On 16 March 2011 the Defendants, having previously stated on 2 December 2009 that their costs were £14.6 million, produced a document (2(1)/2/351), stating:

The document then went on to make reductions under various heads, ie: solicitor and own client costs; ancillary costs; injunction and evidence costs; overheads; other lawyers; and, experts’ fees:

Reductions totalling £4,241,128.30 were made in respect of these heads under the headings profit costs, counsel, disbursements and experts. This produced a net figure of £10,393,031.70.

Paragraphs 1 to 9 of the judgment of 12 April 2011 set out the terms of the policy, which I do not need to repeat. The Defendants’ submissions relating to this issue appear at paragraphs 86 and 101 to 104. The Claimants’ submissions are at paragraphs 135 to 137. My conclusions are at paragraphs 161 to 171.

It is necessary to set out that part of the policy wording directly relevant to this issue. Under Definitions “Adverse Costs” are defined as:

Under the heading “PREMIUM RATE” the policy states:

Adverse Costs

In the Schedule to the Policy the following appears:

The multiplier is stated to be 61.923% (plus IPT at the prevailing rate).

Mr Bacon presents his arguments under two heads, namely: the contractual argument based on the interpretation of the policy; and, secondly, what he calls the reasonableness argument. He submits that the correct measure of the Defendants’ costs for the purpose of calculating the premium (described as the “costs of the opponent” in the policy) is the amount which would have been recoverable from the Claimants on an assessment between the parties had a costs order been made in the Defendants’ favour. He suggests that this is “the same concept” as that defined in the policy as “adverse costs” which is used to set the limit of exposure of the insurer First Assist, in the event of an order for costs being made against the Claimants. He therefore argues that the premium must be assessed by reference to what the Defendants’ reasonable and proportionate costs were, ie, what they would have recovered from the Claimants.

Mr Bacon submits that within the policy wording there is no definition of “opponent’s costs”, or of “actual costs”. There is no provision as to the timing of when the figure for defendants’ costs is to be provided, but there is a requirement that that figure be certified. He also points out that under the definition of “premium rate” the policy also refers to “the value of the opponent’s costs”. In those circumstances he argues that the phrase “opponent’s costs” has no clearly defined status. Accordingly the court should give a purposive and sensible meaning to the words “opponent’s costs”, and should seek to serve the commercial purpose of the contract.

Mr Bacon therefore asks the court to construe “opponent’s costs” as “adverse costs”, in accordance with the definition in the policy. His point being that the insurer, First Assist, should rate its premium only against its actual exposure, rather than the whole of the defendants’ costs, part of which might not be recoverable from a paying party on a standard basis assessment. Anything else, he said, would result in a manifestly unjust result.

With regard to timing, the Defendants’ position is that they have never certified the figure for costs (although the Claimants argue that their statement of 2 December 2009 is a formal declaration which equates with certification). Mr Bacon argues that this was not a formal declaration of costs, and should not be treated as certification, particularly given that Mr Nurney in two further witness statements has explained the lower figures now sought to be relied upon, and indeed admitted certain errors in those figures. In his submission, therefore, the contract does not bind First Assist or the court to the first figure given by the Defendants. The Defendants themselves are, of course, not parties to the contract. Mr Bacon suggests that if there had ever been a certification of the Defendants’ costs, it was in their document of 16 March 2011 when they put forward a figure of £10.3 million as the figure for Defendants’ costs.

Mr Bacon submits that the Defendants should have been asked for the adverse costs figure. They did not have the policy terms, and although they requested a sight of the terms, that was refused. He rejects the suggestion that the policy terms were available on the First Assist website, pointing out that this was group litigation which had specific terms in the policy schedule, and may have had other terms not published by First Assist.

It was only having been given sight of the policy terms that the Defendants appreciated that the policy required a figure for “adverse costs”.

Finally, in support of his contractual argument, Mr Bacon submits that the Defendants have now certified their costs (at £10.5 million) in Mr Nurney’s tenth witness statement.

Turning to his reasonableness argument, Mr Bacon relies on a passage from my judgment in the RSA Pursuit Test Cases (SCCO 27 May 2005, unreported):

In those proceedings an earlier version of the RSA Pursuit policy had relied on estimates of costs in order to arrive at the premium. The estimates, which were in some cases wildly inaccurate, gave rise to some anomalous premiums, and in order to arrive at premiums which reflected the actual exposure of the insurer, the figures for the actual costs were utilised. I was told, during the course of that hearing, that the Pursuit policy was already in the process of being amended and revised. Mr Bacon’s reasonableness argument is that any assessment of the reasonableness and proportionality of the premium must itself have regard to what the Defendants say in relation to their contractual argument. In other words, the premium should be based on First Assist’s actual exposure.

Dealing with the costs estimate given with the pre-trial check-list, which Mr Williams relies on as giving an accurate picture of the Defendants’ costs as at 1 September 2009, Mr Bacon says, on instructions, that the same mistake was made in respect of those figures, in that they included all costs listed by Macfarlanes under the Trafigura litigation file number. In any event, Mr Bacon points out that costs estimates are notoriously unreliable, and Section 6 of the Costs Practice Direction recognises that there may be a difference of 20% between the base costs claimed by a receiving party, and the costs shown in an estimate of costs. It is only if the difference is 20% or more that the court may regard the difference between the costs claimed and costs shown in the estimate as evidence that the costs claimed are unreasonable and disproportionate.

In paragraph 9 of his skeleton Mr Williams suggested that, in the run up to trial, First Assist relied on the Defendants’ pre-trial estimate of 1 September 2009, namely £12,564,326 (a figure which included some stage payments of brief fees). Mr Williams suggested that First Assist had used that figure to assess its exposure, and to reserve insurance capacity “which thereby ceased to be available for deployment and therefore the generation of income in other cases”. Mr Bacon takes issue with that proposition, since Mr Peter Smith in his fourth witness statement, dated 7 February 2011 said:

Finally, referring to paragraph 11 of Mr Williams’ skeleton, where he states:

Mr Williams submits that it is most unlikely that Mr Nurney could have thought that his firm was being asked to provide a figure for costs, which included not only the litigation costs, but also a range of unrelated irrecoverable costs. The costs estimate accompanying the pre-trial check list of 1 September 2009 was seven weeks before trial.

Mr Williams relies on the estimate of £12,564,326.28 as being an accurate estimate of the costs of the proceedings up to that date. There was, he says, no question of Macfarlanes being misled at that point by any letter from Leigh Day, nor of their being confused as to the terms of the First Assist policy.

In his submission the purpose of the pre-trial costs estimate is perfectly plain, and the suggestion that the same mistake was made in respect of this costs assessment, as was made in the letter of 2 December 2009 is surprising, and it is not plausible to suggest that the Defendants could have thought that the Claimants were seeking a figure for all the costs incurred by Trafigura. If a mistake has been made, then that mistake should not be laid at the Claimants’ door.

Dealing with Mr Bacon’s contractual argument, Mr Williams submits that “adverse costs”, as defined in the First Assist policy, only comes into play if the case has been lost, in which case no premium is payable. Where the case is won, the definition of “adverse costs” does not apply; the premium is payable by the paying party and is based on the actual costs of the paying party. The use of “actual costs” is, as Mr Williams explains, in order to calculate the premium by using the insurer’s actual exposure.

Dealing with Mr Bacon’s argument, to the effect that “adverse costs” and “actual costs” should be given the same meaning, Mr Williams submits that had that been the intention of the drafter of the policy the same words would have been used within the policy.

If the case is lost, the “adverse costs” will be paid by the insurer, and will be assessed. If the case is won, the premium will be based on the “actual costs”, which will never be assessed. Accordingly, the court should not enter into a quasi assessment of the Defendants’ costs in order to arrive at a figure lower than £14.6 million. Mr Williams argues therefore that Mr Bacon’s contractual argument does not work, and that the wording of the policy is clear, and the premium should be calculated on the figure for actual costs as certified by the Defendants.

It is Mr Williams’ case that the Defendants have certified the costs of £14.6 million, and he argues that the use of the words “as certified by the opponent’s solicitor” does not have the same meaning as a certificate at the end of a bill for detailed assessment, as discussed by the Court of Appeal in Bailey v IBC Vehicles Ltd[1998] 3 All ER 570. He submits that, in accordance with the terms of the policy, the premium becomes payable when the outcome of the legal proceedings is a success, and the figures used for the calculation of the premium rate and premium in respect of opponent’s costs are the actual costs of the opponent as certified by the opponent’s solicitor. In that context, he says, certification means: stated in some formal or validated way. The costs have to be stated by the opponent’s solicitor, which, Mr Williams submits, imports a higher duty than if the statement came from the opponent personally.

If the paying party fails to provide a figure for its costs, the premium is, in accordance with the terms of the policy, calculated by using the Claimants’ costs. Mr Williams submits that Leigh Day’s letter of 2 February 2007:

In his submission Macfarlanes letter of 2 December 2009:

Mr Williams argues that the exercise upon which the Defendants have embarked is the opposite of what would in fact have happened had the case been lost. In that situation the Defendants would, he says, have instructed costs draftsmen to draw up a bill of costs maximising, so far as possible, their potential recovery. In the present circumstances their costs draftsmen have been instructed to analyse the figures for costs which have been put forward, and to suggest how those figures could and should be reduced. It would, he says, be wrong for me to carry out some sort of notional assessment, which would be an artificial and unreal exercise, since I do not have any details of the other side of the picture, namely those items which the costs draftsmen would have included and tried to recover had the Defendants been entitled to their costs. The policy refers quite simply to “actual costs”, and there is no reference to any type of notional assessment of those costs.

Whatever method is used to calculate the appropriate figure for the Defendants’ costs, both sides agree that the figure for opponents’ costs must reflect the costs the opponent would actually have claimed if the litigation had been unsuccessful (see paragraph 35 above). Mr Bacon’s contractual argument fails for the reasons put forward by Mr Williams, which I accept, see paragraphs 39 to 41 above.

With regard to Mr Bacon’s reasonableness argument, and his reliance on the excerpt from my judgment in the RSA Pursuit Test Cases:

The first in time is the document of 2 December 2009:

This figure was put forward in the knowledge of the information contained in the letter of 2 February 2007 from Leigh Day to Macfarlanes, informing them:

The figure given by the Defendants sits comfortably with the figure of £7.5 million stated in Macfarlanes’ letter to Leigh Day of 5 August 2008, and their pre-trial estimate of 1 September 2009 indicating costs to date of £12.5 million with an expected increase to £16.9 million had the matter concluded after a ten week trial. In the event, the action was concluded by a Tomlin Order, dated 23 September 2009. It may, therefore, safely be assumed that a great deal of work and negotiation was undertaken by both parties between 1 September and final settlement.

On 1 November 2010 Mr Nurney signed his eighth witness statement, which ran to 349 pages and had a mass of exhibits. This witness statement formed the basis of the Defendants’ case in respect of the key issues. Some idea of the work undertaken on the Defendants’ behalf may be gleaned from paragraph 11.1 on page 76, under the heading “Analysing the Bills”:

In my judgment, given the amount of time and effort that was expended on analysing the Claimants’ claim for costs, it is most unlikely that the figure of £14.6 million for Defendants’ costs was put forward by the Defendants without further thought as to what that figure represented.

The next costs statement from the Defendants is dated 16 March 2011, and amounts to £10.3 million:

Mr Nurney in his ninth and tenth witness statements has gone to considerable lengths to justify the final figure now put forward on 13 July 2011 of £10,541,291.54.

It is the Defendants’ case that until they had seen the actual policy wording, they were not aware of the contractual position under the policy. Both Mr Day, in his witness statement, and Mr Williams express surprise at this, and I share that surprise. This litigation has been hard fought throughout, and in respect of the 22 Key Issues, the Defendants have carried out copious investigation and analysis. They have also repeatedly stated in argument that their costs are some £14 million in contrast to the Claimants’ £105 million.

The Defendants gave a pre-trial estimate of £12.5 million to £16.9 million to the end of trial. Section 6 of the Costs Practice Direction deals with estimates:

It is difficult to accept that those required to provide costs information and costs estimates to the court and the Claimants would simply have put forward total figures for costs under the particular file number, rather than trying to extract the costs which actually related to the litigation. Some indication that that has been done may be drawn from the letter of 2 December 2009, where the figure of £14.6 million is broken down into profit costs, counsels’ fees, disbursements and experts’ fees. In my judgment this exercise would have thrown up irrecoverable or non litigation costs, which would quite simply have been left out of account in preparing the pre-trial estimate of 1 September 2009 and the letter of 2 December 2009.

Mr Bacon points out that at paragraph 169 of my judgment of 12 April 2011, I state:

In that context I was expressing the view that there had not been a formal certification such as one would normally see at the end of a bill for detailed assessment. I had, at that stage, not heard any argument as to what might constitute certification, and the position now is that Mr Williams argues that the letter of 2 December 2009 was a sufficiently formal declaration of the Defendants’ costs to constitute certification, it having been confirmed on more than one occasion by Mr Nurney in his eighth witness statement, and by Counsel before me in argument. Mr Bacon argues that the figures in the 16 March document as amended by Mr Nurney’s ninth and tenth witness statements, culminating in the figure of £10.5 million, should stand as the appropriate certification of the Defendants’ costs. The difficulty with that submission is that it ignores the existence of Mr Nurney’s eighth witness statement.

For the reasons I have given, therefore, I find that the statement of 2 December 2009 is the Defendants’ certification of their costs in accordance with the policy terms. If that figure was wrong, then the figure to be used for calculating the premium is the figure for the Claimants’ costs, which would, on the face of it, produce a very much higher premium. The Claimants, however, have indicated that they would limit their claim in such circumstances to the premium calculated using the Defendant’s figure of £14.6 million.

As Mr Williams submitted, the fact that the Defendants may have made a mistake with their costs figure is not something which should be placed at the Claimants’ or First Assists’ door.

The First Assist premium should, therefore, be calculated using the Defendants’ figure of £14.6 million put forward on 2 December 2009.

Although that deals with the issue before me, I think it is appropriate for me to express a view about the Defendants’ suggested lower figures, in case my decision is wrong.

This exercise is not entirely satisfactory, since the Defendants have gone out of their way to minimise what they say the actual recoverable costs would be, whilst the Claimants argue that had the Defendants been successful, their costs draftsman would have worked hard to include every possible item which might be recoverable. Secondly, this is not a detailed assessment of the Defendants’ costs. I have not seen their papers, save to the extent that they have been exhibited to Mr Nurney’s witness statements. The best I can do is to express a view as to the Defendants’ contentions.

The Defendants seek to reduce their costs under the following heads:

costs of ancillary work;

injunction costs;

solicitor/client costs;

administrative costs/overheads;

costs associated with experts not relied upon;

costs of other Trafigura lawyers; and

a 15% overall reduction.

Although Mr Nurney has set out in considerable detail the invoices, and other documents upon which he relies, and although Mr Day has raised queries in respect of a number of items to which Mr Nurney has replied, I, not having heard full argument or seen the entirety of the underlying papers, can do no more than express a view as to the likely outcome.

Costs under this head were said to have been incurred in relation to the giving of unrelated environmental advice, dealing with insurance issues and liaising with public relations experts. The ancillary expenses included disbursements and experts’ fees, as well as Macfarlanes’ fee earners own time. Initially ancillary costs were apparently itemised separately by Macfarlanes, and those costs represented 17% of the total billed between August 2008 and September 2009. The Defendants have applied a reduction of 12% in respect of the period from December 2006 to August 2008, producing the figure of £739,966.55 (see Mr Nurney’s ninth witness statement, paragraph 29).

Disbursements under this head amount to £1,219,193.70, and there is an issue as to the extent to which the fees of Olton and Acyan should be taken not to be costs of the litigation. That is not an issue which I can resolve on the information before me. Similarly, with regard to experts’ fees totalling £66,501.41, issues arise as to the extent to which these items were, or were not, costs of the litigation.

These figures were further modified by Mr Nurney in his tenth witness statement, and were reduced by £159,286.56 (see Nurney WS9, paragraphs 51, 56, 62 and 80). Assuming that Mr Nurney is found to be correct in his analysis of the non litigation cost of ancillary work, this represents a total reduction of £1,866,375.

This item refers to what has come to be known as the Bou incident, in which Macfarlanes, acting on advice from leading and junior counsel, met with two Claimants in early 2009. In March 2009 Leigh Day obtained an injunction to prevent the Defendants from contacting the Claimants. The injunction was continued by agreement through to settlement of the case. The costs involved amount to £200,000 in respect of profit costs and counsels’ fees, and a further £21,095 disbursements. The Defendants argue that these costs would not, in the event, have been recoverable from the Claimants. In this connection I accept Mr Day’s submission in his 19^th witness statement, to the effect that during settlement discussions Counsel for the Defendants provided the Claimants’ counsel team with a rationale as to why the Defendants had gone about obtaining the evidence. That explanation was sufficient for Leigh Day to agree not to pursue the matter further with the SRA, and to agree to the statement on the issue within the agreed statement. Whilst acknowledging that the Claimants would have disputed this item in any bill, he submits, and I accept, that the Defendants would undoubtedly have argued that it was reasonable for them to have undertaken the work which they did. Thus, First Assist was unquestionably on risk for those costs.

Under this head the profit costs are said to total £382,786.15 profit costs, and £118,129.52 disbursements. In addition, there are experts’ fees of £47,647.76. This was subsequently reduced by £10,000 (see paragraph 110 of Nurney 10). This work was said to cover work not related to the litigation, for example large scale meetings with other Trafigura instructed lawyers from Europe and the Cote d’Ivoire, to enable Trafigura to gain an understanding of the legal matters proceeding in other jurisdictions and their interaction/timing, as well as drafting documents for and attending meetings with banks and other third parties. The £10,000 reduction conceded by Mr Nurney was as a result of points raised by Mr Day in his witness statement. I do not have sufficient material to take the matter any further under this head.

The Defendants seek to deduct £54,639.56 profit costs in respect of administrative/overheads. Disbursements totalling £43,767.59, and experts’ fees of £1,983.61 have also been deducted. This is said to relate, in essence, to trainee time spent on administrative tasks, as well as unrecoverable disbursements, such as catering, secretarial overtime, taxis and couriers. Mr Day points out that there is no print out of the time recording to enable him to make a proper assessment. Again, I have insufficient material to enable me to reach a concluded view.

Under this head the Defendants seek a reduction of £50,000 in respect of lawyers’ time (no reduction has been made in respect of counsels’ fees). They also seek a reduction in respect of disbursements and experts’ fees of £148,750.

Key Issue 6 related to experts’ reports, and I dealt with this at paragraph 260 ff of my judgment of 15 February 2011, in which I accepted in principle the Claimants’ submissions, so that the costs of experts who were not used would be recoverable to the extent that it was reasonable to instruct those experts, and the costs were reasonable and proportionate. The same principle should apply to the Defendants under this head.

Under this head the Defendants seek a reduction of £63,636.72 in respect of disbursements associated with their overseas lawyers. These include disbursements incurred by Macfarlanes in travelling to meet the overseas lawyers, so as to remain abreast of developments in their jurisdictions, and also the fees of the overseas lawyers themselves where Macfarlanes were asked to deal with them by the Defendants. Again I have insufficient information to enable me to express any concluded view under this head.

The Defendants seek to reduce the balance of profit costs and counsels’ fees by a further 15%

Given the painstaking analysis of the costs which has been carried out and explained in Mr Nurney’s ninth and tenth witness statements, I do not accept that any further reduction should be made. As I stated earlier, the object of this exercise by the Defendants has been to minimise the level of their costs. In many areas I have been unable to express a view, because of lack of evidence, but, even accepting Mr Nurney’s evidence, I am of the view that there are items which should not be deducted from the figure for Defendants’ costs. These items are those relating to: the Bou incident, £221,095; experts not relied on, £198,750; and the 15% deduction, £1,104,236. Thus, a total of £1,523,986.95 should be added to the Defendants’ figure of £10,541,291.54 at paragraph 135 of Mr Nurney’s tenth witness statement, giving a total of £12,065,277. Were I to undertake a more detailed examination, which I do not intend to do, the final figure could well be higher than this.