The Bodo Community & Ors v Shell Petroleum Development Company of Nigeria Ltd

I handed down judgment on 8 preliminary issues on 20 June 2014 and issues arise on the question of the costs of the preliminary issues exercise. Much of the argument surrounded the extent to which each party won or lost on a number of the issues and as to whether an issues based costs order should be made. Reference can be made to the judgment reported on Bailii at [2014] EWHC 1973 (TCC).

The issues were:

It is accepted by the Claimants that Shell “won” on Issues 3, 4, 5 and 7 and there is no need for me to address those.

It is accepted that in the result Shell won on Issue 1 in that I decided that the OPA provides an exclusive remedy to such claimants as can claim compensation for oil spills from the pipelines in question in that it supersedes the common law. It is argued by Mr Hermer QC for the Claimants however that, although Shell should have 70% of its costs of this issue, the Claimants should have 30% of its costs of the issue because they won on what is said in effect to be the pleaded basis of the Defences, namely that Section 32 of the Interpretation Act was conclusive on the supercession issue. However, no pleading point was taken by the Claimant at any time during the argument, and I had assumed that the Claimants accepted that the pleadings covered the overall defence run during the preliminary issue, namely that by considering the statute as a whole and in context it did supercede the common law, albeit that part of the context was the Interpretation Act. I have considered the pleadings and do not consider that the way that the Defences are drafted in this respect excluded the arguments upon which Shell “won”. It is true that Shell did assert in its pleadings that the Interpretation Act did establish its point on this issue (and its expert, Justice Ayoola, did devote a fair part of two of his reports on this point) and on that argument it failed, but this was one of many other points of argument upon which Shell won. When the Claimants’ solicitors raised in correspondence in late November 2013 a query as to whether Shell’s case on Issue 1 was limited to the Interpretation Act point, they were told clearly on 4 December 2013 by Shell’s solicitors that it was not. Shell’s law expert’s reports were not limited to the Interpretation Act point on Issue 1. I do not consider that there is any room for concluding other than Shell won this issue substantively and substantially.

Issue 2 falls into a different category. Although I answered Issue 2 nominally in Shell’s favour, that was on a point that was effectively not in issue, namely that Shell was not liable for oil spills caused by illegal bunkering without proof of neglect; this was a point that was not in contention and followed what was in effect a drafting of the issue which did not reflect the real argument. Shell’s primary argument was in effect that a failure to protect only related to protection against deterioration by the natural elements; thus, it argued that the provision and maintenance of cathodic protection for instance was the type of work envisaged by the word “protect” in Section 11(5)(b). It argued that the malicious act defence available under Section 11(5)(c) was in effect transposed from that sub-section to the sub-section before, that there was ambiguity sufficient to enable the Court to consider the legislature debates which it wrongly argued (as I found) provided clarity on this suggested “ambiguity” and that statutory regulations passed some years after the original Act could be used to interpret that Act. However, the Claimants argued forcefully that, in effect, “protect” covered the equivalent of police and paramilitary defence of the pipelines and they lost on that. I found that, whilst the word “protect was not synonymous with “maintain” and “repair” and that the legislature must have intended to differentiate between Sub-sections (b) and (c), it was “conceivable however that neglect by the licencee in the protection of the pipeline (as defined above) which can be proved to be the enabling cause of preventable damage to the pipeline by people illegally engaged on bunkering which causes spillage could give rise to a liability; this may be difficult to prove but there is that theoretical possibility” but that I could “not at the moment see that damage caused from illegal refining by criminal gangs of crude oil criminally taken from pipelines which have been broken into could fall within a duty “to protect” (Para. 93). I also found that the word “protect” did not cover policing or a military or paramilitary defence of the pipeline. I also found that the word “protect” also covered, albeit not exclusively, matters such as protection against natural elements. I therefore regard this, in the sporting terms used by Counsel, as a score draw, albeit that the Claimants could be seen as having had more possession of the ball than Shell.

As for Issue 6, I found that it was inappropriate and unfair to decide at that stage that issue which went to the applicability of Section 30 of the Civil Jurisdiction and Judgments Act 1982 and in effect decided to defer consideration until considering individual claimants’ cases. Each party argued exactly opposite points, with the Claimants saying that the Court obviously had jurisdiction and Shell that it obviously did not albeit not in relation to every claimant. This is obviously either a draw or a postponed match, in sporting terms, with neither side winning or losing. It is clear that the work done on developing the arguments on each side will come in useful at a later stage.

Finally, Issue 8 related to any entitlement to interest. It was originally formulated to address an argument by Shell that, as interest was not recoverable under Nigerian law, it was not in any way recoverable; this was initially challenged by the Claimants but by mid-February 2014 this challenge was abandoned, albeit that it wanted to continue arguing that interest was recoverable under the Senior Courts Act 1981 by way of discretion. Even this remained in issue until Shell in effect abandoned any objection which it might have in principle to interest being awarded by way of discretion, albeit that it reserved a right to argue that as a matter of discretion the rate should be nil. This was in any event a minor issue which in all probability did not create much work for the parties’ legal teams.

I consider that it would be inappropriate to award costs on an issue basis. Such an approach would unnecessarily complicate any costs assessment and it would certainly and materially add to the costs of effecting a costs assessment. Patten J (as he then was) in Dyson Technology Ltd v Strutt [2007] EWHC 1756 (Ch) referred to the difficulties that such orders can create:

“6…but the implementation of orders of this kind or indeed for any kind of division of costs in relation to specific issues can involve the parties and the costs judge in extensive further litigation in the course of the detailed assessment, during which the whole history of the action is scrutinised in order to determine which part of any expenditure related to which issue. In the present case, Master O'Hare was sensibly asked by the parties to make certain preliminary rulings as to the principles on which the division of the common costs should be approached. But I am told that this process has so far generated tens of thousands of pounds in additional costs and that the hearing of the detailed assessment has been allocated a further four days of court time. There is therefore every prospect that the length of time taken in the assessment of costs will exceed the length of the trial itself and add vastly to the costs of the litigation in general. These matters need, I think, to be borne firmly in mind by a trial judge who is asked to make a complicated order for costs. There is much to be said for the application of the general rule that costs should follow the event and for keeping to the simple formula of orders for a stated proportion of the costs or a stated amount of costs in cases where recognition of a limited degree of success by one or other party is called for.”

Mr Justice Jackson (as he then was) counselled against it in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC) when he said:

“72.

From this review of authority I derive the following eight principles.

(i)

In commercial litigation where each party has claims and asserts that a balance is owing in its own favour, the party which ends up receiving payment should generally be characterised as the overall winner of the entire action.

(ii)

In considering how to exercise its discretion the court should take as its starting point the general rule that the successful party is entitled to an order for costs.

(iii)

The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case.

(iv)

Where the circumstances of the case require an issue-based costs order, that is what the judge should make. However, the judge should hesitate before doing so, because of the practical difficulties which this causes and because of the steer given by rule 44.3(7).(v) In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order…

(viii)

In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs.”

I have formed the view that 10% of the costs of and occasioned by the preliminary issues should be costs in the case, particularly in the context of Issue 6 involving the Court primarily of its own motion declining to decide that issue now and deferring it; a fair amount of the costs of that issue will not have been wasted. Of the balance of 90%, the Claimants should pay 75% of Shell’s costs (i.e. 67.5% of these overall costs) and the full 90% of its own costs. This reflects Shell’s success on Issues 1, 3, 4, 5 and 7, my assessment that a proportionally large part of the costs are likely to have been applied to Issues 1 and 3, the fact that Issue 2 was a draw in effect and practice and the fact that, although the initial issue on Issue 8 was based on a point which was abandoned by the Claimants, Shell maintained a challenge on the rump of the issue until nearly the 12th hour.

By agreement, the question as to whether there should be a payment on account of this costs order was deferred, following Mr Hermer’s argument in relation to the funding of the Claimants’ case by way of After the Event Insurance. I observed that, although the Court would not generally order the production of the policy at least at this stage, his clients might have to agree to produce it to underpin and corroborate any argument based on the cover provided and what it says or does not say.