The Court of Appeal recently handed down its decision in the biggest costs case in English legal history, Motto v Trafigura Ltd, wherein it clarified the test for proportionality that applies when costs are assessed on the standard basis.
Trafigura is a group of companies involved in the trading of oil, ore and minerals. In August 2006 Trafigura appointed a local contractor in Abidjan, Ivory Coast to dispose of waste products. The contractor allegedly fly-tipped the waste illegally at various locations around Abidjan. In the following weeks, tens of thousands of people in the area reported a similar range of symptoms, including breathing problems, headaches, vomiting and diarrhoea.
Greenpeace International was asked to be part of an international commission inquiry into what happened. In October 2006 the organisation asked Leigh Day & Co to provide legal assistance to the victims that had contacted them. Leigh Day began identifying claimants and eventually had nearly 30,000 claimants, all signed up with conditional fee agreements, 100% success fees for both solicitors and counsel, and after-the-event insurance.
In September 2009 a settlement agreement was concluded. Trafigura agreed to pay damages of £30 million and the claimants' costs on a standard basis, subject to detailed assessment if not agreed.
Leigh Day prepared and served the bill on the defendants, which totalled over £104 million. Unsurprisingly, the claimants' costs were not agreed. However, the parties agreed that a costs judge should determine a number of preliminary issues before carrying out a detailed assessment. The case was referred to Chief Master Hurst, the senior costs judge.
One of the preliminary issues before the judge concerned the correct approach to adopt when assessing the proportionality of the claimants' costs on the standard basis. The established position on proportionality of costs had been set down in Lownds v Home Office, in which Lord Woolf formulated a two-stage approach. The first stage is to ask whether the total sum claimed is proportionate. The second stage depends on the answer to the first. If the total sum is proportionate, all that is normally required is that each item be reasonably incurred and that the amount claimed be reasonable (as stipulated by Civil Procedure Rule 44.5(1)(a)). However, if the costs as a whole are deemed disproportionate, the claiming party must prove that the work done on each item was necessary and that the costs incurred were reasonable.
The judge stated that the overall costs appeared to be disproportionate. However, departing from Lownds, he held that even if this were so, it would not preclude the court from deciding, on assessment, that an item or a number of items within the overall costs were proportionate, and thus that the test of necessity should not apply to them.
The judge in Trafigura based his decision on the judgment in Giambrone v JMC Holidays. The judge in that case had stated that:
"For my part I do not accept that if a Costs Judge has ruled at the outset of a detailed assessment that the bill as a whole is not disproportionate, he is precluded from deciding that an item or a number of items are or appear disproportionate having regard to the 'matters in issue'."
Trafigura appealed against the decision on this point of principle. The parties also appealed a number of other issues.
The Court of Appeal decided unanimously that the judge should not have departed from the decision in Lownds on the issues of proportionality.
Referring to the reasoning for having done so, the Court of Appeal held that the decision in Giambrone applies only where the global costs appear to be proportionate. In such circumstances, it is entirely acceptable at detailed assessment for a costs judge to determine that an item is disproportionate, notwithstanding that the overall costs appear to be proportionate. However, affirming the reasoning in Lownds, the court held that where the global costs appear to be disproportionate, as in Trafigura, each item must pass the test of having been necessarily incurred in the litigation, as well as being reasonable in amount.
The court was also reluctant to depart from the approach established by Lownds for a number of practical reasons:
The approach is well understood by those concerned with assessing costs.
It is particularly important in the vexed area of legal costs that the law is simple and clear and that that the courts adopt a consistent approach.
The approach represents a good way of maintaining a degree of financial discipline in the thinking and actions of lawyers acting in contemplated or actual litigation.
The Court of Appeal's decision is welcomed as a clarification of the approach that should be adopted on the issue of proportionality on a costs assessment.
Furthermore, the comments highlight the court's desire to concentrate lawyers' minds on the proportionality and necessity of the costs incurred in litigation. This is in keeping with Lord Jackson's recommendations in his review of litigation costs, which were accepted by the Ministry of Justice earlier in 2011.