Motto & Ors v Trafigura Ltd & Anor (Rev 3) [2011] EWCA Civ 1150

[2011] EWCA Civ 1150Case No A2/2011/1066
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
SENIOR COURTS COSTS OFFICE
The Senior Costs Judge
Case No HQ06X03370 & others
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 12/10/2011
Before
THE MASTER OF THE ROLLSLORD JUSTICE MAURICE KAY, VICE-PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISIONLORD JUSTICE HUGHES
Between
YAO ESSAIE MOTTORespondent& OTHERSRespondent(1) TRAFIGURA LIMITEDAppellant(2) TRAFIGURA BEHEER BVAppellantYAO ESSAIE MOTTO& OTHERS Respondents Claimants- and -(1) TRAFIGURA LIMITED (2) TRAFIGURA BEHEER BV Appellants Defendants
Charles Gibson QC, Nicholas Bacon QC, Malcolm Sheehan, and Daniel Saoul (instructed by Macfarlanes LLP) for DefendantsChristopher Butcher QC, Richard Hermer QC and Benjamin Williams (instructed by Leigh Day & Co) for ClaimantsHearing Hearing date: 27-29 June 2011
Judgment

The Master of the Rolls:

[1]This appeal and cross-appeal raise a number of points arising out of three full and careful judgments of the Senior Costs Judge, Peter Hurst (“the Judge”), dealing with over twenty preliminary issues ahead of a detailed costs assessment. That assessment followed the settlement of a group action brought by nearly 30,000 individual claimants against Trafigura Ltd and its associated Netherlands company, Trafigura Beheer BV (to whom I shall simply refer as “the defendants”) for personal injury.[2]The Judge gave permission to appeal to the defendants on some of the issues for which they sought permission to appeal, and the claimants were also given permission to cross-appeal on a limited number of issues. Cox J (correctly, in my opinion) decided that at least some of the issues were of sufficiently general significance to justify the appeal and cross-appeal being heard by this court.[3]The basic facts are helpfully set out by the Judge in the first of the three judgments below (“the main judgment”), and the ensuing summary is largely taken from there.[4]The defendants are members of the Trafigura group of companies, who are very substantial independent oil traders and extractors and traders in ores and minerals. The defendants chartered ships to carry crude naptha which was contaminated with mercaptans (which are sulphur-containing compounds), but it could be made suitable as blendstock petrol by treating it with caustic soda. They looked for suitable locations at which to treat, or wash, the naptha with caustic soda, as such washes are banned in many countries.[5]Two washing operations were carried out in La Skhirra, Tunisia, but, apparently because of the fumes, no further operations were permitted there. Accordingly, another cargo of naptha which the defendants had taken on board their chartered motor tanker, Probo Koala (“the tanker”) in early April 2006, was not discharged there. Since the tanker had the necessary tank and pumping systems, the defendants decided to carry out the washing operations on board.[6]Washing on board the tanker took place off Malta between April and July 2006. The liquids resulting from the washing operation (“the slops”) were allowed to separate and settle, and were then drained to the slop tanks. The total of 544 cubic metres of slops consisted of a mixture of a highly alkaline water solution and an oily liquid, both contaminated with various compounds, including disulphides and mercaptans.[7]The defendants looked for businesses that could process the slops, and various locations in Europe were considered and rejected. Meanwhile the tanker was on its way to Amsterdam, where it arrived on 2 July 2006, but the slops were found to have too high a “chemical oxygen demand” for the waste to be processed there. The tanker then left Amsterdam, and the defendants unsuccessfully tried to have the slops discharged at Paldiski, Estonia, at Lomé, Togo, and at Lagos, Nigeria. On 17 August 2006 the tanker set sail from Lagos for Abidjan, Côte d’Ivoire, where it arrived on 19 August 2006.[8]Like the Judge, I will largely take the history in the next seven paragraphs from the narrative in the bill of costs (“the Bill”) prepared by the claimants’ solicitors, Leigh Day & Co, for the purpose of the detailed assessment.[9]The defendants appointed a local contractor and a shipping agent in Abidjan to handle the slops. In August 2006, 528 tonnes of chemical waste from the tanker were alleged to have been illegally fly-tipped by the local contractor at locations around Abidjan. 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.[10]Subsequent expert evidence revealed that the waste was a mixture of naptha and sulphur-enriched caustic soda, which contained a number of unstable potentially toxic chemicals, in particular mercaptans and disulphides (though not some other chemicals initially alleged by the claimants). The chemicals in this waste had the capacity to injure people who inhaled the gases caused by their evaporation and release into the atmosphere (“the fumes”). Health problems resulting from the fumes were alleged to include headaches, eye, throat and skin irritation, respiratory distress, nausea, vomiting, diarrhoea, and even death. However, the claimants now acknowledge that the fumes could, at worst, have caused only a range of short term relatively low level flu like symptoms and anxiety.[11]Greenpeace International had been asked to be part of an international commission of inquiry into what had happened, and, in October 2006, they asked Leigh Day to provide legal assistance to victims who had been in touch with them. One of the victims, Mory Cisse, who worked for an NGO involved with one of the affected communities, was keen for Leigh Day to travel out to Abidjan to meet potential claimants and to start proceedings.[12]Leigh Day were also approached by other victims and groups of victims for assistance, and they included Chief Motto, Chief of Djibi Village, who also asked them to travel to Côte d’Ivoire. Another interested agency with whom early contact was made was Sherpa, a French Civil Rights Group, who specialised in the issue of corruption in former French Colonies and who were investigating the events in Abidjan.[13]As a result of these approaches, Leigh Day started to investigate the case and the logistics of travelling to Côte d’Ivoire. Lawyers from Leigh Day then visited Côte d’Ivoire, and, after carrying out some initial investigations, decided to act for, and issue proceedings on behalf of, those who claimed to have suffered personal injury as a result of the fumes.[14]Côte d’Ivoire was listed by the Foreign Office, along with Somalia, as one of two countries in the world not to visit on any account (so it was listed as an even higher security risk than Iraq and Afghanistan), although this security rating was downgraded a little over the following three years. Nonetheless, Abidjan has been throughout these proceedings a dangerous city in which to work, and one where Leigh Day (and the defendants’ solicitors) have had to take extreme care in relation to security issues.[15]Meanwhile, the defendants paid US$200 million to the Côte d’Ivoire Government in respect of the incident. The defendants blamed the local contractor, but nonetheless paid the $200 million to try to assist the population in dealing with the effects of the slops. The US$200 million was paid into a fund (“the Fund”) to compensate those who suffered as a result of fumes.[16]Leigh Day first wrote to the defendants on 25 October 2006, and these proceedings were commenced in November 2006. The following month, Leigh Day drafted an application for a Group Litigation Order (“GLO”), which was heard on 29 January 2007, and a GLO was granted on 16 February 2007. The terms of the GLO were agreed with the defendants’ solicitors, Macfarlanes, and they included a requirement that Leigh Day maintain a register of claimants. At first Leigh Day had only 12 clients, but at the time of the application for the GLO they were forecasting that there would be between 3,000 to 5,000 claimants by the summer of 2007. Those numbers continued to increase.[17]Leigh Day identified prospective claimants by instructing individuals who were paid a commission of 3% of the damages a claimant received for each claimant they found: hence they were known as the 3% representatives. They were equipped with a questionnaire which required potential claimants to provide information such as whether they had been affected by the fumes, the way in which they were affected, and where they were at the time. Potential claimants who responded by saying that they had been significantly affected by the fumes would normally agree to instruct Leigh Day to act for them in the proceedings and to be added to the register of claimants. In due course, they were subjected to a medical examination on Leigh Day’s instructions.[18]Before being added as parties to the proceedings, potential claimants had formally to instruct Leigh Day, and they all did so on a conditional fee (also known as a “no win no fee”) basis, as permitted by the Courts and Legal Services Act 1990 as amended by the Access to Justice act 1999 – i.e. if the claimant loses, the lawyer will recover no fees, and, if the claimant wins, the lawyer will claim fees, but they will almost always be paid by the defendants. The quid pro quo for lawyers who act on such a basis is that they can charge an “uplift” or “success fee”, which is capped at a maximum of 100% of the lawyer’s ordinary or “base” fee, and the success fee is treated as part of the recoverable costs if the defendants are ordered to pay the claimant’s costs. Furthermore, to protect themselves against any liability to pay the defendants’ costs should the claim fail, most claimants who litigate on this basis take out ATE (after the event) insurance, and, if the claim succeeds, the premium for such insurance (“the ATE premium”) can be recovered from the defendants as part of the claimant’s costs.[19]Where litigation is conducted on a no win no fee basis, the solicitors must be instructed under a conditional fee agreement (“CFA”) whose terms are in part fairly standard and governed by primary and secondary legislation, and are in part bespoke for the particular proceedings. Accordingly, Leigh Day prepared appropriate CFAs for each of the intending claimants to sign, which they did after Leigh Day representatives had visited them in Côte d’Ivoire, and advised them on the terms of those agreements. In the end there were 29,614 claimants in all.[20]The defendants acknowledged service on 4 December 2006, and on 21 March 2007 the defendants informed the claimants of the settlement agreement with the Côte d’Ivoire government. The defence was served on 27 July 2007, and it made it clear that, as the Judge said, “the defendants were going all out to defend all aspects of the claim”. On 24 October 2008 a consent order recorded that the court would not be required to determine the issues of duty, breach, and foreseeability, so that claimants who proved they had sustained any personal injury caused by exposure to the fumes would recover damages from the defendants (without admission of liability), subject to credit being given for payments made from the Fund.[21]Meanwhile the claim was proceeding, and the trial was fixed for early October 2009. Once the register of claimants had closed, and the normal three-year limitation period had expired, there were negotiations, as a result of which a settlement agreement (“the Settlement Agreement”) was drawn up in September 2009. The agreement provided that a minimum of 75% of the claimants would have to accept the terms of settlement before it became enforceable, although the defendants had the option of proceeding at a lower percentage if they wished. In due course, after Leigh Day had sought instructions from the claimants, the Settlement Agreement became enforceable.[22]Under the terms of the Settlement Agreement, the defendants agreed to pay damages of £30 million, and the parties consented to an order (“the final order”), whose terms were approved by MacDuff J, in respect of claims by children, on 23 September 2009. The final order included the following: “6. Save … for the purposes of costs as set out below, the claims of the accepting claimants are stayed pending further order of the court on the terms set out in the agreement. Liberty to apply for the purpose of carrying such terms into effect. 7. The defendants shall pay the costs of the claimants identified in Schedule 1 Part A of the Abidjan Personal Injury Group Litigation on the standard basis, to be subject to detailed assessment if not agreed. 8. On any such assessment:(i) the defendants may not raise any issue as to the indemnity principle;(ii) the claimants are entitled to recover the reasonable and proportionate costs of obtaining after the event legal expenses insurance; and(iii) there should be no recovery of individual costs of claimants who are not settling claimants (being costs exclusively referable to such claimants). For the avoidance of doubt this does not affect the right of recovery of the rateable share of generic costs referable to claimants who are not settling claimants. …. 9. The defendants shall make an interim payment on account of the claimants’ costs in the amount of £20 million to be paid to the claimants’ solicitors … by 30 September 2009 and a further £10 million to be paid to the claimants’ solicitors 90 days thereafter provided that the Claimants’ solicitors will provide at least 21 days prior to the second interim payment an outline bill in such detail as the Defendant shall specify by 22 September 2009.” (i) the defendants may not raise any issue as to the indemnity principle; (ii) the claimants are entitled to recover the reasonable and proportionate costs of obtaining after the event legal expenses insurance; and (iii) there should be no recovery of individual costs of claimants who are not settling claimants (being costs exclusively referable to such claimants). For the avoidance of doubt this does not affect the right of recovery of the rateable share of generic costs referable to claimants who are not settling claimants. ….[23]Schedule 2 to the final order included a joint statement of the parties (“the Joint Statement”) which was published. The most important element of the Joint Statement was:
“The parties have since August 2006 expended considerable time and money investigating in detail the events in Abidjan in 2006. As part of that process, in excess of 20 independent experts in shipping, chemistry, modelling, toxicology, tropical medicine, veterinary science and psychiatry have been appointed to consider all the issues relating to those events. These independent experts are unable to identify a link between exposure to the chemicals released from the slops and deaths, miscarriages, still births, birth defects, loss of visual acuity or other serious and chronic injuries. Leigh Day in the light of the expert evidence, now acknowledge that the slops could at worst have caused a range of short term low level flu like symptoms and anxiety. From these investigations it is also clear that there are many claims which have been made for symptoms, in some cases perhaps understandably, which are unconnected with any exposure to the slops.”
[24]Thereafter, the defendants paid the £30 million damages into a designated account at the Societé Generale in Abidjan on 23 September 2009. An interim payment in respect of costs was also paid in accordance with the Order.[25]Leigh Day then started to take steps to ensure that the £30 million was distributed among the claimants. Their task was made more expensive and the distribution was delayed, as a result of an injunction granted by a Côte d’Ivoire court to a Mr Claude Gohourou and an entity called CNVDT restraining the distribution. The injunction was eventually discharged by agreement, and the distribution of the £30 million was then resumed, but even now it has not been completed, partly, we were told, because of the delay caused by the injunction and partly because of a civil war in Côte d’Ivoire.[26]Meanwhile, the Bill was prepared and served on the defendants, who were, as the Judge recorded, dismayed to find that they totalled £104,707,772.72. That figure included success fees for both solicitors and counsel of 100%, and an ATE premium of over £9 million.[27]The defendants have themselves incurred a further £14 million in respect of their own lawyers’ costs, in addition to whatever costs have been incurred internally.[28]The parties agreed that the Judge should determine a number of preliminary issues before he carried out the detailed assessment of the claimants’ costs. About twenty of those issues were debated before the Judge between 6 and 17 December 2010, and resulted in the main judgment on 15 February 2011. In later judgments, the Judge decided issues relating to the extent of the recoverability of the ATE premium paid by the claimants.[29]The hearing which led to the main judgment was very full in terms of both the volume of evidence and the detailed argument. It is worth setting out what

the Judge said in three of the 511 paragraphs of his main judgment, in this connection:

“24. The defendants, not surprisingly, have launched an extremely vigorous attack on both the generic and individual bills. I have been given electronic copies of the bills, which I am told run to some 55,000 items, all of which are challenged …. For the purpose of these key issues I was presented with in excess of 60 ring-binders of documents, and … the defendants’ skeleton argument, including supporting schedules, ran to over 1,000 pages, this being in addition to a witness statement … dealing with the key issues, which, with exhibits, ran to over 3,000 pages. The claimants’ skeleton runs to 73 pages, and their supporting witness statements, including exhibits, run to 923 pages. …. 25. The claimants lodged with me two ringbinders of privileged material, all of which I have read. This has enabled me to understand the decision to issue proceedings, and especially the speed with which that decison was reached. I have also seen correspondence between solicitors and counsel relating to the setting up of the GLO, and also correspondence with counsel relating to the obtaining of evidence and the strengths and weaknesses of the case. Most helpfully from my point of view are the internal reviews undertaken regarding the case as it developed, the work to be done and the taking of instructions. In addition I have seen material relating to the Solicitors Regulatory Authority and the waiver which was granted; correspondence with local representatives; regarding the vetting process; sample attendance notes; correspondence with local doctors regarding medical reports; and correspondence with claimants, including client care letters and update letters. I have also seen the opinion of [leading counsel], in support of the application for approval of the settlements. 26. Although the defendants do not accept the level of the core costs of dealing with the actual litigation, which they put at some £8.2 million base costs, the main thrust of their argument [in addition to the issues relating to uplift and the ATE premium] relates to base costs of £36 million, which they argue relate to the signing-up, registration and vetting of the claimants, and the costs of settlement and distribution of the damages.”
[30]The scope of this appeal is limited to the issues on which the Senior Costs Judge or Cox J has given permission to appeal. In summary form, the issues on which we have heard argument have been described (sometimes rather inaccurately) in this litigation under the following heads, which, for the sake of consistency with the judgment below, I will adopt, and will deal with in the same order as the Judge: i) Proportionality; ii) Vetting costs; iii) Pre-Action Protocol; iv) Medical reports; v) Abandoned claims; vi) Settlement and distribution; vii) Cost of funding; viii) Success fee; ix) ATE premium.[31]Before turning to those issues, in the light of some of the arguments which Mr Gibson QC sought to raise on behalf of the defendants, it is right to identify the boundaries of the arguments on this appeal. First, the issues to be ventilated are limited to those for which permission to appeal has been given. Litigation is often an expensive, complex and time-consuming exercise, and, as will be clear from the above discussion, the present costs assessment is such litigation. It is therefore important, both at first instance and on any appeal, for the parties and their lawyers to concentrate the evidence and arguments on the issues which are before the court. If the evidence or arguments go outside the scope of relevance to those issues, it leads to a waste of money, in form of substantial legal costs, a waste of time, in the form of judicial sitting time, and an increased risk of oversight and error, in that it deflects the focus of both legal argument and judicial attention away from the appropriate targets.[32]Secondly, whether or not we disagree with the Judge on any issue, it would not be right for us to take any course which involves going into the facts, and seeking to determine other issues, which may need to be considered, or reconsidered, at least unless those other issues raise pure questions of law. Particularly in a field such as that of costs, where a Costs Judge has specialist knowledge and experience which we lack, it would require a very unusual case for this court (especially as we are sitting without an assessor) to pronounce on an issue, other than one of pure law, without the benefit of the views of the first instance tribunal on the issue. Accordingly, it is not appropriate to consider, for example, whether, and to what extent, Leigh Day did not organise and co-ordinate their activities in Côte d’Ivoire efficiently or proportionately, whether their representatives made more visits than reasonable (or necessary) to Abidjan, and whether they acted in any other respect which was unreasonable (or unnecessary) when conducting the litigation for the claimants.[33]That approach is also supported by the fact that the issues before the Judge were preliminary issues, and the actual detailed assessment of costs was and is intended to be carried out later, with the benefit of the rulings on those preliminary issues. Accordingly, as Mr Butcher QC, for the claimants, said, the evidence before the Judge, was “on a high level of generality”, and there was “no detailed evidence”.[34]I turn, then, to the various issues which we have to resolve. Proportionality Introductory[35]The Senior Costs Judge concluded that: i) The “base costs” which the claimants were seeking from the defendants (i.e. the claimants’ costs of the proceedings shorn of the 100% success fee and the ATE premium) were £49 million, although the claimants make the point that, as a result of the Judge’s determination on various other preliminary issues, the correct figure is about £40 million; ii) He had “no hesitation in saying that the base costs, excluding additional liabilities, have the appearance of being disproportionate”; iii) When carrying out the detailed assessment, he would not thereby be “precluded from deciding that an item or number of items are in fact proportionate, and thus that the test of necessity should not apply to them”.[36]The claimants accept conclusion (ii), namely that the £49 million (or £40 million) costs had “the appearance of being disproportionate”, but and the defendants challenge conclusion (iii), namely the Judge’s view that conclusion (ii) does not mean that the test of necessity has to be met by each item in the claimants’ bill of costs before it can be recovered by the claimants.[37]Proportionality is a centrally important factor when assessing costs. Thus, in addition to providing that “the court will not … allow costs which have been unreasonably incurred or are unreasonable in amount” in para (1), CPR 44.4(2)(a) states that, when assessing costs on the standard basis, “the court will … only allow costs which are proportionate to the matters in issue”. This is expanded by CPR 44.5 which states that: “(1) The court is to have regard to all the circumstances in deciding whether costs were ….(i) proportionately and reasonably incurred; or(ii) were proportionate and reasonable in amount … (3) The court must also have regard to – (a) the conduct of all the parties, including in particular – (i) conduct before, as well as during, the proceedings; and (ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute; (b) the amount or value of any money or property involved; (c) the importance of the matter to all the parties; (d) the particular complexity of the matter or the difficulty or novelty of the questions raised; (e) the skill, effort, specialised knowledge and responsibility involved; (f) the time spent on the case; and (g) the place where and the circumstances in which work or any part of it was done. (i) proportionately and reasonably incurred; or (ii) were proportionate and reasonable in amount … (3) The court must also have regard to – (a) the conduct of all the parties, including in particular – (i) conduct before, as well as during, the proceedings; and (ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute; (b) the amount or value of any money or property involved; (c) the importance of the matter to all the parties; (d) the particular complexity of the matter or the difficulty or novelty of the questions raised; (e) the skill, effort, specialised knowledge and responsibility involved; (f) the time spent on the case; and (g) the place where and the circumstances in which work or any part of it was done. (i) conduct before, as well as during, the proceedings; and (ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;[38]It is clear from Section 11.5 of the Costs Practice Direction that issues of proportionality and reasonableness are to be determined in relation to the base costs separately from the costs involved in any success fees or ATE premium (although, as this case shows, the court can determine the reasonableness of these sums). In this part of the judgment, I am only concerned with base costs.[39]In Home Office v Lownds: Practice Note [2002] EWCA Civ 365, [2002] 1 WLR 2450, the Court of Appeal emphasised the importance of proportionality. Lord Woolf CJ said this:
“3. The requirement of proportionality now applies to decisions as to whether an order for costs should be made and to the assessment of the costs which should be paid when an order has been made. Part 44.3 which deals with the making of an order for costs does not specifically use the word proportionate but the considerations which should be taken into account when making an order for costs are redolent of proportionality. … … 8. The new requirement of proportionality, which is in mandatory and unqualified terms in Part 44.4(2), is important in itself, since it should discourage parties from incurring disproportionate costs as those costs will not be recoverable unless an indemnity order is made. This restriction on costs should encourage parties to conduct litigation in a proportionate manner, which is an important objective of the CPR. …”
[40]In this case, it is unsurprising that there is no challenge to that the base figure of £49 million, or (in the light of the Judge’s decision on other issues) £40 million, in respect of the claimants’ costs had “the appearance of being disproportionate”.[41]The Judge did not misdirect himself in principle, when considering the issue. He bore in mind that proportionality should not be judged retrospectively or simply by reference to the total amount recovered, namely £30m. He quoted, and therefore had well in mind, what Brooke LJ said in relation to the reasonableness of a success fee in KU v Liverpool City Council [2005] EWCA Civ 475, [2005] 1 WLR 2657, para 20:
“[The court] must have regard to the facts and circumstances as they reasonably appeared to the solicitor at the time when the CFA was entered into (see para 11.7 of the Costs Practice Direction and Atack v Lee [2004] EWCA Civ 1712 at [51]). The principle that the use of hindsight is not permitted when costs are being assessed is an old one: see Francis v Francis andDickerson [1956] P 1887, 95; and compare, in a different context, Argyll (Duchess) v Beuselink [1972] 2 Lloyd’s Rep 172, per Megarry J at p 184: ‘In this world there are few things that could not have been better done if done with hindsight. The advantages of hindsight include the benefit of having a sufficient indication of which of the many factors present are important and which are unimportant. But hindsight is no touchstone [of negligence]… The standard of care to be expected of a professional man must be based on events as they occur, in prospect and not in retrospect.’” ‘In this world there are few things that could not have been better done if done with hindsight. The advantages of hindsight include the benefit of having a sufficient indication of which of the many factors present are important and which are unimportant. But hindsight is no touchstone [of negligence]… The standard of care to be expected of a professional man must be based on events as they occur, in prospect and not in retrospect.’”
[42]However, that does not mean that one simply ignores the amount actually recovered, as it can provide some sort of reality check. For instance, where the sum eventually awarded or agreed is substantially less than the amount claimed, that may (and I emphasise “may”) call into question the notion that the claim was genuinely or reasonably thought to be worth what it was claimed to be worth when it was first raised and while it was being prosecuted. Further, as is clear from CPR 44.5(3), the value of a claim in monetary terms, even where it is the only relief claimed, cannot be the sole guide to proportionality, although it will be a rare case where it is not a significant factor. The defendants’ appeal[43]Having concluded that the base costs claimed by the claimants in the Bill appeared to be disproportionate, the Judge ought, according to the defendants, to have concluded that, when proceeding with the detailed assessment of costs, he should only allow any item on the Bill if he was satisfied that it had been necessary. Instead, the Judge considered that the costs judge carrying out the detailed assessment on the Bill “should not be precluded from deciding that an item or number of items are in fact proportionate, and thus that the test of necessity should not apply to them”.[44]The defendants’ case rests on the reasoning in Lownds [2002] 1 WLR 2450, para 31, where Lord Woolf said this:
“In other words what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This is turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner.”
[45]It appears to me that that analysis bears out the defendants’ contention: if “the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable”. The Judge did not accept that, and his reasoning was effectively based on what Morland J said in Giambrone & Ors v JMC Holidays [2002] EWHC 2932 (QB):
“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’.”
[46]With all due respect to the Judge, it appears to me that that observation was directed to the converse situation to that in the present case, and, essentially for that reason, it was concerned with a different issue. In Giambrone [2002] EWHC 2932 (QB), the total sum was not disproportionate; in this case, it is. Anyway, merely because an item may be disproportionate even if the total sum is not, does not mean that, if the total sum is disproportionate, the test of necessity need not be applied to each item in the bill.[47]It was also argued that the principle enunciated by Lord Woolf was not supported by the terms of CPR 44. I do not agree. As a matter of principle, the rule laid down in Lownds [2002] 1 WLR 2450,para 31, appears to accord with principle. CPR 44.4(2)(a) limits recoverable costs to those which are proportionate, which would appear to suggest that the overall recoverable costs should not be disproportionate. The effect of Lord Woolf’s reasoning is that if the total costs claimed appear to be disproportionate, they are, in effect, to be rendered proportionate by allowing only those items which are necessary, and then only in a reasonable sum.[48]I would also be reluctant to depart from that approach for practical reasons. First, it is, as I understand from Mr Bacon QC, for the defendants, an approach which is well understood among those who are concerned with assessing costs. Secondly, it is generally accepted as representing the law - see e.g. Sir Rupert Jackson’s Review of Civil Litigation Costs: Final Report (December 2009), Chapter 3, paras 4.2-4.8. In the vexed area of legal costs, it is particularly important that the law is simple and clear, and that the courts adopt a consistent approach. Thirdly, it appears to me that this approach represents a good way of maintaining a degree of discipline in the thinking and actions of lawyers when advising or acting for their clients in contemplated or actual litigation.[49]It is right to add that, in his Report (op cit, Chapter 3, paras 5.10-5.11, 5.16), Sir Rupert has made it clear that, in his view, the approach laid down in Lownds [2002] 1 WLR 2450, para 31 does not go far enough to limit recoverable costs. His recommendation, which has now been accepted by the Secretary of State for Justice, is that “in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and that proportionality should be applied on a global basis” (op cit, Chapter 3, paras 5.13, 5.15). This recommendation highlights the point that, on one view of CPR 44.4(2)(a), the approach set out in Lownds [2002] 1 WLR 2450, para 31 is too generous to a claimant, as it can result in an award of costs which, in terms of the figures involved, is disproportionate: that is another reason for refusing to accede to the claimants’ case that a more expansive approach to assessing costs would be appropriate.[50]For the claimants, Mr Butcher further suggested that, even if the defendants were right about the approach laid down in Lownds [2002] 1 WLR 2450, para 31, it was not applicable in all its stark simplicity in a complex case such as this. He suggested that it would be appropriate to apply the approach in a case such as this in relation to each section of the Bill, or to each group of items in the Bill, rather than to the contents of the Bill as a whole. While that is an attractive submission, I would reject it. First, while it is obviously engaged when considering individual items in a bill of costs, CPR 44.4 is ultimately concerned with the total figure to be recoverable from the paying party by way of costs. Secondly, commercial reality is also ultimately concerned with the overall figure. Thirdly, there may well be some give and take between the work included in, or the sum allocated to, different items in the same bill. Fourthly, to hold that the approach in Lownds [2002] 1 WLR 2450, para 31 applies in some cases on an overall basis, but in other cases on a group of items or other basis would lead to sophisticated, costly and time-consuming arguments as to whether a case is one to which Lownds [2002] 1 WLR 2450, para 31 should be applied to the totality of the costs claimed, and, if not, how it should be applied. Fifthly, as already mentioned, the overall approach embodied in Lownds [2002] 1 WLR 2450, para 31 should concentrate the minds of lawyers on keeping litigation costs proportionate, and I would be reluctant to dilute it for that reason as well. Conclusion on

Proportionality

[51]Accordingly, on the proportionality issue, I would allow the defendants’ appeal against his decision not to proceed on the detailed assessment on the basis that each item had to satisfy the test of necessity.[52]We were addressed by Mr Gibson on the difference between necessity and reasonableness when it comes to an item on a costs schedule. It does not seem to me to be a profitable or useful exercise for this court to describe in abstract the difference between assessing whether an item has been necessarily incurred and assessing whether an item has been reasonably incurred, save to confirm that the former hurdle is higher, but it does not carry with it the strictest sense of necessity. As to the suggestion that we should consider whether individual items in the Bill in this case were necessary, that is not something we should do: it would involve usurping the function of the Costs Judge, which would be peculiarly inappropriate bearing in mind his particular expertise and experience.[53]Nonetheless, when considering some of the issues which are before us, it is right to acknowledge that, even if the Judge was right on the basis of reasonableness, it is only fair to the defendants that he should revisit his decision in the light of our disagreement with his view of the applicability of the necessity test.

Vetting Costs

[54]So far as the scope of this series of questions was concerned, the term “vetting”, as used in the Bill, is said by the defendants to cover the registration of the claimants and the administration of their claims from their inception until the time that the settlement was provisionally agreed and Leigh Day had to take instructions on the terms of the Settlement Agreement. It is certainly the case that some of the questions raised under this head did indeed relate to costs incurred during the period after a prospective claimant had become a client of Leigh Day and a claimant in the proceedings.[55]The Judge was asked the following questions (deleting those questions to which his answer is not challenged): i) “Are the claimants entitled to recover the costs associated with the collection, assessment and management of each of the claims during the period prior to(a) the signing of the CFA for each claimant and(b) each claimant’s admission to the Group Register?” ii) “Are the claimants entitled to recover the costs of liaising with, and supervising, the 3% representatives used (a) to collect prospective claimants, (b) to assist prospective claimants with making their claims(c) to communicate with claimants on behalf of Leigh Day during the proceedings and(d) to distribute the Settlement Sums to the Claimants following September 2009?” iii) “Do the costs associated with the collection, assessment and management of each of the claims have the appearance of being disproportionate in the light of the nature of the claims and the quantum of the claims?”

The Judge answered these questions as follows:

[56]i) “The claimants are entitled to recover the reasonable and proportionate costs associated with collection, assessment and management of each of the claims. With regard to the period prior to the signing of the CFA for each claimant, this depends on the particular wording of the CFA in use. Those CFAs which run “from the date you first instructed us” cover the cost from the first meeting. [CFAs] which state that they run “from the date of this agreement” would, in my judgment, include the meeting with the client immediately prior to the signing of the CFA, during which the CFA explanation was given, and the client finally signed the agreement. The claimants are similarly entitled to recover their reasonable and proportionate costs prior to each claimant’s admission to the Group Register.” ii) (a), (b) and (c) “Yes”. (d) “This will have to be dealt with in connection with [settlement and distribution]”. iii) “It is not possible at this stage to deal with the proportionality of the costs claimed associated with the collection, assessment and management of each of the claims, other than the global view, which I have already expressed as to the proportionality of the costs of these proceedings.” Discussion[57]It is helpful to get two points out of the way. The first is that the concept of necessity must be imported into the answer to paras (i) and (iii) given by the Judge, because, for the reasons given above, the claimants can only recover in respect of an item in the Bill if it was necessary to have incurred it.[58]Secondly, apart from that amendment, there is no basis for challenging the Judge’s conclusion in para (iii). He was plainly entitled to reach the conclusion that he had insufficient evidence to form a view as to the proportionality of the cost of the items there referred to, and it is just as well that he did not do so, as the matter would have had to be reconsidered to determine the issue of necessity.[59]The defendants argued that there was ample evidence to show that Leigh Day were extravagant and unreasonable, or at least disproportionate and unsystematic, in the way that they orchestrated the collection assessment and management of the claimants’ claims, and that they carried out unnecessary work, and incurred inflated, or at least disproportionate, expenses. Having been briefly through the description in the Bill of what was done in this connection, I am left with the impression that there may well be something in that contention. However, bearing in mind the unusual features of the case, to which I have already made brief reference, and the need to avoid wisdom of hindsight and the counsel of perfection (even where necessity can be invoked by the paying party), it must be acknowledged that it may turn out that this argument may fail.[60]For present purposes, all I need say further in relation to the Judge’s conclusion in para (iii) is that he was entitled to reach the conclusion that he did, namely that he had insufficient evidence to be satisfied that the methods used and put in place by Leigh Day were inefficient or worse, and that this was an issue better left to the detailed assessment exercise. Even if we were to accept that he should have gone further, it would not assist the defendants, as we would remit the matter to be determined by the Judge, which is what will happen anyway. That point is reinforced by my view that an item in the Bill has to satisfy the test of necessity before its cost can be recovered: Mr Gibson accepted that, if that view was right, the question of which items should be allowed would have to be reconsidered by a costs judge in any event.[61]As for the Judge’s conclusion in para (i), it seems to me that it was also correct, at least so far as concerns any item said to be incurred for a specific claimant. As the claimants appeared to accept, any CFA which limits the client’s liability to work done after the CFA is entered into, cannot extend to work done before that date (as in the case of CFA 1). Equally, although of course solicitors and their clients can agree terms otherwise (as in the case of CFAs 3, 5,6 & 7) the natural presumption in a contract by which a person engages a solicitor to act for him must be, in the absence of such a term, that he is agreeing to pay for work done in the future, not for work already done.[62]However, Mr Butcher for the claimants relied on the fact that the defendants are precluded by para 8(1) of the final order from relying on the indemnity principle, and therefore, they say, the defendants cannot escape liability for reimbursing the costs attributable to a claimant even though the claimant could not be charged for those costs as between the claimant and Leigh Day. I do not accept that argument, although I appreciate its logical attraction. It would, in my judgment, require very clear words before expenditure which a client could not be required to meet under the terms on which he engaged solicitors could nonetheless be recovered from the paying party. It seems clear that para 8(1) was included in order to avoid the defendants being able to contend that the CFAs were unenforceable, which was a point being raised by the defendants at the time that the final order was being agreed, as is apparent from correspondence to which Mr Butcher very fairly took us. Indeed, in that correspondence, it is spelt out that “the cost claimed will not exceed the cost which the paying party is required to pay Leigh Day”.[63]However, when it comes to generic costs, for instance the costs of investigating or establishing the defendants’ liability for the fumes as a matter of fact, or identifying the nature and physical effects of the chemicals contained in the slops or the fumes, it does not seem to me that the point made in para (i) has much force. Such items were incurred for the benefit of all actual or potential claimants, and would have been incurred irrespective of when a claimant was entered onto the claimants’ register. Accordingly, subject to being necessary and proportionate, such items are recoverable in principle, and subject to questions of proportionality and reasonableness, the whole of the cost of the item is recoverable. As to whether an item is generic or specific to a claimant (or even a group of claimants), that will be a matter for the detailed assessment.[64]Subject to the CFA covering the item claimed, and subject to the necessity test being satisfied, it seems to me that the Judge’s conclusion (ii) was correct in relation to the cost of items of the type there referred to. Pre-Action Protocol Introductory

Pre-Action Protocol

[65]It is accepted that there is no Pre-Action Protocol which governs Group Litigation proceedings, but the defendants contend that the claimants failed to comply with the spirit of the Pre-Action Protocols and the Practice Direction - Pre-Action Conduct (“the PDPAC”), and that this served to increase the claimants’ costs, so that an appropriate reduction should be made when assessing the recoverable costs.[66]Para 6 of the PDPAC states that “unless the circumstances make it inappropriate, before starting proceedings the parties should” take certain steps, including exchanging information, attempting to resolve their differences, and acting reasonably and proportionately. Further, para 2.4 of the Personal Injury Pre-Action Protocol makes it clear that “[t]he spirit, if not the letter of the protocol, should still be followed for multi-track type claims”.[67]The defendants argued that Leigh Day issued the present proceedings precipitately, without appropriately informing, or negotiating with, the defendants, and that this resulted in the costs being increased. The Judge rejected both limbs of that argument. He held, first, that it was not unreasonable for Leigh Day to have issued the proceedings quickly in this jurisdiction, and, secondly, that, in any event, the costs had not been increased by virtue of the proceedings having been issued speedily, as he was “not persuaded that the failure to follow the pre-action protocol had any significant effect on the level of the claimants’ costs”. He added that, in any event, the “defendants may challenge the way in which the claimants issued and subsequently pursued court proceedings in whatever way they choose”.

The defendants’ appeal

[68]In my opinion, these findings were amply supported by the evidence and arguments before the Judge, and nothing put before this court, whether evidence or argument, calls his conclusions into question. As he said, para 4.3 of the PDPAC provides that, “when considering compliance the court will…take account of the urgency of the matter”, and “[w]here a matter is urgent … the court will expect the parties to comply only to the extent that it is reasonable to do so ...”.[69]The Judge was, to put it at its lowest, entitled to conclude that, given that proceedings were being contemplated in the Netherlands by a rival firm, “Leigh Day honestly and reasonably believed that, in the interests of their clients, the pre-action protocol, although desirable, could be dispensed with” so that proceedings could be issued in this country. No doubt, Leigh Day will also have acted in self-interest, but that does not invalidate the point, as the Judge pointed out, that the eventual settlement showed that “by bringing proceedings in this jurisdiction, the claimants have been well served by Leigh Day”.[70]In any event, having issued the proceedings, Leigh Day complied with many aspects of the PDPAC, agreeing a stay of proceedings for as long as the defendants wanted while the terms of the group litigation order were agreed, providing evidence to the defendants “almost immediately” it was obtained, and sending “numerous documents” to the defendants.

The Judge said:

“What is clear is that the defendants have vigorously defended this action throughout, and even when the register was closed, and the full extent of the injuries was known, they chose to settle the case with a denial of liability. There is no reason to suppose, therefore, had they had that information at the outset, that they would have defended any less vigorously, or settled any earlier. In those circumstances, I am not persuaded that the failure to follow the pre-action protocol had any significant effect on the level of the claimants’ costs.”
I can see no basis for challenging that conclusion.[71]Under the rubric of his appeal on this pre-action protocol issue, Mr Gibson sought to mount a wholesale attack on what he contended was Leigh Day’s failure to comply with the spirit of the CPR and the Woolf Reforms, and in particular the proper approach to GLOs. His submission was that the purpose of a GLO is to achieve a reduction in costs, both through economies of scale and by managing the cases in such a way as to limit costs. Essentially, his argument was that Leigh Day’s method of registering, vetting and managing each individual potential claim led to an unwarranted increase in management costs. He suggested that much less work on individual claims was required and that reasonable solicitors would have concentrated on determining what injuries could realistically be attributed to the actions of the defendants.[72]The Judge summarised many of these submissions at paras 47-65 of his judgment, in the context of preliminary issue (i), whether the costs had the appearance overall of being disproportionate. But none of the preliminary issues raised for the Judge permitted him to determine whether or not this attack was justified. Preliminary issue (iii), Pre-Action Protocol, did not bear on this issue once the Judge had rejected the argument that costs had been increased by wrongly premature commencement of the action. Nor is the argument based on any of the specific terms of the GLO, which it is not suggested were unreasonable and which were in any event agreed. The issue of whether Leigh Day ought to have adopted a different system of management remains open and must be determined by the tests of necessity, reasonableness and proportionality when the Judge resumes the costs assessment. Whether it is convenient to frame specific questions in order to enable this issue to be determined must be a matter to be agreed between the parties or determined by the Judge.[73]In these circumstances, I would dismiss the defendants’ appeal against the Judge’s rejection of their arguments based on Pre-Action Protocol. This conclusion is unaffected by my conclusion that the necessity test is to be applied following the reasoning in Lownds [2002] 1 WLR 2450, para 31.[74]The claimants’ legal advisers no doubt could have done more to comply with the spirit of the CPR, as will almost always be the case with wisdom of hindsight in complex proceedings. However, the essential points on the Judge’s finding in relation to Pre-Action Protocol, are(a) the worst that can be said is that they did not fall very far short of their duty, and, to the extent that they did, no extra costs were incurred, and(b) to the extent that unnecessary items were incurred or sums were incurred to an unreasonable extent, the defendants are free to argue their case.

Medical reports

[75]The Judge was asked to decide certain issues about the medical reports obtained in respect of the claimants. In summary terms, he decided that: i) The Claimants were entitled to recover the reasonable and proportionate costs of, and associated with, the medical reports, including relevant administration costs, the cost of instructing the doctors, costs of drafting the reports, but excluding the cost of training doctors (as opposed to supervising them), the costs of amending defective reports and defective translations of medical reports; and ii) It was not possible to deal with the proportionality of the costs associated with the medical reports.[76]Clearly, in the light of what has already been said, the cost of these reports can only be recovered in as far as they were necessary. Subject to that point, these conclusions are not, as I understand it, challenged, save that the defendants contended that the Judge ought, contrary to his conclusion (ii), to have decided that the cost of the medical reports should be disallowed. Unless the Judge concludes that the incurring of the medical reports was unnecessary, I would reject that argument. There was clearly evidence on which he could have reached the conclusion that he did. Abandoned claims Introductory

Abandoned claims

[77]In their statements of case, many of the claimants contended that they had suffered substantial damage of a nature which would have resulted in significantly more than the £850 or £900 which the ultimate settlement involved, and which indeed were effectively disclaimed in the agreed final Joint Statement contained in schedule 2 to the final order, as set out above. The damage included allegations of death, loss of visual acuity, miscarriage, childbirth deformity, gynaecological symptoms, anaemia, and memory problems.[78]The Judge decided that these claims were never formally abandoned, and that, as the defendants had agreed to pay the claimants’ costs, it was not open to the defendants to challenge any item in the Bill simply on the ground that it was attributable to an alleged injury which was disclaimed in the joint statement. He held that “[t]o the extent that certain symptoms were not pursued following investigation, the claimants are entitled to recover their reasonable and proportionate costs of investigating those symptoms”. He also said this:
“279. In my judgment, given the terms of settlement, the Claimants are entitled to recover the reasonable and proportionate costs of investigating the claims. It is a matter for argument whether it was appropriate to investigate particular claims, for example gynaecological problems. But with regard to miscarriages, given that 149 Claimants had suffered miscarriages, it was clearly possible that these had been caused by the waste, and the Claimants’ expert was still of the view that this was possible, even though it could not be proved to the required standard of proof. 280. … [I]f a claimant complains to a solicitor of certain symptoms, it is normally not open to the solicitor to say whether or not the condition complained of has been caused by the particular incident. The solicitor will need a report from a relevant expert. That is what appears to have happened here.”
[79]In my opinion, subject to two points, this analysis is unexceptionable. The first point is that, if the Judge was saying that it is not open to the defendants to challenge an item of costs attributable to an abandoned claim because the defendants agreed that the claimants should recover all their costs on a standard basis, I do not agree. Mr Gibson rightly relied on Shirley v Caswell [2001] Costs LR 1, para 60. Having said that the trial judge could “deprive [a successful claimant] of costs on issues on which they failed”, Chadwick LJ clearly proceeded on the basis that, on an assessment the costs judge could deprive the claimant of such costs even if there was a full costs order in his favour – unless the trial judge had clearly held that the claimant should recover such costs (and see also Lahey v Pirelli Tyres Ltd [2007] EWCA Civ 91, [2007] 1 WLR 998, para 23).[80]The second point arises from the fact that, as explained above, I consider that the Judge was wrong not to conclude that the test of necessity is to be applied to each item in the Bill. Accordingly, in so far as his views were based, or expressed, on the basis that any item in the Bill attributable to an “abandoned claim” was to be allowed if it was reasonable to have incurred it, those views must be modified to the extent that such an item is only to be allowed if it was necessary to have incurred it.[81]In these proceedings, each claimant brought a personal injury claim, which succeeded in that they each recovered substantial damages and an unconditional order for the costs of the proceedings on the standard basis. In those circumstances, in the absence of special facts, each claimant should be entitled to recover the costs in respect of any item reasonably (and, in a case such as this, necessarily) incurred by way of costs in connection with the claim, and in a sum which is reasonable and proportionate.[82]So where a claimant told a 3% representative, and bona fide and reasonably believed, that he or she had suffered a certain type of damage as a result of the injury, then it would be right to recover the necessary, reasonable and proportionate cost of making the claim to recover for that damage. What was necessary, reasonable and proportionate may in part depend on the outcome of the defendants’ general attack on the solicitors’ method of management.[83]Mr Gibson contends that it was unreasonable to have pleaded all the alleged heads of damage which were communicated by each claimant to the 3% representatives, when many of those heads were abandoned as a result of the subsequent medical examination of each claimant. While it would be wrong to express a firm view on the topic, and subject to the management point previously mentioned, I believe that it reflects the views of the Judge, when I say that it seems to me hard to criticise Leigh Day on this ground. Particularly in the light of the unusual facts of this case, I do not consider that, absent special facts, it was unreasonable to have pleaded all heads of damage communicated by the client, with a view to amending them out or not pursuing them if and when they could not be sustained. Once a potential claimant was identified, it was sensible to add him or her as a party, and, rather than risking the cost, delay and uncertainty of adding to the heads of damage, I would have thought it perfectly sensible to include any head of damage which had been identified by the potential claimant, unless it was fanciful or some other special reason was apparent for not pleading it. Similarly so far as pursuing and investigating such heads of damage.[84]Of course, once a costs judge decides that it was no longer reasonable (or necessary) to pursue a particular head of claim further, or that it should have been investigated, and therefore abandoned, earlier, the costs incurred in connection with that head of damage should be disallowed from that date. Equally, even in respect of costs allowed on this basis in principle, they will not be allowed in so far as they were incurred beyond what was reasonable and proportionate.[85]Accordingly, it could well be that Mr Gibson is on stronger ground when he argues that the claimants pursued their claims based on allegations of more serious injuries for longer, he would say for far longer, than was reasonable (or necessary, although there may – and I emphasise “may” - not be much difference between reasonableness and necessity on this aspect). If that is established, then items of expenditure incurred thereafter and claimed in the Bill in respect of such alleged more serious injuries would not be recoverable. However, that is for the costs judge to decide at another hearing, and the criticism of the Judge that he resolved that issue in favour of the claimants at this stage is misconceived (other than in relation to gynaecological problems and miscarriages, which he gave by way of extreme examples he could decide – see para 279 of his main judgment quoted above).[86]It is true that the Judge did not specifically say in terms that, in so far as costs were incurred in connection with a particular alleged injury (subsequently “abandoned”) beyond what was reasonable and necessary in terms of time (because it should have been “abandoned” earlier) or extent (because, even though it was still appropriate to pursue it, a particular item of expenditure was unreasonable or unnecessary), they were irrecoverable. However, it seems to me that it is quite clear that this was an inherent part of the Judge’s reasoning in relation to “abandoned claims”, not only because it is plainly right, but also because it was expressed elsewhere in his excellent judgment, with its frequent reference to costs only being recoverable if they are “reasonable and proportionate” (to which, for the avoidance of doubt, I would add “and necessary”).[87]The fact that the parties agreed in the Joint Statement that certain items of claim were not, or could not be, established, plainly cannot and does not mean that costs spent on investigating such claims are irrecoverable. In that connection, it does not seem to me that the contents of the Joint Statement alter the principles as discussed in the preceding three paragraphs: they merely record that the claimants did not establish certain heads of alleged damage, which takes matters no further. Indeed, it may be said that the fact the parties recorded that some of the claims failed but nonetheless agreed that the claimants should recover their costs of the proceedings is, if anything, helpful to the claimants on this point. In my view, however, the point is, as already mentioned, neutral.[88]It is only fair to say that, subject to the applicability of what was said in Lownds [2002] 1 WLR 2450, para 31, I suspect that the views which I have expressed on this issue closely reflect those of the Judge. Settlement and distribution Introductory

Settlement and distribution

[89]The main question which the Judge addressed under this issue was expressed in the following terms (deleting specific questions which the Judge determined and on which there is no appeal):
“Generally and/or specifically under the terms of the Settlement Agreement, are the Claimants entitled to recover any costs subsequent to the date of the Settlement Agreement associated with the distribution of the [£30 million], specifically: (a) Leigh Day’s and counsel’s travel to and accommodation in Côte d’Ivoire; (b) verification, overseeing and general administrative costs relating to the distribution process; (c) Leigh Day employees’, counsel’s and claimants’ security costs”
. A second question was whether the costs associated with the distribution of the £30 million had the appearance of being disproportionate.

The Judge answered the main question in the following terms:

“Under the terms of the Settlement Agreement the claimants are entitled to recover the costs of working out the order subsequent to the date of the settlement agreement. (a) The cost of Leigh Day’s travel to, and accommodation in, Côte d’Ivoire for the purpose of distribution is, in principle, recoverable. Counsel’s travel and accommodation is, in principle, not recoverable. It is not clear why counsel’s attendance was required. (b) The costs of verification, over-seeing and general administrative costs relating to the distribution process is only recoverable to the extent that it is properly fee earner’s work, and reasonable and proportionate. (c) The question of security costs for Leigh Day employees, counsel and claimants is a matter which will have to be argued further.”
The Judge also decided that no costs were recoverable under this head in so far as they were incurred after 26 October 2009. He declined to answer the second question because it was “not possible at this stage to deal with the proportionality of the costs associated with the distribution of the settlement sums, other than the global view, which I have already expressed as to the proportionality of the costs of these proceedings.”[91]The defendants challenge(i) the Judge’s findings that the costs of settlement and distribution as set out in subparagraphs (a) to (c) in the preceding paragraph are recoverable, and(ii) the Judge’s conclusion that it was premature to deal with the issue of proportionality. The claimants challenge the Judge’s decision to impose the cut-off date of 26 October 2009.

The defendants’ appeal

[92]The first point taken by the defendants is that, in the light of the terms of the Settlement Agreement, it was not open to the claimants to treat the costs of advising and taking instruction on the agreement, and then in distributing the £30 million. I do not understand Mr Gibson to be suggesting that such costs are not, in principle, recoverable by a successful claimant in whose favour an unqualified costs order has been made. However, for the avoidance of doubt, I should state that, subject of course to any question of reasonableness and proportionality (and in a case such as this, necessity), such costs are recoverable, as they are plainly part of the costs of the proceedings. The Judge referred to a number of cases which support this principle, including Krehl v Park (1875) 10 Ch App 334, 337, and Re Trusts affecting 26 Clarendon Villas, Hove, Copeland v Houlton [1955] 1 WLR 1072 (which also helpfully demonstrates the limits of the principle).[93]However, where, as here, there is not only a costs order but a settlement agreement, it is open to a party to argue, and the court to find, that the parties have agreed a departure from the normal rule. That is what the defendants contend has happened here. Their argument rests on the terms of the Settlement Agreement, and in particular clauses 16 and 18 which provide as follows:
“16. The receipt of the settlement sum [sc. the £30 million] into the settlement account, together with the agreement to pay assessed costs as provided herein, shall be in full and final satisfaction and settlement of all claims of the settling claimants in the litigation of whatsoever nature or howsoever arising. …. 18. … the claimants’ solicitors agree to hold the settlement sum on trust for the benefit of the settling claimants and to apportion it between the settling claimants as they think fit. For the avoidance of doubt, the claimants’ solicitors may pay from the settlement sum any amount necessary by way of banking or administrative charges or other costs incurred in effecting the distribution of the settlement sums between the settlement claimants (but not in relation to any costs of the claimants’ solicitors themselves in relation to that distribution - ‘the Distribution Charges’).”
[94]The defendants’ case is that clause 16 makes it clear that the £30 million is in full and final settlement, that clause 7 (quoted in para 22 above) entitles the claimants to their costs of the proceedings on the standard basis, but that the exclusion in clause 18 of “the Distribution Charges”, as defined, from the sums which can be paid out of the £30 million, means that those charges must also be excluded from the recoverable costs under clause 7.[95]With all due respect to the defendants’ detailed argument, there is nothing in this point, as the Judge rightly held. It is clear from the closing part of clause 18 that the Distribution Charges are forbidden from being taken out of the £30 million, but I find it impossible to understand how it is said to follow from this that those Charges are also forbidden from being included as recoverable items in the Bill to be assessed for the purpose of implementing the costs order agreed in clause 7. Once it is accepted that such Charges are normally recoverable under such a costs order, it seems to me that, if anything, their express exclusion from the ambit of clause 18 rather confirms that they must have been intended to be recoverable under clause 7. That is because the terms of clause 18 show that the parties have specifically considered those Charges, and therefore it is peculiarly unlikely that they will have overlooked them when agreeing the costs order in clause 7.[96]The defendants also contend that Leigh Day were inefficient and/or extravagant in the way in which they organised the taking of instructions on the settlement and the subsequent distribution of the £30 million among the claimants. I would repeat what is said in paras 58-61 above about a similar contention in relation to finding (iii) on the vetting of claims.[97]Thus, the essential point for present purposes is that, with the exception of certain specific points (such as disallowing the costs of litigating with Mr Gohourou and CNVDT, and the costs of counsel going to Côte d’Ivoire) the Judge did not decide the extent, if any, to which any item under this head was recoverable. This was because he considered that it was “not possible at this stage to deal with the proportionality of the costs” incurred in connection with advising and taking instructions on the settlement and the subsequent distribution of the £30 million. I do not consider that there is anything in the argument that he was not entitled to reach such a conclusion at this, preliminary, stage. With all the evidence and arguments that he received, and with the benefit of all his experience, the Judge was in a very good position to form this view, Even if there was something in the argument, all we could properly do would be to send the question back to him, with the suggested rider of “reasonableness and necessity” after “proportionality”.

The claimants’ appeal

[98]In para 383 of his judgment, the Judge said this “The defendants clearly cannot be held responsible for an open ended liability for costs; equally the claimants are entitled to recover reasonable and proportionate costs relating to distribution. The defendants paid the settlement money on 23 September 2009, CNVDT obtained their first order from the court on 26 October 2009. In my judgment the intervening month should have provided Leigh Day with sufficient time to distribute the settlement monies, had adequate preparations been made. It will be a matter for further argument what costs may properly be recoverable during that period.”[99]There is no doubt that a costs judge could conclude that there should be a cut-off date, after which no further costs of distribution could be claimed, although one would presumably have to be careful not to penalise the claimants unfairly by depriving them of the right to recover costs which were reasonably and necessarily incurred solely because they were incurred later than they should have been.[100]The claimants’ complaint in this case is three-fold. First, that the choice of the particular cut-off date is arbitrary and could unfairly penalise them for the reason just given, particularly as the distribution process was held up by the injunction granted by the Côte d’Ivoire court. Secondly, that the imposition of a cut-off date was inconsistent with clause 14 of the Settlement Agreement, which envisaged that the distribution exercise would continue until the end of 2009. Thirdly, that the imposition of a cut-off date was not argued for by either party.[101]In my view, the combination of the first and third of those reasons ineluctably drives the conclusion that the claimants’ appeal against the Judge’s imposition of the cut-off date of 26 October 2009 is well-founded. The possibility of a cut-off date appears to have been briefly touched on during the argument before the Judge before he gave the main judgment, but not in such a way as to put the claimants fairly on notice that the Judge would reach a firm decision on the point, let alone that it would be as unequivocal a conclusion as to prevent the claimants recovering in respect of any work in effecting the distribution of the £30 million after that date, however reasonable and necessary that work was.[102]I would therefore allow the claimants’ appeal on this point. In fairness to the Judge, who had a very large number of issues to decide in the main judgment, I should add that it is easy to see how he may have thought that this particular point had been fully addressed by the parties, but, having been taken to the relevant parts of the transcripts of the argument before him, I am satisfied that it was not.[103]I am not convinced that the claimants’ second point would justify allowing their appeal if it was the only argument available to them, but it does give their case some added force. Clause 14 of the Settlement Agreement provides that any claimants who have not previously agreed, but who are permitted by Leigh Day to become settling claimants, are to be bound by the terms of the agreement, but that no claimant may become a settling claimant after 31 December 2009 (subsequently extended to 31 January 2010) without the prior written permission of the defendants’ solicitors. While that does indicate that the parties envisaged the working out of the order could well extend to the end of 2009, it does not necessarily mean that, with the benefit of reasonably invoked hindsight, it would not be open to a costs judge to say that the distribution exercise should reasonably have ended before that date. Further, even if the claimants’ second point has force (which a costs judge may think that it does), it merely supports the notion that the costs incurred in distributing to late-settling claimants were anticipated as possibly going beyond 2009 and into 2010.

Cost of funding

[104]The issue here is whether the costs of and in connection with the work undertaken by Leigh Day, counsel, costs draftsmen and insurers in establishing and setting up the conditional fee arrangements and/or the ATE insurance policy are recoverable, and whether the costs of subsequent dealings with the ATE insurers are recoverable. The Judge held that they were recoverable, and the defendants appeal against this conclusion.[105]The defendants rely, as they did before the Judge, on the well established general rule, perhaps most clearly considered in Hunt v Douglas Roofing (1987) 132 Sol Jo 935, that the cost of funding litigation, in the sense of interest paid on the money borrowed to pay solicitors bills submitted in connection with the litigation, was not recoverable under the old rules relating to costs – RSC Order 62. The Judge (rightly in my opinion) accepted that this principle applied equally in relation to the CPR (although there is now an express right under the CPR to interest on costs incurred). However, he held that the costs of drafting and preparing the CFAs for this case, and explaining them to potential claimants, and advising them in that connection, were recoverable as were the costs of negotiating and arranging the ATE insurance.[106]I agree with the Judge that the costs which are sought to be claimed under this head are distinguishable from the interest in a case such as Hunt 132 Sol Jo 935. Interest on sums borrowed to pay litigation costs is not money payable to solicitors for work done for the ultimate benefit of the client, whereas it is easier so to characterise sums incurred by solicitors in preparing and advising on a CFA and arranging ATE insurance, or on subsequently dealing with the insurers. I also see the force of the point that a solicitor acting for a (CFA and ATE insurance)-funded claimant should be able, as a matter of policy, to recover the costs sought under this head from the defendant if the claim is ultimately successful.[107]Nonetheless, both(i) interest paid on money borrowed to pay litigation costs and(ii) costs incurred in connection with a CFA and ATE insurance are ultimately attributable to the need of a litigant to fund the litigation as opposed to the actual funding of the litigation itself.[108]I do not agree with the Judge’s decision on this issue, so far as any costs in establishing and setting up the conditional fee arrangements and/or the ATE insurance policy are concerned. The time, expertise and effort devoted by solicitors to identifying a potential claimant, and negotiating the terms on which they are to be engaged by the claimant, in connection with litigation, cannot, in my view, be properly described as an item incurred by the client for the purposes of the litigation. Until the CFA is signed, the potential claimant is not merely not a claimant: he is not a client. When advising a potential claimant on the terms and effect of the CFA, the solicitors are acting for themselves, not for the potential claimant: the solicitors are negotiating with him as a prospective client, not for him as an actual client.[109]One would not expect a prospective contractual provider of services or goods to charge his client or customer for advising on the terms of the contact under which the goods or services are to be provided. And, even if solicitors were to charge a person for advising in connection with a CFA in respect of future litigation before the person becomes their client, that advice would not have been given to a person who, at the time of the advice, was a client (or a party to the proceedings).[110]It seems to me that 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 with a potential client, should not normally be treated as attributable to, and payable by, the ultimate client or clients. Rather, such expenses should generally be treated as part of a solicitor’s general overheads or expenses, which can be taken into account when assessing appropriate levels of charging, such as hourly rates.[111]Support for this conclusion is said by the defendants to be found in the Solicitors Code of Conduct, which unsurprisingly imposes duties on solicitors to explain funding arrangements to their prospective clients. I am not persuaded that the mere fact that a solicitor is obliged to do something by the Code of Conduct means that he or she cannot charge for it: carried to its logical conclusion, it seems to me that the argument would mean that a solicitor could not charge a client for anything. I draw support for that conclusion from what Arden LJ said in Garbutt v Edwards [2005] EWCA Civ 1206, para 31:
“The inference I would draw is that the Code is there to protect the legitimate interests of the client, and the administration of justice, rather than to relieve paying parties of their obligations to pay costs which have been reasonably incurred.”
[112]Equally, however, the fact that a solicitor is required by his professional code to act in a particular way vis-à-vis his client does not mean that he is entitled to charge him for it. I am more persuaded, however, by the point that the Judge’s conclusion in this case is hard to reconcile with the fact that, as he accepted, a solicitor cannot recover the costs of setting up funding for a client from the Legal Services Commission (“LSC”). When negotiating with the LSC or drafting a CFA, the solicitor is engaged on a similar task with a similar purpose, namely seeking to arrange a way in which funding can be arranged so that he or she can act for a prospective client.[113]So far as the costs incurred by Leigh Day in referring to the ATE insurers during the litigation are concerned, it can fairly be said that they stand on a different footing in the sense that, ex hypothesi, such costs will have been incurred after, probably long after, the ATE insurance has been taken out. Accordingly, the objection discussed above to the costs of setting up the insurance as part of the overall contract between solicitor and client, as discussed above, does not apply in all its simplicity.[114]Despite this, I have reached the conclusion that the costs incurred by Leigh Day in discussing the progress of the litigation with the ATE insurers, and taking their instructions in that connection, are not recoverable from the defendants. The precise dividing line between recoverability and irrecoverability is, perhaps inevitably, somewhat blurred and subjective. However, as I see it, the cost incurred in having such discussions and taking such instructions was not so much a cost of the litigation as a cost which was collateral to the litigation, being a cost incurred to ensure that the claimants were not at risk on costs. Success fee Introductory

Success fee

[115]In this case, both Leigh Day and counsel acting for the claimants charged a success fee of 100%, which inevitably served to increase the claimed recoverable costs very substantially. The Judge was faced with three questions, namely(a) whether Leigh Day should have reconsidered their risk assessment and success fee when (i) the CFAs were superseded or new CFAs were entered into and/or (ii) after certain stages in the litigation,(b) whether the risk assessments undertaken by Leigh Day justified the success fee claimed, and(c) the appropriate success fees for this case.[116]The Judge answered question(a) (i) and (ii) in the affirmative and question(b) in the negative, and, on considering question (c), he decided that the appropriate level of success fee would have been between 100% and 47%, depending on when a claimant entered into a CFA, and he fixed a single percentage of 58%, for both Leigh Day and counsel. There is no appeal against his answer to question (a). The claimants appeal against the answer to question (b) (for which they need, and we give them, permission). Both parties appeal against the answer to question (c): the claimants contend that there should have been no reduction from 100%, or alternatively that the reduction was too great, and the defendants contend that the reduction to 58% was too modest a reduction.[117]The Judge said that, in November 2006, 50% was a “fair assessment” of the chance of winning, but that, “[o]nce the acknowledgment of service had been served on 4 December 2006, the risk in respect of forum would have gone [and] the chance of winning therefore increased to 61.2%.” He then held that when the defendants told the claimants that they had reached the settlement agreement with the Côte d’Ivoire Government, “this would …have … increase[ed] the chance of winning to 65%, but on service of the Defence in July 2007, “it would have been apparent to Leigh Day that the defendants were going all out to defend all aspects of the claim” so that “the risks in respect of medical and other causation would … increase by 5% … giving a 57.8% chance of winning. He also held that once the consent order was made in October 2008, recording that “the court would not be required to determine the issues of existence of duty, breach and foreseeability”, and that any claimant who proved he or she had sustained any personal injury as a result of the fumes would be entitled to damages, “the chance of winning became 68%”[118]It is common ground that an uplift of 100% represents a 50% chance of success, and that a 58% uplift represents about a 62% chance of success. It also appears that “success” is defined in the CFAs entered into by Leigh Day with each of the claimants as a situation where the claimant “become[s] finally entitled (whether by agreement, judgment or otherwise) to be paid any damages (including provisional damages) and/or all or part of the legal costs of [his or her] substantive claim”.

Discussion

[119]As was made clear by Brooke LJ in KU v Liverpool City Council [2005] 1 WLR 2657, para 20, in the passage cited in para 41 above, the reasonableness of the size of the success fee is to be judged as at the time that it is agreed, and subsequent events should not influence the court’s assessment of its reasonableness. Having said that, the court may well be more sympathetic to a relatively high success fee, where the level of success fee is reviewable as the case progresses (as discussed in Callery v Gray [2001] EWCA 1117, [2001] 1 WLR 2112, paras 106-112) as opposed to a case such as this, where the success fee is fixed at the beginning of the relationship between lawyer and client.[120]In the present case, in seeking to support the contention that their chances of success were in the region of 50%, the claimants rely on(i) their internal assessment of the risk at the time the success fee and CFAs were being negotiated,(ii) the advice they received from counsel as the case progressed, and(iii) a qualitative assessment of the prospects of success based on the evidence available when the proceedings were being instituted. The defendants suggest that the first and third of these factors rather support their case, and they also rely on(iv) various public statements made by Leigh Day about the prospects of success,(v) one or two more private statements, and(vi) the assessment of the claimants’ ATE insurers.[121]Leigh Day’s internal assessment of the prospects of success as 50% was made up by multiplying out the following risks: “breach of duty” 80%, “causation – medical” 90%, “causation – other” 85%, “forum” 82.5%.[122]This contemporaneous and detailed assessment is obviously an important piece of evidence when considering the prospects of a successful outcome of these proceedings. However, while I am not suggesting that this assessment of the risks was not honest, it does seem to me that it is at least potentially self-serving, prepared as it was by a person employed by the claimants’ solicitors, who obviously have an interest that the success fee is as high as possible, while their clients, the claimants, have no interest in keeping the success fee low, as they will never have to pay it. Indeed, given the financial interest in winning the case which the success fee gives to the claimant’s lawyers, the claimant, if anything, has an interest in his solicitors charging a high success fee. My concern about the reliability of the 50% overall assessment is reinforced by the somewhat dubious precision of the figures, especially the 82.5% attributed to “forum”.[123]Of course, in order to arrive at an appropriate success fee, it is necessary to attribute quantitative risk assessments to the potential problems, and, at any rate at first sight, it appears sound logic in principle to multiply out those risk assessments in order to arrive at the overall risk. However, in the context of legal proceedings, such an approach is open to attack in principle, as may be appreciated from the rather compressed discussion in paras 23.5-9 in Chalk onRisk Assessment in Litigation (2001). Not only is the precision accorded to the prospects somewhat artificial, but the implicit assumption that each of the risks is entirely self-contained, or insulated from all the other risks, is plainly very questionable. Further, as Mance LJ recognised in Hanif v Middleweeks (unreported, 19 July 2000), para 41, a judge trying a case “might, even if only subconsciously, [be] predisposed towards a more favourable overall conclusion on the technical issues if and when he had concluded that the hurdle involved on the [substantive causation issue] could be overcome [by the claimant]”.[124]Nonetheless, the Judge (and I think the defendants in their argument below) “accept[ed] both that the assessed risk factors are accurate as at November 2006, and that the way in which the 50% chance of winning has been arrived at is also a proper calculation” (see para 437 of the judgment). The reason he departed from that assessment in relation to most of the claimants was partly due to the change of circumstances after the initial assessment and before the great majority of claimants had entered into a CFA (as summarised above), and partly because he thought it was wrong “to value the risk in cases in which the CFA is made at the outset of the dispute, without giving some discount for the possibility that the case might reach early settlement, whether or not the actual risks altered.”[125]I can see nothing wrong with that analysis or the conclusion the Judge arrived at. It may well be that some people would have thought that the settlement with the Côte d’Ivoire Government reduced the prospects of success, because the defendants would not be prepared to pay more; but other people would probably have regarded it as enhancing the prospects of success, as it showed that the defendants were prepared to buy off claims. In adopting the latter view, the Judge plainly acted rationally, and I see no grounds for objecting to his figure.[126]Having said that, no doubt partly because the arguments before us on this issue were somewhat different from those before the Judge, I would adopt a slightly different approach to the issue of the appropriate figure for percentage uplift, although (unsurprisingly) it produces the same sort of result.[127]When it comes to determining the prospects of a claim succeeding, there is, for the sort of reasons just discussed, a risk of becoming beguiled by the apparent accuracy of an assessment which is expressed in figures and appears to be logically based. In the end, however, the determination is a matter of judgment, which involves arriving at an overall assessment by weighing up various factors, which are inherently difficult to quantify, not least because the quantification will be a matter of opinion on which reasonable people could differ (sometimes quite substantially), and because the factors are not as independent of each other as might first appear. Accordingly, while it is right to place significant weight on Leigh Day’s initial assessment, it would be very dangerous to rely on it without further consideration, partly because of its inherent dangers (as summarised in paras 122-3 above), partly because events had moved on by the time most of the claimants entered into CFAs (along the lines summarised by the Judge in para 117 above) and partly because there is other evidence which is relevant to this issue (as discussed in paras 129-131 below).[128]As to the other evidence, a significant fact is the contemporaneous assessment of an experienced insurer, Peter Smith, the individual who advised and represented First Assist Insurance Services Ltd (“First Assist”), the company which negotiated and provided the ATE insurance for the claimants. He calculated the ATE premium on the basis of his assessment that the claimants had a 65% prospect of success in February 2007. However, it is right to mention that his evidence to the Judge was that, on the basis of his subsequent experience this was rather too generous an assessment of the prospects. In one sense, hindsight is irrelevant, but it may be taken into account, albeit with caution, if it is said to be based on experience of other cases, although this case may have been sufficiently unusual and fact-specific that one must question the extent to which subsequent cases throw any light on the appropriate assessment of the prospects of success.[129]The claimants also relied on the assessments of various counsel, who considered the prospects of success at 50% even after the defendants had acknowledged service. However, only some of these specific assessments were specific in terms of figures. Further, one does not know what counsel’s instructions were, or what information those instructions included. It would also be unrealistic not to acknowledge that many members of the Bar tend to err on the side of caution when advising (although a significant proportion of barristers may tend the other way).[130]In this case, there is reason to think that counsel’s formal advice may (perfectly properly) have tended to be cautious. Leigh Day informed First Assist, when seeking ATE insurance for the claimants in January 2007, that leading and junior counsel were “clearly as confident as we are that the case will be won.” The same point can be made about other letters or emails written around this time by Leigh Day to prospective insurers (e.g. describing the claims as having “an excellent chance of succeeding” and “[l]eading counsel and we think the case is pretty straight forward”). I accept that there might have been a tendency to talk the prospects up in such correspondence, but these were private communications from solicitors, and written to prospective insurers, and their contents are, in my opinion, significant for present purposes.[131]On the other hand, I am not impressed by the defendants’ point that Leigh Day were regularly talking up the claimants’ prospects in public statements. Of course, it was in the claimants’ interest to try and persuade the defendants that the claimants’ solicitors were very confident of recovering a large sum if the case should go to court, as that was an obvious way of trying to engineer a settlement which was favourable to the claimants.[132]The question for the Judge when considering the reasonable figure or figures for uplift was ultimately a value judgment, based on his retrospective assessment of the risk of failure at the date the uplift was determined. Although the risk must be precisely quantified in order to arrive at a specific success fee, the exercise is inevitably one which involves the costs judge evaluating and weighing the various weaknesses and strengths of the claimants’ case, and reviewing in particular the contemporaneous assessments. In this case, the Judge considered the various competing factors and evidence and arrived at a success fee varying between 100% and 47%, depending on when a claimant entered into a CFA, and on average 58%.[133]The role of this court, on an appeal from that assessment, is not whether we would have decided that a reasonable success fee was between 100% and 47%, averaging around 58%, but whether the Senior Costs Judge, when assessing that figure as a reasonable success fee, ignored or misunderstood relevant evidence, took irrelevant evidence into account, went wrong on any point of law, arithmetic or principle, or reached a conclusion which was plainly wrong. In the light of the factors I have identified and discussed, it seems to me that he committed none of these errors. Further, while it is unnecessary to go so far, it is fair to add that in my view an assessment of the prospects of success at rather over 60% would be correct, although, as is probably clear from what I have said, my way of arriving at that figure differs slightly from that adopted by the Judge, no doubt because the arguments before us (particularly on behalf of the defendants) appear to have differed somewhat from the arguments before the Judge.[134]It was also suggested that the Judge went wrong because he was not obliged to fix the same level of success fee for solicitors and counsel. I agree that he was not obliged to fix the same level of success fee, but it does not follow that he was wrong if he decided to fix the same level. If he had held that he was bound to fix the same level of success fee for counsel as he had fixed for the solicitors, that would have been an error of law. Equally, if there were reasons for fixing different levels which any reasonable costs judge would have concluded should result in different levels, his decision could not have stood. However, neither argument can be fairly raised in this case. ATE premium Introductory

ATE premium

[135]In para 18 above, I have briefly explained the effect of a claimant conducting litigation on a “no win no fee” basis, including the nature of the ATE premium. The quantum of that premium increases as the proceedings continue, as it reflects the extent of the risk which the claimants’ costs insurers are facing: the longer the proceedings continue, the greater the defendants’ costs are likely to be, and therefore the greater the potential liability of the insurers.[136]In this case, the premium which the claimants seek to recover is £9,677,554. This figure is based on a contract which Leigh Day negotiated for the claimants with First Assist. The Judge held that the ATE premium was recoverable in its entirety. In his judgment on this issue, the Judge set out the terms of the insurance provided to the claimants by First Assist, and also quoted from the extensive evidence of Mr Smith as to how the premium was calculated, including his assessment of the claimants’ prospects of success as 65%, and the eventual premium rate of just under 62% (being a 53.8% risk premium rate and a loading of 15% for administration and profit). The Judge also had the benefit of the evidence of Richard Myrtle, an experienced insurance broker, who had dealt with legal expenses insurance for more than twenty years, for the claimants, and Trevor Clegg, who had worked in the insurance industry for forty years, for the defendants.

Discussion

[137]The Judge had to consider a number of points, which are not pursued on this appeal on the recoverability of the ATE premium, whereas the issues which are taken on this appeal by the defendants are comparatively limited.[138]The defendants’ first point is that the assessment of the risk at 65% was too cautious. Given that the Judge’s assessment of the prospects as 62% (as was implied by the 58% success fee) was reasonable, it seems to me impossible to conclude that 65% was too pessimistic. Of course, the precise figure will always be matter for argument and assessment, and can vary from time to time (as an objective assessment will inevitably change as new evidence and/or new arguments come to light).[139]Secondly, the defendants say that the failure of the claimants’ solicitors to comply with PDPAC resulted in a higher ATE premium. I have already explained why I think the Judge was right to find that the claimants were not to be penalised in costs for failing to comply with PDPAC, and I agree with his view on this aspect too.[140]The defendants’ third point is that Leigh Day and First Assist should have negotiated an ATE policy with a variable premium rate, which would have resulted in an overall lower premium, as the claimants’ prospects of success would have been perceived as improving with the passage of time. The Judge accepted the counter-argument that “this is not the way group insurance works”, and there was a high risk that such policies would not have prevented the defendants applying for, and obtaining, security for costs. However, even if such terms could have been negotiated, there was no evidence that this would have resulted in a lower overall cost, and, even if it would have done, it seems to me that, on the evidence and arguments before the Judge, there was no basis for saying that the claimants were unreasonable in not insuring on this basis.[141]Fourthly, the defendants say that the premium is startlingly high. It may appear so to many people (and indeed the Judge said that there was “no denying that the premium claimed in this case is extremely high”), but, as the Judge said, there was no “expert evidence of policies providing similar cover available on the market at lower premiums” and “no criticism is made of the actual mechanism used by First Assist in order to calculate the premium”. In addition, there was cogent evidence that the 15% uplift was reasonable.[142]Finally, Mr Bacon says that Leigh Day failed to inform First Assist of the defendants’ settlement with the Côte d’Ivoire government, and this may well have resulted in a lower ATE insurance premium being negotiated. The Judge was, in my opinion, correct to reject this argument also. There is no evidence that First Assist would have regarded the settlement as improving the claimants’ prospects of success. From the insurers’ viewpoint, the settlement may have been of no real assistance in assessing the prospects of the claimants succeeding: it may have been purely commercially driven, irrespective of legal arguments, or it may have been to try and ensure the release of two senior directors. Indeed, some insurers may have thought, as the claimants suggested in relation to the level of success fee, that the settlement meant the prospects of success had deteriorated, as the defendants may have regarded the US$200m as enabling them to draw a line under any legal proceedings.[143]It is fair to say that, as explained above, the Judge clearly thought that the settlement improved the prospects of success (when assessing the appropriate level of success fee). However, two points can be made in answer to that. First, the settlement justified the prospects of success in the Judge’s view as being 65%, the very figure on which the ATE premium was based. Secondly, the effect of the settlement in the Judge’s view was to improve the prospects by some 3.8%; that is scarcely a figure which justifies an adjustment, particularly in the light of Mr Smith’s evidence that the assessment of 65% was, in the light of subsequent experience, on the generous side.[144]For all these reasons, I would reject the defendants’ attack on the Judge’s finding that the ATE premium is recoverable.

Conclusions

[145]In these circumstances, my conclusions are as follows: i) Proportionality: I would allow the defendants’ appeal, and would hold that it follows that any item on the Bill is only to be allowed if it was necessary; ii) Vetting costs: I agree with the Judge’s conclusions, save that the necessity test must be satisfied before any item is recoverable, and any specific (as opposed to generic) item can only be recovered if it falls within the grasp of the relevant claimant’s CFA; iii) Pre-Action Protocols: I would dismiss the defendants’ appeal against the Judge’s finding that there should be no disallowance or reduction in respect of any sum claimed in the Bill on the ground of the claimants’ failure to comply with any protocol or the PDPAC; iv) Medical reports: Subject to the point that the cost of these reports should not be recoverable if it was unnecessary to obtain them, I would uphold the Judge’s conclusion on this issue. v) Abandoned claims: Subject to satisfying the requirement of necessity in relation to an item, the claimants can recover costs in respect of the “abandoned claims” in so far as it was reasonable and proportionate to plead, investigate and pursue them; vi) Settlement and distribution: I would uphold the Judge’s conclusions, save I would discharge his imposition of the 26 October 2009 cut-off date; vii) Cost of funding: Contrary to the Judge’s conclusion, I do not consider that the claimants can recover the costs of preparing and advising on the CFAs, nor do I consider that they can, recover any costs incurred in discussing the litigation with,, or taking instructions from, with the ATE insurers; viii) Success fee: I would uphold the Judge’s determination of 58% uplift for both Leigh Day and counsel; ix) ATE premium: I would uphold the Judge’s decision to fix the premium of £9,677,554 by reference to a 65% prospect of success.

Lord Justice Maurice Kay:

[146]I agree.

Lord Justice Hughes:

[147]I also agree.

Cited in 17 later judgments

and 8 more of the most senior