The short judgment of Mr Justice Males in the case of Vitol Bahrain –v- Nasdec General Trading LLC makes it clear that the issue of proportionality in costs impacts upon cases of every size, even the most major multi-million dollar dispute.
VITOL BAHRAIN – THE APPLICATION
(Vitol Bahrain EC –v- Nasdec General Trading LLC (RCJ 5/11/2013))
The substantive case is the Vitol Bahrain case was highly significant. It concerned who had title to oil cargoes with a total value of US $119 million.
However the application before the court was not about title. It was about whether an injunction should be granted to prevent the defendants from joining the claimant into an action in the UAE. In essence the case was about where the matter should be litigated. The parties agreed that justice could be done either in the UAE court or the UK. Which court heard it was, in essence, a matter of preference.
The hearing took just over a day (an extra half hour was used in order to finish). The judge described it as not particularly heavy by Commercial Court standards with three ring binders of evidence. The defendants were successful.
The judge described the statements of costs filed on each side as “eye watering”.
1. The claimant’s schedule claimed £242,760.48 (although this included the costs of an earlier without notice application).
2. The defendants’ statement of costs sought £165,421.80.
THE JUDGE’S OBSERVATIONS
The judge was blunt in his observation:
“Essentially, therefore, the parties have between them spent over £400,000 in order to determine which of two courts should decide that question of title, when each of them accepts that either court is well capable of doing so in accordance with the interests of justice.
The judge went on to state:
- The parties and their lawyers are free to agree whatever they wish.
- However the rules make it clear that the costs recoverable by the successful party from the unsuccessful party are limited to those which are reasonable and proportionate.
- Specialist counsel and solicitors were needed, as was the involvement of lawyers in the UEA.
“Nevertheless my firm view is that the amounts claimed by way of costs in this case are grossly disproportionate”.
A MESSAGE SENT OUT TO THE COMMERCIAL COURT: COSTS ARE NOT REASONABLE JUST BECAUSE THEY ARE COMPARABLE
“It is important that the message should go out loud and clear that the Commercial Court will not assess costs summarily in such disproportionate amounts merely because the figures on both sides are broadly comparable. Control will be exercised to ensure that the costs claimed from the unsuccessful party are reasonable and proportionate”.
The Defendants’ costs were reduced from £165,421.80 to £75,000.
COSTS BUDGETING IN THE COMMERCIAL COURT
The judge observed that the costs incurred in that case would not have been prevented if the rules about costs budgeting had applied in the Commercial Court. Many cases concerned jurisdiction and anti-suit injunctions. Costs, and substantial costs were incurred at a time when it was not known whether the court has or will exercise jurisdiction. “To require the parties to submit costs budget at that stage would therefore be impracticable”.
SHORTFALL IN COSTS
There was a shortfall of costs claimed, as against costs awarded, of £90,421.80. This highlights the need for litigators, at any level of litigation, to be aware of the overriding principle of proportionality.
- Private clients have to be warned about the potential shortfall.
- Strategies will have to be adapted to mitigate costs. (This will be the subject of a future post).
- It cannot be assumed that because one side has a large costs schedule the successful party can point to that schedule as evidence of the reasonableness of the costs incurred. Both schedules could be disproportional.
FINDING THE CASE
The case is available to subscribers of Lawtel.
- A link to the Senior Court Costs Office Guide is at https://civillitigationbrief.wordpress.com/2013/10/08/new-senior-court-office-costs-guide/
- A guide to interim applications (albeit in the Chancery Division rather than the Commercial Court) is at https://civillitigationbrief.wordpress.com/2013/08/01/guide-to-interim-applications-in-the-chancery-division/