COSTS, INDEMNITY COSTS AND THE EXPENSIVE CONSEQUENCES OF A SIEGE BASED MENTALITY

It is surprising how often cases that have been looked at because of issues in relation to the evidence at trial are reported again on the issue of costs.  The Ocensa Pipeline Group Litigation case is such an action.  I have looked at it earlier* in relation to the evidential issues.  There is now a further judgment in relation to the question of costs (Ocensa Group Pipeline Litigation -v-Equion Energia Limited[2016] EWHC 3348 (TCC).) Mr Justice Stuart-Smith considered the principles relating to issue based costs orders and the award of indemnity costs.  It is also an important example of the dangers of a siege based mentality in litigation.

“…if what is complained about has had no impact on costs, it will require cogent reasons to justify depriving a successful party of part of its costs on the basis of the complaint.”

“Virtually all of the difficulties in unravelling the sums claimed flowed from exaggeration of the underlying factual basis of the claim …”

THE CASE

The claimants failed in all their lead claims against the defendant.  It was agreed that the rest of the claims would be dismissed.

THE COSTS

The costs involved were enormous.

  1. The costs incurred in the litigation are huge by any standards. They run to tens of millions of pounds on each side and dwarf any sums that the Claimants might have hoped to recover at trial even on the most optimistic projections. In August 2013 the Defendant’s incurred and estimated costs for the litigation were over £27 million. In September 2014 the Claimants’ Costs Budget amounted to over £24 million. Because of developments in the litigation after those dates and the tenaciously combative conduct of the litigation on both sides, I am certain that those estimates on each side will have been exceeded. The evidence of Mr Isted, the partner at Freshfields having conduct of the litigation on behalf of the Defendant, suggests that the Defendant’s incurred costs of the litigation are now in the region of £34 million. I have no up to date estimate of the Claimants’ costs.

THE ATE POLICY

There was an after the event insurance policy in place which did not begin to cover the costs involved.

  1. There is an ATE Policy in existence, taken out by or on behalf of the Claimants. It has a sum insured of £1.8 million, which is a small proportion of the sums incurred by the Defendant in defending the claims. Its existence provides the explanation for an agreed order that there should be an interim payment on account of the Defendant’s costs in the sum of £1.8 million. As for the rest, the Claimants themselves could not possibly begin to discharge more than a tiny fraction of the Defendant’s costs even if it was feasible to try to enforce an order against them, as to which I say nothing. The Court was told that the issues which it is called upon to decide are not academic, for reasons which I do not need to investigate. I accept that assurance.

THE ISSUES IN RELATION TO COSTS

The defendant sought its entire costs on the indemnity basis. The claimant sought an order that they pay 60% of the defendant’s costs on the standard basis.

THE LEGAL PRINCIPLES INVOLVED

Mr Justice Stuart-Smith considered the relevant principles in detail.

The general approach
  1. The Claimants’ application that there should be a reduction in the percentage of the Defendant’s costs that they should pay and the Defendant’s application for indemnity costs engage different principles, which I shall consider in turn. However, the considerations which will lead to orders I make on each application have a degree of overlap. Each application involves an exercise of discretion in accordance with established principles. Accordingly, although I shall summarise and discuss the parties’ submissions on each application in turn, it will be necessary to stand back at the end of the exercise and to decide at that point what orders are right, both individually and in conjunction with each other.
Reducing the costs recoverable by a successful party
  1. CPR 44.2, provides the framework:
“(1) The court has discretion as to –
(a) whether costs are payable by one party to another;
(b) the amount of those costs; and
(c) when they are to be paid.
(2) If the court decides to make an order about costs –
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
(b) the court may make a different order.
(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and
(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.
(5) The conduct of the parties includes –
(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction – Pre-Action Conduct or any relevant pre-action protocol;
(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(c) the manner in which a party has pursued or defended its case or a particular allegation or issue; and
(d) whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.
(6) The orders which the court may make under this rule include an order that a party must pay –
(a) a proportion of another party’s costs;
(b) …
(c) costs from or until a certain date only;
(d) …
(e) …
(f) costs relating only to a distinct part of the proceedings; and
(g) …
(7) Before the court considers making an order under paragraph (6)(f), it will consider whether it is practicable to make an order under paragraph (6)(a) or (c) instead.
  1. The principles to be applied when implementing this framework and exercising the Court’s discretion have been summarised on a number of occasions, and are well established. Gloster J provided a convenient summary, which I gratefully adopt, in HLB Kidsons (A Firm) v Lloyds Underwriters [2007] EWHC 2699 (Comm) at [10]-[11]:
“10 The principles applicable as to costs were not in contention. The court’s discretion as to costs is a wide one. The aim always is to “make an order that reflects the overall justice of the case” (Travellers’ Casualty v Sun Life [2006] EWHC 2885 (Comm) at para 11 per Clarke J. As Mr Kealey submitted, the general rule remains that costs should follow the event, i.e. that “the unsuccessful party will be ordered to pay the costs of the successful party“: CPR 44.3(2) . In Kastor Navigation v Axa Global Risks [2004] 2 Lloyd’s Rep 119, the Court of Appeal affirmed the general rule and noted that the question of who is the “successful party” for the purposes of the general rule must be determined by reference to the litigation as a whole; see para 143, per Rix LJ. The court may, of course, depart from the general rule, but it remains appropriate to give “real weight” to the overall success of the winning party: Scholes Windows v Magnet (No. 2) [2000] ECDR 266 at 268. As Longmore LJ said in Barnes v Time Talk [2003] BLR 331 at para 28, it is important to identify at the outset who is the “successful party”. Only then is the court likely to approach costs from the right perspective. The question of who is the successful party “is a matter for the exercise of common sense”: BCCI v Ali (No. 4) 149 NLJ 1222 , per Lightman J. Success, for the purposes of the CPR , is “not a technical term but a result in real life” … BCCI v Ali (No. 4) (supra)). The matter must be looked at “in a realistic … and … commercially sensible way”: Fulham Leisure Holdings v Nicholson Graham & Jones [2006] EWHC 2428 (Ch) at para 3 per Mann J.
11 There is no automatic rule requiring reduction of a successful party’s costs if he loses on one or more issues. In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case. As Simon Brown LJ said in Budgen v Andrew Gardner Partnership [2002] EWCA Civ 1125 at para 35: “the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues”. Likewise in Travellers’ Casualty (supra), Clarke J said at para 12:
“If the successful claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.””
  1. A number of the strands in this passage appear in other cases, with matters of emphasis sometimes adjusted to meet the particular facts being considered at the time. They include:
i) The objective of making an order that reflects the overall justice of the case: see BCCI v Ali (No 4) at [7] where Lightman J said “an order in favour of the successful party is generally to be adopted as calculated to achieve [the order which justice requires]; but the court in any particular case may make a different order if on the facts of that case justice so requires; …”.

ii) The fact that in almost every case even the winner is likely to fail on some issues and that there is no automatic rule requiring reduction of a successful party’s costs if he loses on one or more issues. This principle is of general application: see Fox v Foundation Piling Ltd [2011] 6 Costs LR 961 at [48] per Jackson LJ in the context of a personal injury claim;

iii) While the general principle is not in doubt, there are numerous cases which show the Court examining the outcome of particular issues and adjusting the successful party’s recovery of costs as a result of that examination. Although Clarke J was right to say that it may be inappropriate to make a separate order for costs in respect of issues upon which the successful party has failed “unless the points were unreasonably taken”, it is established by the Court of Appeal that it is not a necessary prerequisite to the making of a separate order to show that the successful party against whom a separate order is sought acted unreasonably or improperly in taking or pursuing the points upon which he failed: see Summit Property v Pitmans [2001] EWCA Civ 2020 at [27] per Chadwick LJ, Kastor Navigation Co Ltd v AGF MAT [2005] 2 All ER (Comm) 720 at [144]-[145];

iv) As the cited passage from Kastor makes clear, Chadwick LJ at [27] of Summit was addressing a case where the Court has decided to address the question of costs “on an issue by issue basis and decides that the costs should follow the event on a particular issue”. However, since that is simply one possible approach to the overall exercise of the Court’s discretion, it is no surprise to find that there are cases where the successful party suffers a reduction in its recovery of costs because it has lost on one or more issues even though the Court is not approaching the whole question of costs on an issue by issue basis. Since the over-riding concern of the Court is to reach a decision that is just on the facts of the particular case, there is no principled reason for adopting black-letter rules based on whether issues on which the successful party lost were reasonably or unreasonably taken or persisted in. I would accept, however, that the reasonableness or unreasonableness of the successful party’s conduct in relation to the issues on which it lost may be something to be taken into account when deciding whether to deprive it of a proportion of its costs.

  1. As well as identifying the principles to which I have referred, it is appropriate to concentrate on how the Court has applied them in previous cases because, as Clarke J said in Travellers Casualty at [12], “the cases illustrate how [the Court’s exercise of its discretion] may work out in practice.” In doing so, I bear in mind the Claimants’ submission that it is not necessary for any costs to be attributable (or discretely attributable) to the issue upon which the successful party has lost in order for the Court to make an order reducing the successful party’s recovery of costs.
  2. In Travellers Casualty at [12]-[14], [17], Clarke J first identified the principles as he was applying them, and then applied them to the facts of that case:
“12 … If the successful claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.
13 On the other hand, if a party raises a discrete issue which involves very substantial costs, and upon which he fails, justice may require that he should bear his costs and pay those of his opponent on the issue. CPR 44.3 (4) specifically provides that:

“(4) In deciding what order (if any) to make about costs the court must have regard to all the circumstances, including:

(a) the conduct of the parties;

(b) whether a party has been successful on part of his case, even if he has not been wholly successful.”

14 In this respect there is the practical problem that it may be very difficult for the costs judge to work out what costs are properly attributable to an issue. Such difficulty may well mean that the appropriate order is one under CPR44.3. (6)(a)–(c) . CPR 44 .3. (7) enjoins a court which considers making an order for payment of the costs of an issue to make an order under one of sub-paragraphs (a)–(c) of 44.3. (6) if practicable.
15 Even if, in relation to a particular issue, it is appropriate to order the overall winning party to bear some of its costs or pay the overall loser some of his, the issue in question, such as quantum, may itself have contained a number of sub issues, in respect of which the proper incidence of costs is not straightforward. One sub issue on which the overall winner lost may have had significant monetary value but taken little time to determine; another may be one which was of much lesser value but took more time. Another sub issue may be one on which the overall winner won.”
Clarke J then identified eight issues on which the successful insurers had lost, and continued:
“17 With one exception I do not think that justice requires me to deprive the insurers of any part of their costs in relation to liability, or to order them to pay those of Sun Life. The exception is in relation to the estoppel issue. That was a distinct issue on which the insurers lost. It involved two witnesses giving evidence about the disputed conversations over the course of two days, much of which would have been unnecessary and inadmissible if the question was one purely of construction.”
  1. At [13], Clarke J took the raising of “a discrete issue which involves very substantial costs” as his example of when justice may require an adverse order to be made. At [14]-[15] Clarke J again linked the making of an adverse order to the ability to attribute costs to the issue that the successful party has lost. At [17], having identified the eight issues upon which the successful insurers lost on liability, he identified one as “distinct” and which involved the incurring of discrete costs, as he made clear at [18]. His brief discussion of the issues in respect of which he did not think it appropriate to make an order depriving insurers of their costs identified issues where the costs attributable to them may have been incurred in any event; or where the issue was reasonably taken though not ultimately in dispute; or where the issue was within a narrow compass. While Clarke J did not expressly say that no reduction should be made where no costs are attributable to the issue or other matter that is said to justify the order, the tenor of the passage to which I have referred is clearly weighted towards reductions for issues or other matters to which costs can be discretely attributed.
  2. The same can be said of the judgment of Gloster J in HLB Kidsons. At [12] Gloster J rejected the submission that the case could have been determined by a trial of a discrete preliminary issue, which was the basis of a submission that the successful party should be deprived of part of its costs. She identified that the evidence in question was necessary for dealing with other issues: in other words, it was not possible to attribute separate and discrete costs to it. By contrast, at [14] she identified two issues upon which the overall-unsuccessful party had won and in respect of which it was able to demonstrate that it had incurred costs discretely attributable to the issue. At [16] she made a broad brush order based upon depriving the overall-successful party of its costs of those two issues and netting off the costs that the overall-unsuccessful party had incurred and shown to be attributable to them. The fact that Gloster J declined to deprive the overall-successful party of any costs in respect of the issues to which no costs were discretely attributable but did deprive it of costs in respect of issues to which costs were discretely attributable supports the Defendant’s submission in this case that no order depriving it of a proportion of its costs should be made in respect of issues which it lost unless discrete costs can be attributed to those issues.
  3. Tomlinson LJ adopted a similar or identical approach in Pindell v Airasia Berhad [2010] EWHC 3238 (Comm): see [12]-[13], [16]; as did Swift J in Jones v SS for Energy and Climate Change [2013] 2 Costs LR at [61].
  4. Drawing these strands together, the discretion under CPR 44.2(1) is unfettered. The rule requires the Court to have regard to “all the circumstances”, including those listed, and does not exclude from consideration circumstances to which costs cannot be discretely attributed. I would therefore not be prepared to say that the Court could never make an order depriving a party of part of its costs without being able to identify that there were (or would have been) costs discretely attributable to the circumstances on which the unsuccessful party relies. However, in general, it is unlikely to be just to deprive a successful party of part of his costs (still less to make an order which effectively requires him to pay part of the unsuccessful party’s costs) by reference to an issue or other circumstances which have not affected the overall level of costs that have been incurred. Even when what is being considered is conduct, rather than the loss of one or more issues, it will generally not be just to deprive a successful party of part of its costs because of conduct which has had no adverse impact on the incidence of costs. Put another way, if what is complained about has had no impact on costs, it will require cogent reasons to justify depriving a successful party of part of its costs on the basis of the complaint. It follows that, in general, I respectfully support the approach adopted in turn by Clarke J, Gloster J, Tomlinson LJ and Swift J in looking for issues (a) upon which the successful party has lost and (b) which have had a real bearing on costs.
  5. The authorities to which I have referred make plain that the Court has the power to make an order which not merely deprives the successful party of the costs it has incurred but also effectively makes it pay the unsuccessful party’s costs: see Travellers Casualty at [13]. It must follow from the Court’s general discretion to fashion an order that is just, that it may be just and appropriate to make an order which has the effect of not awarding the overall-successful party its costs but not making a further reduction by reference to the costs incurred by the overall-unsuccessful party. Such an order would be the equivalent of “no order as to costs” so that each party’s costs lay where they fell. It might be appropriate where neither party has either fully succeeded or fully lost on an issue to which costs were discretely attributable on each side.
Awards of indemnity costs
  1. CPR rr 44.3 and 44.4 provide the framework as follows:
Basis of assessment
44.3
(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –
(a) on the standard basis; or
(b) on the indemnity basis,
but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
(2) Where the amount of costs is to be assessed on the standard basis, the court will –
(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.
Factors to be taken into account in deciding the amount of costs
44.4
(1) The court will have regard to all the circumstances in deciding whether costs were –
(a) if it is assessing costs on the standard basis –
(i) proportionately and reasonably incurred; or
(ii) proportionate and reasonable in amount, or
(b) if it is assessing costs on the indemnity basis –
(i) unreasonably incurred; or
(ii) unreasonable in amount.
…”
  1. Ever since the introduction of the CPR rules on costs, it has been appreciated that an order for costs to be paid on the indemnity basis may make a substantial difference to the amount of costs ordered in favour of the receiving party. Lord Woolf LCJ summarised the position in Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson (A firm) and Ors [2002] EWCA Civ 879 at [15]:
“… The differences are two-fold. First, the differences are as to the onus which is on a party to establish that the costs were reasonable. In the case of a standard order, the onus is on the party in whose favour the order has been made. In the case of an indemnity order, the onus of showing the costs are not reasonable is on the party against whom the order has been made. The other important distinction between a standard order and an indemnity order is the fact that, whereas in the case of a standard order the court will only allow costs which are proportionate to the matters in issue, this requirement of proportionality does not exist in relation to an order which is made on the indemnity basis. This is a matter of real significance. On the one hand, it means that an indemnity order is one which does not have the important requirement of proportionality which is intended to reduce the amount of costs which are payable in consequence of litigation. On the other hand, an indemnity order means that a party who has such an order made in their favour is more likely to recover a sum which reflects the actual costs in the proceedings. The question of whether an order for costs on a standard or indemnity basis is made in litigation of the sort with which we are here concerned may be a matter of substantial financial significance. …”
  1. The removal of the requirement of proportionality by an order for indemnity costs is of particular importance in a case such as the present where the sums expended are so great and submissions are made on each side that the conduct of the other has necessitated the deployment of exceptionally extensive resources to bring and defend the proceedings. As the Main Judgment documents, the claims being brought by the Claimants were technical, arising as they did from allegations that the migration of soils disturbed by the Ocensa works had damaged the Claimants’ land. The number of claims being brought inevitably required the deployment of significant resources on each side, since each claim was fact sensitive; and the difficulties inherent in the litigation for both sides was increased by the fact that proceedings were being brought to trial nearly 20 years after the Ocensa pipeline had been laid. Although the sums being claimed in individual claims were, with some exceptions, relatively modest by the standards of some major litigation that passes through the English Courts, the overall sums claimed were not inconsiderable in absolute terms and would have been very substantial for the Claimants if they had managed to recover them. The sums claimed by the Schedules of Loss presented further difficulties, over and above the inherently technical nature of the cases being brought, partly because they were so unreliable and partly because they were subject to multiple and substantial changes, as documented in the Main Judgment. Part of the necessity to unravel the amounts being claimed in the Schedules of Loss was because allegations about, for example, the number of cattle lost in the mire, were an important cross-support for the Claimants’ assertions that their land had suffered very severe damage. Virtually all of the difficulties in unravelling the sums claimed flowed from exaggeration of the underlying factual basis of the claim (e.g. that a certain number of cattle were lost every year between given dates) and not from the expert extrapolations or calculations of value that were superimposed upon them.

REDUCTION OF THE DEFENDANT’S COSTS

The judge rejected most of the claimant’s arguments in relation to the reduction of the claimant’s costs.  However, one on issue – the “dangerous activities doctrine” – he held that the claimant should not pay the defendant’s costs.  He dealt with this by reducing the defendant’s costs by “four trial days.”

  1. I have considered whether to make an order in a form similar to that adopted by Clarke J in Travellers Casualty; but at this stage in the proceedings it seems preferable to adopt a simplified approach that meets the broad justice of the case, not least because of the absence of precise information that would permit a more specifically appropriate order. I therefore direct that the day of Mr Allison’s evidence shall for the purposes of this order be taken as typical of the costs incurred over the two days of trial taken up with this issue and shall assume that the Claimants’ costs of those attending the hearing during that evidence roughly matched those of the Defendant. On that basis I direct that the Defendant’s recovery of its costs shall be reduced by four times the costs attributable to the attendance of those counsel and solicitors who attended trial (i.e. were present at the hearing) for the Defendant on the date and for the duration of Mr Allison’s evidence, to be assessed if not agreed. In case it is not obvious, the factor of four reflects the fact that the Claimants and the Defendant each spent about two days of trial time on the issue.

INDEMNITY COSTS

The judge went on to consider whether the claimants should pay the defendant’s costs on the indemnity basis.  He held that indemnity costs should not be paid throughout but should be paid from a date in 2014 when the claimant served an expert report which was so unacceptable as to be outside the norm.

  1. The Main Judgment made findings that led to serious criticisms of the Claimants’ conduct of the litigation. Perhaps inevitably, Mr Isted gathered together what he described as “key excerpts” from the Main Judgment and re-presented them as 36 pages of a Schedule to his 10th Witness Statement. They do not make happy reading for the Claimants; but for the purposes of this Judgment I have been careful to remind myself of their context in a very long Main Judgment and to assess not just the Defendant’s selection but the Main Judgment as a whole and what it says about the conduct of the litigation by the Claimants over the course of years. Both parties accept that it would be wrong simply to cherry-pick, and I do not do so; but in presenting its submissions the Defendant properly lists and addresses topics in support of its submission that there should be an order for indemnity costs.
  2. The topics so identified by the Defendant are:
i) The Claimants’ Schedules of Loss, relying in particular on MJ[407]-[412];

ii) The failure to consider the impact of the ODC pipeline, relying in particular on MJ[922];

iii) The Claimants’ experts’ interdisciplinary approach, relying in particular on MJ[498]-[502] and MJ[735];

iv) Dr Card’s fourth and fifth reports, relying in particular on MJ[504(iv)-(viii)];

v) The Claimants’ maintenance of the case in dolo, relying on the serious nature of the allegations that were made and referring in particular to MJ[58] and [465];

vi) The water quality evidence of Dr Tobon, to which the Main Judgment refers at [636]-[649], [665]-[666], and [668] in particular;

vii) The Willis Report, relying upon MJ[886]-[887];

viii) The Defendant’s Calderbank offer by which it offered to drop hands on 11 April 2014.

  1. The Schedules of Loss: in the Main Judgment I found on the basis of the materials available to me at the time that Leigh Day did not go through the Original Schedules of Loss with any Claimant before serving them on the Defendant or before incorporating them in the pleaded case: see MJ[409]; and that the Original Schedules were constructed in a way that meant that no weight could be placed upon them: see MJ[410]. I was also not satisfied that any Trial Claimant either read or had read to them so that they understood the Revised Schedules of Loss: see MJ[412]. The inadequacies that I identified continued right through to the last iterations of the Schedules, which were delivered during the trial: see MJ[412]. The Main Judgment also recorded the Claimants’ successive attempts to recast and revalue their claims by introducing claims for the cost of reinstating their land and, later, to claim Wrotham Park damages: see MJ[413]-[414]. Both attempts were rejected by the Court, but were potentially of extreme importance both for their effect on the quantum of the claims and the evidence that would be required to meet them.
  2. Ms Srinivasan’s 25th Statement states that:
i) “The [Schedules of Loss] served in June 2012 were discussed in detail with the claimants and (where appropriate) with the Experts, and we were satisfied that the [Schedules] were consistent with the instructions we had received”; and

ii) “The statements in the claimants’ witness statements, that they had had the Schedule of Loss read to them, were true, without exception.”

  1. This evidence does not refer to the Original Schedules of Loss and therefore cannot affect my findings in relation to them. In the light of my finding at MJ[412], while I can accept the evidence that the Schedules of Loss were read to the Claimants, I cannot and do not accept that they were read to them so that they understood them.
  2. The potential impact of the proposed amendments is shown on tables exhibited by Mr Isted at pages 67-68 of his exhibit JP11. He provides evidence of the effect of the various iterations of the Schedules of Loss in his 10th Statement. I have already mentioned the significance of the various Schedules of Loss as a cross-support for the Claimants’ case on the occurrence of damage to their land. As it was, the Schedules at every stage failed to achieve their purpose of enabling the Defendant to gain an understanding of the potential value of the claims being made because they were so unreliable and subject to such exaggeration: see MJ[406]. And I accept Mr Isted’s evidence that the difficulties presented by the various iterations of the Schedules necessitated the allocation of greater resources than should have been necessary, often at critical junctures in the litigation process when the parties should have been concentrating on other areas of preparation: see Mr Isted’s 10th statement at [32].
  3. The problems with the Schedules of Loss identified in the Main Judgment, on which the Defendant now relies, went well beyond the norm even when making all allowance for the difficult circumstances in which the Claimants’ legal advisers had to obtain evidence and put together the Claimants’ cases. My findings in the Main Judgment indicate a serial failure to obtain and present information and documents that could be relied upon for their proper purpose in the context of contested litigation. The seriousness of the failure is starkly highlighted when one remembers that each iteration was put forward to the Defendant with the intention that it should form the basis for the Defendant to settle the case.
  4. The impact of the ODC pipeline: the Claimant takes the point that the impact of the ODC pipeline was not pleaded. That is true, but it does not meet the criticism, which is that the Claimants’ experts should have considered it in any event. It is also a purely technical pleading point because it was entirely clear from Dr Savigny’s report, which was exchanged in June/July 2013, that the ODC pipeline was an evidential and potentially causative feature of fundamental significance; and the trial proceeded on that basis. Nor is the criticism about the failure to recognise the importance of the ODC pipeline limited to the Claimants’ experts: see MJ[922]. It is relevant to remember that the Claimants provided notes to the Court on the vulnerability of their witnesses. Time and again those notes included observations on their lack of sophistication, difficulty in providing chronological accounts and potential deference to those who they perceived to be more sophisticated. Those characteristics placed a heavy burden on those who were trying to establish the truth in order to present a well-founded claim. The burden was one which competent professionals should have recognised; and it arose because of the obvious risks of natural suggestibility, heightened by the risk of deference to those acting for them in litigation where they (the Claimants) were at no personal risk if the litigation were to prove to be ill-founded. I am not able to determine with any more precision than set out in the Main Judgment what went wrong with the construction and presentation of the Claimants’ cases but I have found that the Claimants’ inherent difficulties with chronological memory have on occasions been reinforced by the process of litigation: see MJ[249]; and the scale and extent to which the factual evidence was wrong, particularly in relation to the mantra that the ODC pipeline did no damage, was well beyond the norm.
  5. The Claimants’ interdisciplinary approach: the Claimants’ experts’ reports as a body were superficially impressive, at least to my eye. They were exchanged in and after mid-2013. A major feature of the body of evidence was the way in which it appeared to be mutually supportive with cross-references to the findings of other experts. In the event, that proved to be a misleading impression, for the reasons identified at MJ[498]-[502]. As that section of the Main Judgment makes clear, the examples there cited were only a fraction of the occasions that pervaded the Claimants’ experts’ reports. The culture of misplaced inter-dependence continued right through to trial, the most obvious later example being Dr Obando’s quite unjustified reliance upon Dr Card’s fourth report: see MJ[735].
  6. The misleading cross-references and misleading implications of inter-dependence to which the Main Judgment refers at [498]-[502] should not have happened. As the Main Judgment indicates, responsibility must be shared between the experts, who should not have let it happen, and the lawyers who, on the evidence at trial, promoted it. In my judgment it went way beyond the norm of proper expert evidence and exerted an influence on the litigation that was corrosive of trust and highly detrimental in an area that was of central importance for the litigation.
  7. In response, the Claimants point to the finding that “there was a pervasive though variable tendency of the experts on both sides to concentrate on the features that they thought of particular significance to the relative exclusion of others”: see MJ[507]. In every type of litigation, and even with the most independent-minded of experts, that is a common observation which does not imply criticism: it reflects the fact that different training and expertise is likely to prime an expert to see things through the particular prism of his expertise. That is a state of affairs which is well recognised and can readily be accommodated when a Court (or an opposing party) is assessing the expert’s evidence. It is not what went wrong with the Claimants’ experts as identified in the Main Judgment and does not in any way blunt the criticisms that are made in it.
  8. Dr Card’s Fourth and Fifth Reports: see MJ[504]. The inclusion of the new calculations in Dr Card’s fourth report constituted a deliberate and serious breach of the Court’s order limiting the scope of additional reports. The seriousness of the breach was compounded by the timing of the fourth report, coming as it did so shortly before trial. The additional burdens upon the Defendant when confronted by what amounted to a new expert case five weeks before trial were substantial and unwarranted. The breach was further compounded by failing to provide the workings that lay behind the new calculations until 1 October 2014, the day before the trial started. Having realised that his calculations were wrong, Dr Card then tried to improve his position by providing his fifth report on Day 22, four days before he was called to give evidence. In doing so he gave an explanation for the new calculations which was seriously misleading. Finally, Leigh Day’s explanation in their letter serving the report was not a fair summary of what had happened and was itself seriously misleading.
  9. My assessment of Dr Card’s conduct and its implications are at MJ[505]-[506]. Because it was not put to him that he set out to mislead the Court, I did not make a finding that he did; and I do not do so now. But, with that important qualification, the history surrounding the fourth and fifth reports, which the Claimants acknowledge to be “most regrettable”, justifies serious and unequivocal condemnation: it is a history that is way beyond the norm even allowing for the fact that Dr Card was acting under remorseless pressure. The remorseless pressures of this litigation were not confined to those imposed on the Claimants in and about the preparation of Dr Card’s fourth and fifth reports; and they do not begin to justify what happened.
  10. The Claimants’ allegations of dolo: the summary in Three Rivers identifies the making of allegations of dishonesty and their aggressive pursuit as features that may be brought into account when considering whether to make an order for indemnity costs. They are particular instances of conduct which may be unreasonable and (which is different) may take the case out of the norm. The allegations of dolo that were made did not include frank allegations of fraud as typically found in English law and litigation, but they did include allegations that the Defendant was guilty of cunning and deceitful conduct and a wilful assault against the rights and interests of the Claimants: see MJ[58]. They failed: see MJ[465]. The Defendant submits that they should never have been brought in the first place and should not have been maintained at trial.
  11. I would not make separate criticism of the Claimants for initiating the case in dolo. If the more extreme evidence of the Defendant’s conduct of the works had been accepted at face value, it could have led to a finding that the Defendant paid no attention to the rights and interests of Claimants when carrying out the works. That evidence was very largely rejected in the Main Judgment, which is what led to the failure of the allegations of dolo. The Main Judgment identified that the Claimants’ case on contractual dolo was extremely vague. That, of itself, would not in my judgment either justify or support a finding that there should an order for indemnity costs. Nor can it be said that the case was pursued aggressively. On the contrary, it was hardly put to the Defendant’s witnesses and largely remained on the stocks until relatively succinct closing submissions were made on the issue. In summary, although the allegations of dolo in this litigation were analogous to allegations of fraud as typically seen in the English courts, they did not exercise the same malign influence on the litigation as fraud allegations frequently have in other cases; and neither the raising nor the pursuit of the allegations take the case out of the norm so as to support an order for indemnity costs.
  12. Dr Tobon’s evidence about water quality: the Defendant’s submissions should be seen in the context of MJ[619]-[668]. The Defendant highlights the following matters under this heading:
i) The Claimants pleaded detailed allegations in relation to water quality evidence on the basis of Dr Tobon’s evidence when they knew or ought to have known that he had no expertise in the area;

ii) Dr Tobon’s first report expressed opinions about water quality which were outside his expertise as the legal team knew or ought to have known;

iii) The Claimants’ legal team did not draw Dr Tobon’s lack of expertise to the Court’s attention;

iv) Dr Tobon deliberately omitted words when citing from an academic text in the knowledge that they were unhelpful to the Claimants’ case;

v) The Claimants only communicated their decision not to call Dr Penuela after the conclusion of Dr Tobon’s evidence.

  1. It is convenient to work backwards, starting with the decision not to call Dr Penuela. I accept that it was a decision made late in the day and was a decision taken in the light of what had happened to Dr Tobon’s evidence in cross-examination. I also accept both (a) that it was a reasonable decision to take then and (b) that it was reasonable not to have taken it before then. Dr Penuela’s evidence was dependent upon that of Dr Tobon to a substantial extent, as was apparent from a reading of his report and, from the Court’s perspective, it came as no surprise that the Claimants announced their intention not to call Dr Penuela after the cross-examination of Dr Tobon. The real problem lay with the evidence of Dr Tobon, which suffered from the pervasive defects identified in the Main Judgment. The wrongful citation from the academic text was, so far as I am aware, entirely attributable to Dr Tobon: see MJ[656]-[659]. It should not have happened and is not normal for independent experts, though not unknown in the experience of the Court. It would not on its own justify or make a substantial contribution in support of making an overarching order for indemnity costs. The failure to disclose his lack of expertise is more complex because he did refer to it on two separate occasions, both of which were known to the Defendant: see MJ[624]-[626]. On reviewing my findings and some of the references identified at MJ[624]-[625] I place the failure to make clear his lack of expertise in the category of things that may go wrong even in well-ordered litigation of this size, even though they should not. It does not, in my judgment, lend substantial weight to the Defendant’s application for indemnity costs, even though I accept that the Defendant incurred substantial costs in preparing to meet allegations of water quality that, in the end, lacked expert support.
  2. The Willis Report: the Claimants persuaded the Court to admit the Willis report for the reasons given in the separate judgment at the time. It can be seen to be a borderline decision by the Court which did not in the end add usefully to the evidence at trial; and it was a decision that the Court took in the face of submissions that Mr Willis lacked relevant expertise or the ability to provide relevant evidence. It seems to me to be wrong in principle to treat the Claimants’ conduct in serving a report by Mr Willis and calling him to give evidence as conduct that should tend towards an order for indemnity costs when that conduct had been sanctioned by the Court after a contested hearing. The fact that the Defendant’s submissions about the value of calling Mr Willis were proved to be right does not affect the reasonableness of the Claimants’ conduct in seeking the order of the Court and then complying with it.
  3. The Defendant’s Calderbank Offer: it is common ground that the Defendant’s Calderbank offer could not have been expressed as a valid offer under CPR Part 36. A Calderbank offer is not to be treated as analogous to a Part 36 Offer and the costs regime of Part 36 cannot properly be invoked, whether directly or by analogy when exercising jurisdiction under CPR 44.2: see F&C Alternative Investments Ltd v Barthelemy (No 3) CA [2013] 1 WLR 548, [2012] EWCA Civ 843 at [54]-[56]. That said, it is a matter to which the Court will have regard in deciding what order (if any) to make about costs: see CPR 44.2(4)(c). I accept Mr Layton QC’s submission, based upon the formulation of Mr Stephen Jourdan QC sitting as a Deputy High Court Judge in Richmond Pharmacology Ltd v Chester Overseas Ltd [2014] EWHC 3418 (Ch) at [4(i)], that the rejection of reasonable attempts to settle will not normally, by itself, justify an award of indemnity costs; but that if coupled with other factors it may do so.
  4. On 11 April 2014 the Defendant made a “drop hands” offer to all Claimants by a Calderbank offer. The offer was made after the Court’s order for limited responsive experts’ reports and before service of Dr Card’s fourth report. It was made during a period when both parties should have been able to assess the overall strengths and weaknesses of their cases in the light of the lay and expert evidence that had been served; and it was made in the early stages of the period when all efforts needed to be directed to bringing the case to trial in accordance with the orders of the Court.
  5. In reply, the Claimants submit that their failure to settle on the terms of the letter was not unreasonable. They submit further that if anyone has acted unreasonably it is the Defendant in refusing to engage in early settlement discussions. It is implicit in the Claimants’ non-acceptance of the April 2014 Calderbank offer and their submission that the non-acceptance was not unreasonable that the Claimants would not have accepted a drop-hands offer or similar terms if settlement discussions had in fact taken place. There is no evidence to the contrary; and there is evidence provided by the Claimants which independently supports the implication.
  6. In a letter marked “Without Prejudice Save as to Costs” on 14 November 2013, Leigh Day wrote to Freshfields recording that Leigh Day had on a number of occasions offered to meet to discuss settlement of the claims – invitations which it said had been either ignored or rejected. Under the heading “Legal costs in this litigation and Claimants’ attempts to settle” Leigh Day wrote:
“7. The Defendant has chosen to defend the case and has been the main driver for the high level of costs incurred. This decision is notwithstanding it being clear from the outset as to the Claimants’ valuation of the case. …
8. Specifically, the Claimants invited the Defendant to consider early settlement of the claims in our 2nd letter of 17 March 2010. This letter was written after your client was made aware of the level of cover under the Claimants’ ATE insurance … and after the parties had exchanged their costs budget for a period of 6 months (January-July 2010), where the Claimants estimated budget was £889,610 and the Defendant’s was £1,668,900. Our letter of 17 March 2010 proposing settlement talks was made with the escalation of costs much in mind.
9. Our letter of 17 March 2010 stated that taking on board the Defendant’s legal costs set out in its budget served in February 2010, it appeared that the Defendant’s costs up to and including trial were likely to be around £8-10 million. … We considered that whilst the Claimants’ base costs were likely to be considerably less than the Defendant’s legal costs, once the additional liabilities under the Claimants’ conditional fee agreements and the ATE insurance were added, the Claimants’ total bill of costs was likely to significantly exceed £8-10 million. Based on the cost estimate served at the time, we estimated that if your client was to lose the case at trial, it was likely to face an overall costs bill for both sides of £20-25 million. This figure has now been exceeded. Notably, we stated clearly at that date, ie some three and a half years ago: “These figures have to be seen in the context of the total value of the claims within this group action, which is likely to be but a fraction of this figure”.
10. Your response of 6 May 2010 rejected our proposal for the parties to meet and indicated that high litigation costs were anticipated in rebutting the claims ….
11. Your letter of 6 May 2010 stated it was open to the Claimants to put forward an offer for consideration. Again, bearing in mind the potential for escalation of costs in the coming months, on 7 June 2010 we put forward a global figure of £10 million to settle the claim plus the Claimants’ reasonable costs, subject to us obtaining instructions to accept any offer of settlement for that figure. No response to that offer has ever been made by your client.
12. It is surprising that your clients have seemingly only awoken now as to the mismatch between the level of the costs and the likely damages in the case. …”
  1. It is apparent that the parties did in fact meet to discuss settlement, because Leigh Day wrote a further letter marked “Without Prejudice Save as to Costs” on 29 November 2013 in which they wrote:
“We refer to the ADR meeting which took place yesterday.
We had hoped that an agreement to meet yesterday would mark a change in attitude by your client. However, your client’s stance that it would offer no more than a “drop-hands” deal plainly demonstrates that it never had any intention of entering the mediation process in good faith. It would have been quite apparent to you and your client that such an offer would never have been acceptable to the Claimants and there was no need at all to facilitate an ADR process simply to communicate such a position.”
  1. I reject the submission that the Defendant acted unreasonably in failing to engage in early settlement discussions. On the information provided by the Claimants for the purposes of this hearing it is apparent that from March 2010 (at the latest) the Claimants attempted to use the leverage of the incurred and anticipated costs of the litigation to force the Defendant to settle. This was done by overtly comparing the potential burden of costs with the relatively modest sums being claimed, repeated references to the escalation of costs being a reason for a negotiated settlement, and making clear that the Defendant had no prospect of recovering more than a small proportion of its costs from the Claimants even if successful. It is a notable feature of the letter of 14 November 2013 that it concentrates almost exclusively upon the impact of costs and the extent to which the sums being claimed were but a fraction of the probable costs, to the exclusion of any reasoned argument based on the merits of the claim. In the light of the Main Judgment, the Defendant’s refusal to make an offer of £10 million (or any offer involving the payment of damages and/or costs) for Leigh Day to consider with their clients was justified. Equally, the offer of “drop hands” made on 28 November 2013 cannot properly be characterised as demonstrating a lack of good faith in entering into the mediation process. It was a reasonable offer in the light of the evidence as it then stood and in the light of the eventual outcome of the litigation. Conversely, it is Leigh Day’s suggestion that the Defendant should offer to pay the Claimants millions of pounds in damages and their costs that carries an air of unreality in the light of the evidence that was available at the time and the further evidence discussed in the Main Judgment.
  2. Other matters were raised before the hearing but were not pressed as additional reasons supporting an order for indemnity costs. Rightly so. At the hearing, the Defendant submitted that each of the factors (a)-(g) highlighted by Tomlinson J in the extract from his judgment in Three Rivers set out above at [27] above is present in this case. Most have been considered already, but some call for further comment:
i) Reference was made to courting publicity. It is not unusual in the context of major litigation for there to be press interest or for parties to do their best to get their point of view into print. Allowing for the scale of this litigation I am not satisfied that any courting of publicity took the case out of the norm;

ii) Although the trial involved a very substantial factual enquiry, which was prolonged by the need to test expert and lay evidence that proved to be ill-founded, I would not characterise what happened as being “where the Claimant, by its conduct, turns a case into an unprecedented factual enquiry by the pursuit of an unjustified case” in the sense meant by Tomlinson J;

iii) I accept that certain aspects of the case did not merely fail but were thin and far-fetched. In this category I include the case on dolo as it was presented at trial, the case on water quality because of the weaknesses in Dr Tobon’s evidence, the case on pipeline project management, and the case pursued on the basis of Dr Card’s fourth and fifth reports about which I have said enough in the Main Judgment and above;

iv) It was a feature of the case that there were few documents produced that were relevant to the Claimants’ case. That is not a criticism of the Claimants as it is a reflection of their way of life which tends not to rely on paper records either in the case of campesinos or in the case of the more educated Snr Mesa. The additional feature that was surprising was the frequency with which contemporaneous documents that were produced did not support the claim that was being advanced. I have identified the examples in the Main Judgment and do not repeat them here. I see the occurrences as being material that should have caused those advising the Claimants to question the apparent certainty of the factual cases that were being run. On the material available to the Court at trial and now, it is not apparent that such questioning took place;

v) I have outlined above the way in which the probable burden of irrecoverable costs was used as a lever to exert commercial pressure on the Defendant to settle.

  1. I pause to remind myself not to cherry-pick but to see the litigation as a whole and to have regard to all the circumstances of the case. To that end, I have reviewed the Main Judgment as a whole rather than relying upon memory or past impressions. I also remind myself of the high threshold that has to be passed: the mere fact that there are facts that take the case out of the norm does not automatically or even probably lead to an order for indemnity costs. In that context, and for the reasons I have given either in the Main Judgment or above, there are four facets of the material that I have outlined in this judgment which lend substance, individually and cumulatively, to a submission that costs should be awarded on an indemnity basis. The first is the various iterations of the Schedules of Loss which, for the reasons outlined in the Main Judgment and above, were beyond the norm both in the inadequacy of their preparation and construction and in their consequences for the progression of the case. The second is the service in mid-2013 of a body of expert evidence that was seriously defective as a result of the misleading presentation of an interdisciplinary approach. That defect was compounded by the failure of the experts to give proper attention to the ODC pipeline, either then or when its potential significance was apparent from the materials disclosed by the Defendant. The third is the Calderbank offer, the context for which is provided by the letters from Leigh Day that I have set out above and by its timing in the context of the litigation as a whole. The fourth is the history surrounding Dr Card’s fourth and fifth reports.
  2. Each of these facets carries weight on its own; but they are to my mind more important because they are illustrations of a piece of litigation that, having set off on the wrong foot, went out of control as trial approached. This picture is given more colour by the identification in the Main Judgment of the deleterious effect of the mantra that the ODC pipeline caused no damage; and by the instances where clearly adverse information (whether documentary or provided in interview with Claimants) was either ignored or not properly taken into account. I concluded in the Main Judgment that, by the time of his fourth report, Dr Card had “lost those qualities of objectivity and independence of mind which are essential for an expert in contested litigation and that he had become caught up in the siege-mentality which was painfully obvious on a number of occasions (on both sides) during the trial”: see MJ[505]. I found that Dr Tobon “lacked the objectivity and scientific rigour that was required both by the task and the standards he would set himself and by the Court”, that his work showed (unknowing) bias, and that he was prepared to include information in support of his conclusions without verifying it: see MJ[668]. As the Main Judgment makes clear, responsibility for the presentation of Dr Card’s fourth and fifth reports does not rest with Dr Card alone. That indicates that the siege mentality and lack of independence of mind had penetrated the legal team as well, though I do not know precisely where responsibility lies. The fact (as I find it to be) that the siege mentality and lack of independence of mind had spread in that way demonstrates not merely that the case is beyond the norm, but that something has gone very seriously wrong.
  3. Drawing these strands together, I reject the submission that the Claimants should be directed to pay costs on an indemnity basis throughout. But I come to the conclusion that the failings outlined here and in the Main Judgment progressively affected the proper course of the litigation so as to take the case beyond the norm to an extent that both justifies and requires the signal mark of an order of indemnity costs. For me the tipping point comes with the service of Dr Card’s fourth report. Up until then it is possible to make excuses that are sufficient to avoid an order for indemnity costs; but the service of the fourth report, presenting what was essentially a new expert case in deliberate disregard of the Court’s order was a very serious error of judgment which had extensive consequences in placing unfair additional burdens upon the Defendant and the trial process. With two qualifications, therefore, I direct that the Claimants shall pay the Defendant’s costs on the indemnity basis from 29 August 2014. The first qualification is that stated at [45] above. The second is that the costs of and occasioned by the hearing of the present applications on 28 November 2016 shall be paid on the standard basis.
  4. In making this order, I have not forgotten Mr Layton QC’s submission that an order for indemnity costs may have a chilling effect on access to justice in cases such as this. It should not do so. If, however, it has a chilling effect on the sort of failures of which this and the Main Judgment are critical, it may possibly serve a useful purpose beyond the scope of this litigation.”

RELATED POST

Earlier posts on this case

*   The main judgment was looked at in a series of three posts

Issue based costs orders

 

 

Indemnity costs

 

One comment

  1. Pro Bono · · Reply

    So Leigh Day brought a case that turned out to be hopeless and forced the defendants to incur £34m in costs, where both sides knew that the most the defendants could hope to recover if they successfully defended the claim was a measly £1.8m through the ATE policy.

    It seems quite clear that Leigh Day were attempting to use this threat of huge irrecoverable costs to extort a settlement from the defendants, and that they persisted in pursuing a case that appears to have been based on evidence that they had put forward with little regard to its truth.

    No doubt they were hoping for another Trafigura type pay day, and I’m extremely pleased that the defendants had the guts (and the resources) to stand up to them.

    In the circumstances one wonders whether a wasted costs application might not be appropriate.

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