SCCO REF: PHW 1604049
QUEEN'S BENCH DIVISION
SENIOR COURTS COSTS OFFICE
Royal Courts of Justice, Strand
London, WC2A 2LL
B e f o r e :
| (1) SAVINGS ADVICE LIMITED
(2) ZINC CONSUMER LIMITED
|- and -
|EDF ENERGY CUSTOMERS PLC
Mr P J Kirby QC (instructed by Lewis Silkin LLP) for the Defendant
Hearing date: 21 October 2016
Crown Copyright ©
Master Haworth, Costs Judge :
i) It was unreasonable for the Claimants to obtain ATE cover;
ii) The Claimants did not give adequate notice of funding;
iii) The premium is disproportionate to the settlement achieved;
iv) Burford (the ATE Insurer) used the wrong figures in calculating the opponent's cost element of the multiplicand; the lower figure supplied by the Defendant's solicitor on 1st March 2016 should have been used and the not the higher figure estimated by Burford.
"The figures used for the calculation of the Premium in respect of the Opponent's Cost should be the total cost the opponent may have sought to recover under an order for costs or other entitlement to costs had the opponent been successful as certified by the opponent's solicitor if appropriate."
"In the event that the opponent enters into a Conditional Fee Agreement and could seek to recover a success fee on the solicitor's profit costs or Counsel's fees or the opponent obtains legal expenses insurance in respect of which the opponent could seek to recover an insurance premium these additional liabilities will be included in the opponent's costs."
"If and to what extent the opponent would be liable to pay Value Added Tax on these monies and is unable to recover Value Added Tax as input tax, the opponent's costs would similarly include Value Added Tax."
"In the event that the opponent refuses to provide us with the value of the opponent's costs then for the purposes of the calculation of the premium, we reserve the right to make an approximation as to the quantum of the opponent's costs using the best information available."
"Without prejudice save as to costs"
Further to our exchange of Mediation statements, I note that your client has not included its costs to date (or to mediation). Aside from being part of the ordinary exchange of information to facilitate settlement as you know, our client's claims are backed by a policy of ATE insurance and the premium is calculated by reference to your client's costs.
In order to be able to settle the dispute effectively on Friday, I would be grateful if you could let me have a figure in respect of your client's costs.
I look forward to hearing from you."
"Without prejudice save as to costs
Our client's costs up until and including the mediation (referable to SAL alone) are £155,000 (approx). Our client's costs estimate to trial remains at £400,000."
"Without prejudice save as to costs
The figure stated in my email below for our client's costs up until and including the mediation is incorrect. The correct figure is £140,000 (ex VAT)."
"15. All documents or other material (including any form of electronic record) produced for or brought into existence for the mediation will be subject to without prejudice or negotiation privilege and together with evidence of meetings and other oral proceedings in the mediation will be inadmissible as evidence and not be disclosable in any litigation or arbitration connected with the dispute so long as and to the extent that such privilege applies.
16. The Parties, their representatives and advisors and the Mediator agree in relation to all information statements whether written or oral disclosed or made to them in the mediation including any preliminary steps:
a) to keep them confidential (save only as may be required to report to the Court or an arbitrator or arbitrators whether or not has been resolved to professional advisors, HM Revenue and Customs, relevant regulatory bodies or as may be required by law)
b) not to use them for a purpose other than the mediation
c) that the obligation …………
d) that no notes taken by the parties or by the Mediator and no other evidence concerning the conduct of the mediation including oral submissions, oral statements, concessions or admissions of law or fact will be adduced in evidence in any subsequent proceedings in Court or before an Arbitrator or Arbitrators in connection with the Dispute (provided that if they would otherwise and independently of the Mediation have been admissible for such proceedings they should not be rendered inadmissible by reason of having been made during the course of the Mediation)."
"2. Our clients are entitled to payment of their disbursements which include the relevant ATE insurance premium. In order to calculate each 'pursuit' ATE premium in respect of each of our clients please would you provide us with details of your client's costs up to the date of the settlement being the costs that your client may have sought to recover under an order for costs or other entitlement to costs had it been successful. Please provide these figures by way of a breakdown between your costs, Counsel's fees and other disbursements. Indicative hourly rates applicable to those costs would also be helpful."
|Claimant||Profit Costs||Counsel's Fees||Other disbursements||Total|
|Savings Advice Limited||£40,212.27||£8,325||£29,448.73||£77,986.00|
|Zinc Consumer Limited||£21,675||£8,325||N/A||£30,000.00|
"3. We have provided with the assistance of a costs lawyer details of our "actual costs" which for these purposes are synonymous with the actual exposure of insurers, i.e. the reasonable and proportionate costs that are recoverable on an interparty basis (as opposed to solicitor/own client costs which are not relevant in this regard). It is a matter for insurers whether they wish to charge an inflated premium to your clients based on some other flawed method of calculation however any such inflated and/or flawed premium will not be recoverable from our client on assessment. Our client will be challenging the ATE premium on assessment in any event including (and not limited to) the methodology employed and the reasonableness of choosing this particular type of premium."
"25. In the instant case, my approximation was made from various different sources of information and documentation;
a) from the Claimant's own base costs, disbursements and Counsel's base fees as provided to Burford by Steeles; and
b) from costs information provided by Lewis Silkin during the proceedings, and for the purpose of the mediation between the parties and from the defendant's proposed application for security for costs.
26. Here, it was necessary to calculate the premiums due under two policies, one for each insured. Although Lewis Silkin had not provided their true costs figure, there had previously been an apportionment between the costs attributable to the First and Second Defendant's, both for their costs at the point of the mediation (apportioned 78%-22% (i.e. £140,000 Savings Advice and £40,000 Zinc Consumer)) and from the post settlement declaration (apportioned 72%-28% (£77,986 Savings Advice and £30,000 Zinc Consumer)). It was not imperative that there be an apportionment "down to the last penny" because the rating for each policy was the same and therefore the premiums, in aggregate, would be the same to the Defendant however they were apportioned. Considering this, I therefore applied a notional 75%-25% apportionment between the Defendant's costs attributable to Savings Advice and Zinc Consumer.
27. My approximation also took into account the following factors:
a) The Defendant's own estimate of its total costs to trial was £400,000.
b) That the Defendant had incurred legal costs and disbursements with Lewis Silkin over a period of approximately three and a half years to settlement, from July 2012 to December 2015.
c) That in a letter dated 21 January 2013 Lewis Silkin's costs (excluding VAT) to that point were already £12,000 for the Savings Advice matter alone. It did not state its costs for the Zinc Consumer case at this point, but I assumed that they would have been at a similar level.
d) For the purposes of the proposed security for costs application the Defendant's total "unavoidable costs of and incidental to proceedings" were estimated by Lewis Silkin to be "in the region of £400,000" (excluding VAT).
e) The Claimant's own basic costs for the same period totalled £143,315.84 (excluding VAT).
f) The Claimant's paid disbursements, including Counsel's fees, for this period totalled at £59,090 (excluding VAT).
g) That the Defendant was likely to have been VAT registered and therefore in the event of a loss VAT would not have been claimed by the Defendants in their costs claims. VAT was therefore excluded from the approximation.
h) Burford's past experience of the level of the defendants' costs when defending litigation of this type and nature.
i) Burford's past experience of the levels of solicitors' costs on many tens of thousands of both won and lost cases.
28. In addition to the above factors I explain my considerations and analysis of the approximation of the likely and reasonable Opponent's Costs as follows. I looked at taking a proportion of the estimated total Defendant's costs and disbursements which was repeatedly estimated by Lewis Silkin at £400,000. I recognised the legal action had progressed for quite some time, but had not reached a CMC (which had been put back to allow exchange of some witness/expert witness evidence and for a mediation). I concluded the legal action might be a bit more than halfway through its course, so the Defendant's costs were likely to be more than £200,000, but probably less than £250,000. If the parties were perceived to be charging similar rates, I would automatically utilise the two-thirds guide widely used when comparing claimant's to defendant's costs. But it is clear in this case Lewis Silkin's costs would be much more than Steeles', due to their City location. But my approximation utilised only £400 per hour (less than the City guideline rate), so 40% higher as against Steeles at an average of £250 per hour. So at settlement Steeles' base costs/disbursements included, 30% on top produced circa £290,000. This was then compared with the known figure of £180,000 as at May 2015 and I considered that £110,000 of incurred costs over seven months was unlikely and did not reflect the circa £200-£250,000 anticipated costs figure.
29. I then looked at applying the average monthly incurred costs/disbursements figure. £180,000 was said to have been incurred in the 34 months up to the mediation, which equated to £5,294 per month. Applying this to the actual 41 month duration of the case produced a total of £217,054 (£5,294 x 41). Allowing for the passage of a further seven months, this figure appeared to me to bear a reasonable relationship to the figure of £180,000 declared for the purposes of the mediation on 28 May 2015.
30. Taking all these into account, I made an approximation of total Opponent's Costs as at the date of settlement of £215,972 – apportioned £161,979 (75%) to Savings Advice and £53,993 (25%) to Zinc Consumer."
"4. I make this witness statement to deal with a number of points arising from the Claimants' evidence. I first refer to Mr Burbury's witness statement. From paragraph 25 to paragraph 30 Mr Burbury sets out in detail the process of calculation, he now says that he undertook to determine an "approximation" of my firm's costs because he considered the figure certified in Lewis Silkin's letter of 1 March 2016 (found at Exhibit "PNB 8") in the sum of £107,986 to constitute a refusal to disclose our costs. Through the process he identifies Mr Burbury reached a figure of £217,054. He then says he made an approximation as at the date of settlement of £215,972, but he does not explain why one would round a precise figure of £217,054 down to an equally precise figure of £215,972.
9. There is no inconsistency between the figures in the inadmissible evidence and the costs certified by my firm on 1 March 2016 following inspection of our files by an independent costs draftsman. Apart from matters such as the inflation of our hourly rates by up to 65% (£242 up to £400) at the time of settlement of the proceedings there could be no costs payable in respect of the mediation because there had been no order for the payment of those costs.
The Mediation Agreement …………….."
"My first statement details numerous factors which were taken into account when reaching the overall approximation of the total Opponent's Costs – as are detailed in paragraphs 25-30. With regard to the assertion regarding the "doubling" of £107,986, it will be noted that my calculation actually produced an estimated approximation of the Opponent's Costs of £217.054. This is the Insurer's approximation of the Defendant's total Opponent's Costs/disbursements (the lower figure marginally benefits the paying party)."
The calculation of premiums
The calculation of the premium
Admissibility of evidence
"Therefore, in my judgment, the position as to confidentiality, privilege and the without prejudice principle in relation to mediation is generally as follows:
(1) Confidentiality: The proceedings are confidential both as between the parties and as between the parties and the mediator. As a result, even if the parties agree that matters can be referred to outside the mediation, the mediator can enforce the confidentiality provision. The court will generally uphold that confidentiality but where it is necessary in the interests of justice for evidence to be given of confidential matters, the Courts will order or permit that evidence to be given or produced.
(2) Without Prejudice Privilege: The proceedings are covered by without prejudice privilege. This is a privilege which exists as between the parties and is not a privilege of the mediator. The parties can waive that privilege.
(3) Other Privileges: If another privilege attaches to documents which are produced by a party and shown to a mediator, that party retains that privilege and it is not waived by disclosure to the mediator or by waiver of the without prejudice privilege."
"(d) That no notes taken by the parties ………… (provided that if they would otherwise and independently of the Mediation have been admissible in such proceedings they should not be rendered inadmissible by reason of having been made due in the course of the mediation)."
The calculations of the premiums
"The figures used for the calculation of the premium in respect of the Opponent's Costs shall be the total costs the opponent may have sought to recover under an order for costs." [my italics]
"In the event that the opponent refuses to provide us with the value of the Opponent's Costs then for the purposes of the calculation of the premium we reserve the right to make an approximation as to the quantum of the Opponent's Costs using the best information available."
"I certify that the figures stated above represent our best assessment of the adverse costs to which the Claimants were potentially exposed."
That schedule records that the total costs in relation to both SAL and Zinc including profit costs, Counsel's fees and other disbursements totalled £107,986.
"46 Recovery of insurance premiums by way of costs
(3) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings who took out a costs insurance policy in relation to the proceedings before the day on which this section comes into force."
"Sections 44(6) and 46(3) of the 2012 Act makes saving provisions to the effect respectively these changes do not apply so as to prevent a costs order including such provision where the conditional fee agreement in relation to the proceedings was entered into (or in relation to a collected fee agreement services were provided to a party under the agreement) or the costs insurance policy in relation to the proceedings taken out before the date on which the changes come into force."
"20. In my view, the reforms arising from the reports of Sir Rupert Jackson, enshrined in LASPO 2012 and the recasting of CPR as of April 2013, sought to produce a completely new regime from that date. No longer would success fees and ATE premiums be recoverable from the opponent save for very limited cases such as in BNM itself. Costs incurred by the parties would be subject to the more stringent proportionality test and elsewhere in the rules, cases would be subject prospective cost control through budgeting. Part 48 sought to preserve, as if in aspic, the pre-April 2013 regime for cases which had begun before that date until such cases concluded.
26. Furthermore, the purpose of the Jackson reforms in initiating sea change could have resulted in Parliament disallowing the recoverability of success fees and ATE premiums from 1 April 2013. But it did not do so and has allowed the run off of recoverable success fees and premiums in the main and the continued recovery of success fees or premiums in particular instances. It seems to me that the fact that additional liabilities are still allowed for by the provisions of CPR Rule 48.1 simply means that they remain in existence. It does not mean that they have to be assessed in aggregate with the base fees using a test which has no recognition of additional liabilities. This is particularly so when aggregation will render those additional liabilities effectively irrecoverable in practice."
"39. Turning to the specific points of principle …
Whether the costs incurred were proportionate should be decided having regard to what it was reasonable for the party in question to believe might be recovered. Thus
(i) The proportionality of the costs incurred by the Claimant should be determined having regard to the sum that it was reasonable for him to believe that he might recover at the time he made his claim."
21. Evidence justifying the ATE premium claimed
117. If an issue arises about the size of a second or third stage premium, it will ordinarily be sufficient for a claimant's solicitor to write a brief note for the purposes of the costs assessment explaining how he came to choose the particular ATE product for his client, and the basis on which the premium is rated – whether block rated or individually rated. District Judges and Costs Judges do not, as Lord Hoffman observed in Callery v Gray (Nos 1 and 2)  1 WLR 2000, para 44, have the expertise to judge the reasonableness of a premium expect in very broad brush terms, and the viability of the ATE market will be imperilled if they regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faces. Although the claimant very often does not have to pay the premium himself, this does not mean that there are no competitive or other pressures at all in the market. As the evidence before this court shows, it is not in an insurer's interest to fix a premium at a level which will attract frequent challenges."
"(5) Costs incurred are proportionate if they bear a reasonable relationship to:
a) the sums in issue in the proceedings;
b) the value of any non-monetary relief in issue in the proceedings;
c) the complexity of the litigation;
d) any additional work generated by the conduct of the paying party; and
e) any wider fact involved in the proceedings such as reputation or public importance."
"(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;
b) resolve any doubt… in favour of the paying party."
"30. The old test of proportionality applied to additional liabilities but rarely had an impact on assessment. If the base costs were reasonable and necessary the reasonable success fee would also be necessary. An After the Event insurance premium, if reasonable, would rarely not be necessary; although greater enthusiasm developed for disallowing disproportionate or unreasonable premiums;…
31. A consequence of the reduction of the base costs to a proportionate figure will be that the success fee a percentage of those base costs also reduces. It would be absurd and unworkable to apply the new test of proportionality to the base costs but the old test of proportionality to the success fee.
32. Ring-fencing and excluding additional liabilities from the new test of proportionality would be a significant hindrance on the court's ability to comply with its obligation under CPR 44.3(2)(a) to allow only those costs which are proportionate."
(a) the sums in issue in the proceedings and
(c) the complexity of the litigation"
The remaining three factors appear not to be relevant in the context of this case. I have already referred to the fact that the sums in issue in the proceedings do not equate to what was recovered. The sum claimed was considerably in excess of what was recovered and I must bear that in mind. Secondly, whilst I have not seen the Claimants full file of papers I have been provided with a copy of the Bill of Costs, together with Points of Dispute and Replies. To my mind this was complex commercial litigation. The fact that it settled relatively early in the course of proceedings does not allow me the luxury of using hindsight in determining whether it was appropriate for the Claimants to take out the ATE policies they did. Applying the new test of proportionality to the ATE premiums sought I have formed the conclusion that the premium for both SAL and Zinc, totalling £255,963.88 is not disproportionate.