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		Neutral Citation Number: [2024] EWHC 1728 (KB)
		Case No: QB-2022-002405 and others

IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION

Rolls Building
Fetter Lane
London
EC4A 1NL

5 July 2024

B e f o r e :

MR JUSTICE CONSTABLE
with
SENIOR COSTS JUDGE GORDON-SAKER
____________________

Between:

Pan NOx Emissions Litigations

____________________

Representation: see Appendix 1

Hearing dates: 11, 12, 13 June 2024
____________________

HTML VERSION OF JUDGMENT
____________________

This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30 on Friday 5^th July 2024.

Mr Justice Constable and Senior Costs Judge Gordon-Saker:

Introduction

This is a judgment written jointly by one of the Managing Judges sitting with the Senior Costs Judge following a 3-day hearing to consider the parties' costs budgets.

This judgment deals with a number of the points of principle and explains the general approach taken in respect of the budgets. Following the 3-day hearing, the parties were given the opportunity to submit a final version of their budgets, within a compendious spreadsheet. We have considered each of the phases and set out the approved budgets within the two spreadsheets filed. We provide the spreadsheets to the parties for incorporation as part of the Costs Management Order, but because of the size of the documents we do not try to append them to this judgment. We have included, however, the summary of totals as Appendix 2 to this judgment.

As ever, the parties, their solicitors and the fleet of Counsel are thanked for the way in which they conducted the 3-day hearing, during which a considerable amount of ground was traversed, both at high-level and, at times, in the weeds.

The core allegations in each case are that the manufacturers sold cars that did not comply with the requirements of the applicable regulatory regime because they contained software that cheated or subverted the emissions control regime in Regulation 715/2007 ("the Emissions Regulation"). The causes of action pursued across the 13 claims include breach of contract (lack of satisfactory quality), deceit, breach of statutory duty, breach of manufacturer's guarantee, claims under CPUT 2008 and/or the CCA 1974 – but which causes of action are pursued against which specific Defendants in each GLO varies. For example, some of the Defendant entities manufacture the relevant vehicles, others are involved in their import/export or sale, others have overall control of them, others are Authorised Dealerships or provide finance to the purchasers of the vehicles. The budgeting exercise has been carried out in three general sections, reflecting the 2-stage, or tranche, structure of the litigation as it is presently proceeding following the Order made at the 5-day CMC in March 2024 ('the March Order'), together with a third, general pot to capture other expenditure not specific to the two tranches. The two tranches of the litigation the parties are presently working towards will only resolve a proportion of the liability aspects of the case as a whole, and proceed by way of sample. They do not include any investigation of causation or loss, which is presently anticipated to take place at a long evidential hearing in October 2026. Directions have not yet been set for that phase. In answer to a question raised by the Court, Mr Campbell KC for the Claimants suggested that at the conclusion of Tranche 2, the case will be (subject to various understandable caveats) approximately 60% progressed. If every issue had to be resolved at trial, we consider this to be over-optimistic. Mr Bacon's contention, from the Defendants' perspective, that the case will only be 25% progressed, probably reflects the most pessimistic of assessments, and the reality, in our view, probably lies somewhere around 33% progression.

Within tranches 1 and 2, the Claimants have produced a costs budget for 'Pan-NOx' costs. This is defined by the Claimants as costs which impact all of the GLOs and require coordination with all 20 Claimant firms. The Defendants are broadly split, by reference to the March Order, between what are termed 'ALGLOs' and 'Non-ALGLOs'. ALGLO stands for 'Additional Lead Group Litigation Order', and derives from the fact that, prior to the March CMC, Mercedes was the only 'Lead' claim, but following the March CMC, the Ford, Nissan/Renault and Peugeot/Citroën GLOs were made additional Lead GLOs for the purposes of investigating the existence of prohibited defeat devices ('PDDs') in the first evidential phase of the Pan-NOx litigation (Tranche 2).

The Claimants have also generally produced a Defendant-specific costs budget (whether they are an ALGLO or a Non-ALGLO Defendant). For Tranche 2, the Claimants have a further category of 'Lead and ALGLO' Defendant costs, which are essentially those costs attributable generally to, but common between, the Lead/ALGLO Defendants who – broadly speaking – are those taking part in the main 10-week evidential hearing listed for October 2025, as opposed to the broader Pan-NOx community whose role is significantly more limited. Each of the Defendants (Lead/ALGLO and Non-ALGLO) has produced their own budgets. Each has commented upon the Claimants' budget costs attributable generally or specifically to them. A good number of the points made in both directions are common, although inevitably a number of the points are specific to particular parties, or groups of parties, and particular phases. Collectively, the budgeting information provided to the Court by the outset of the 3-day hearing covered 1,071 costed phases across the "various Claimants and Defendants" budgets. A number of these phases were agreed – both unconditionally and sometimes conditionally upon reciprocity – between the Claimants and one or more of the Defendants, and vice versa. However, the Court has nevertheless considered it necessary, in light of what can only be described as the eye-watering sums submitted, to scrutinize both agreed and non-agreed line items against the benchmark of reasonableness and proportionality, with the agreement of the parties as explained further below. The Court is grateful to Counsel for the Defendants for their provision, following the conclusion of the hearing, of a short Note providing confirmation of their agreement and the justification, in this case, for their approach.

Tranche 1 constitutes a 2-week preliminary issue hearing listed for October 2024. This will determine the following issues of principle (together, the "KBA Issues"):

(1) Whether Type Approval Decisions, Recall Decisions, Voluntary Update Decisions and/or Mandatory Update Decisions made by the KBA prior to 1 September 2020, between 1 September 2020 and IP Completion Day, and between IP Completion Day and 31 December 2022 (together, "KBA Decisions") as to the presence or absence of PDDs are binding upon the Court and/or the Claimants in the Mercedes Litigation as non-addressees before or after IP Completion Day.

(2) Where the German courts determine appeals from such KBA Decisions, whether those determinations as to the presence or absence of PDDs are binding upon the Court and/or the Claimants in the Mercedes Litigation as non-addressees after IP Completion Day.

In respect of Tranche 1, the Claimants have incurred at least £224,517.76 (although the true figure is higher than this, as the Claimants have taken 5 May 2024 as the cut-off between incurred and estimated for the purposes of budgeting, inexplicably in light of CPR 3.17(3)(a)). The Claimants' estimated future costs for Tranche 1, across their 'Pan-NOx' and individual GLO headings, total £11,439,996.18.

The main Defendant participant in Tranche 1 is Mercedes. Their incurred costs are £511,798.98 (adopting the correct cut-off date of the costs budgeting hearing) and they are budgeted to spend £3,603,284. The other Defendants involved are Ford, Nissan, and VW2, claiming £1,190,903, £915,242.50 and £1,164,761.35 for future costs respectively. Whether the aggregation of these sums represents any useful comparator to the sums claimed by the Claimants is considered further below, but in any event the aggregate is £6,874,190.85.

Tranche 2 is the first main evidential phase. Pursuant to the March CMC Order, this is set down to deal with:

(1) Whether any of the Sample Vehicles contained defeat devices when manufactured;

(2) If so, whether those defeat devices can be justified pursuant to Article 5(2) Emissions Regulation;

(3) Whether any of the Sample Vehicles contained defeat devices following the installation of updates;

(4) If so, whether those defeat devices can be justified pursuant to Article 5(2) Emissions Regulation;

(5) Various legal issues set out in Schedule 1 to the March Order (principally relating to the proper construction of the Emissions Regulation or other legislation);

(6) Whether any identified PDD constitutes a breach of the Emissions Regulation or any domestic legislation relied on by the Claimants;

(7) Whether any identified PDD constitutes a breach of contract;

(8) Whether the Emissions Regulation and/or any domestic legislation (if appropriate, read in conjunction with the EU provisions relied on by the Claimants) is actionable by the Claimants by way of a private law claim for breach of statutory duty; and

(9) Such other issues for the purposes of facilitating the quantum trial (i.e. Tranche 3, presently set down for October 2026) as shall be added by future order.

In essence, there are 3 central elements to Tranche 2: (1) a technical investigation of the sample vehicles so as to understand how it is said there are devices acting on the emissions system or wider engine or even vehicle, so as to amount to a PDD; (2) a series of legal submissions as to the proper construction of the relevant regulations (EU and/or domestic); and (3) the application of the outcome of the technical investigation to output of the legal analysis. This is not dissimilar in nature to the preliminary issue considered by Waksman J in the VW NOx Emissions Group Litigation ([2020] EWHC 783 (QB)), albeit on a larger scale in terms of number of samples to be considered and the number of participants. As correctly pointed out by Mr Campbell KC, one of the legal issues for determination includes consideration of whether, for a defeat device to be found, there needs to be an intentional and/or impermissible purpose of causing the emissions control system to operate differently when it senses it is being tested. Lacking such a purpose, the Defendants deny the existence of a PDD. The Claimants dispute that it is necessary, as a matter of law, to demonstrate the existence of an 'intentional' purpose, but even if this is a constituent element of establishing breach, it will focus (at least in the context of Tranche 2, which does not include the deceit or cartel allegations) principally on the objective operation of the system, not the subjective intention of a particular design engineer. There is presently an unresolved debate between the parties (in the context of disclosure) as to whether and to what extent allegations relating to whether the KBA was misled are necessarily included within the Tranche 2 hearing. There is a scenario where this may be necessary to resolve, if a decision by the KBA that a defeat device does not exist is relied upon as binding by the Defendants, but disputed by the Claimants on grounds that such a decision cannot be binding where the KBA was misled at the time. For the purposes of costs management, we have assumed that this will not be an issue and/or will not give rise to a significant disclosure exercise in the context of Tranche 2.

There is no doubt that, in general terms, Tranche 2 gives rise to a complicated exercise of technical and legal analysis. There is also no doubt that the time and complexity involved in the analysis is impacted by the number of sample vehicles that will be investigated across the cohort of Lead and ALGLOs involved (at most, 52), and the number of parties involved. Nevertheless, as the following summary figures show, the sums budgeted are extraordinary and, in the context of a costs budgeting exercise, quite unprecedented in this jurisdiction.

In respect of Tranche 2, the Claimants say they have incurred at least £2,202,909.21 (although, again, the true figure is higher than this, as the Claimants have taken 5 May 2024 as the cut-off between incurred and estimated costs for the purposes of budgeting). The Claimants' estimated future costs for Tranche 2, across its 'Pan-NOx', Lead/ALGLO category and individual GLO headings, total £136,260,061.46.

The main Defendant participant in Tranche 2 is, again, Mercedes: there are more sample vehicles being investigated in the Mercedes claim than in the others. Their incurred costs are £1,791,768.75 and they are budgeted to spend £36,144,748.90. The ALGLO Defendants' future costs range between £891,650 (the PCD Defendant Dealerships) and £27,086,058.00 (Nissan). The aggregate of the ALGLO Defendants' costs claimed in respect of Tranche 2 is £136,128,826.30 (almost identical to the Claimants' budgeted costs). The aggregate of the Non-ALGLOs' costs claimed in respect of Tranche 2 is £43,116,148.83. The total, therefore, budgeted to be spent by the Defendant parties on Tranche 2 is £179,244,975.13. The total budgeted costs to be spent altogether by all parties in relation to Tranche 2 alone also therefore exceed £315,000,000.

There is also a 'General' category of costs not attributable directly either to Tranche 1 or Tranche 2, but nevertheless to be spent in the period between now and the conclusion of Tranche 2. This includes generic or outline statements of case (the latter against Non-ALGLOs), and other general case and GLO management costs and other general liaison and/or co-ordination between the parties. The Claimants' total for incurred costs is an incredible £132,466,008.68 and estimated costs are £60,048,849.51. The aggregate of the Defendants' incurred costs in the general category is £90,807,891.03 and estimated costs are £25,647,011.09.

The total incurred and estimated costs sought within the cost budgets is therefore £342,642,342.80 for the Claimants and, in the aggregate, £306,835,723.14 for the Defendants: nearly £650m combined.

Against the total future costs budgeted across the 3 tranches by the Claimants of £207,748,907.15, the aggregate of the Defendants' offer is £49,288,969.98. Against the total future costs budgeted in the aggregate by all Defendants of £211,766,177, the Claimants' offer is £148,178,828.

It is important to recognise two things. First, that these costs take us only to the end of Tranche 2. There will be further common costs in respect of causation and loss and, possibly, other issues in relation to liability. Secondly, that in respect of the Claimants, these are only the common costs, that is the costs common to all of the Claimants in bringing the claims and the costs common to the groups of Claimants in respect of the individual Defendants. As Mr Williams KC acknowledged, the Claimants' budgets do not include their individual costs, that is, the costs referable only to each particular claimant and which would be recoverable only by that claimant. While the selection of lead Claimants, for the purposes of causation and loss, would avoid each claimant incurring the costs of every phase, there will still be individual costs for each claimant, such as the costs of taking initial instructions and, if the Claimants are successful, distributing any award. For every hour at the Grade D guideline hourly rate spent on each of the Claimants, the total for all Claimants would be about £300m.

General Principles

By CPR 3.15(1):

'The court may at any time make a 'costs management order'. Where costs budgets have been filed and exchanged the court will make a costs management order unless it is satisfied that the litigation can be conducted justly and at proportionate cost in accordance with the overriding objective without such an order being made. By a costs management order the court will—

(a) record the extent to which the budgeted costs are agreed between the parties;

(b) in respect of the budgeted costs which are not agreed, record the court's approval after making appropriate revisions;

(c) record the extent (if any) to which incurred costs are agreed.'

The Court's power to approve budgeted costs for a particular phase is therefore limited to phases where budgeted costs have not been agreed. Agreed budgeted phases are outside the scope of the Court's approval function, but it is clear that the Court has a right nevertheless to comment if it has reservations about the agreed amount: Various Claimants v Scott Fowler Solicitors (A Firm) [2018] EWHC 1891 (Ch), per Chief Master Marsh at [17] and Woolley v Ministry of Justice [2024] EWHC 304 (KB), per Kerr J at [43]. Once budgeted costs for a particular phase have been agreed, the making of a costs order does not require the Court to approve the agreed phase totals. Indeed, CPR 3.15(2) expressly provides that a costs management order will 'record' the extent to which costs are agreed between the parties. If agreement is reached before the costs management hearing, the Court and the parties are bound by it: Woolley at [78].

On the ordinary application of those principles therefore, the Court cannot approve or disapprove phase totals for budgeted costs which have been agreed; and nor can it substitute a different approved figure for an agreed phase total for budgeted costs. The limit of the Court's facility, in the event that it disapproves of agreed phase totals, is to decline to make a costs management order (see Friston on Costs (Fourth Edition) (2023) at [12.46]). In declining to make a costs management order, the Court may order the parties to file revised budgets: see Group Seven Ltd v Nasir [2016] EWHC 620 (Ch); [2016] 2 Costs L.O. 303 per Morgan J at [64] and Associated Newspapers Ltd v Buckingham Group Contracting Ltd [2022] EWHC 2767 (TCC); [2022] Costs LR 1659 per Mr Roger Ter Haar KC at [52].

Notwithstanding this, in the present case, at the invitation of the Court, it was accepted by the Claimants and Defendants that it would be appropriate for the Court to substitute an approved phase total in place of an agreed phase total in this case (albeit, subject to the qualification by Counsel for the Defendants, that such an approach "might not strictly ordinarily be possible" under the rules).

We consider that the agreement of the parties is particularly sensible where the impact of the Court's proposed approach in practical terms is similar to the Court refusing to make a costs management order and ordering the parties to file revised budgets. Given the number of budgets, the scale of the budgeting exercise, and the significant time and resources invested by the parties and the Court, it would have been far from ideal (and contrary to the overriding objective) to have declined to make a costs management order, leaving elements unbudgeted pending a further round of revised budgets and thereafter further consideration (and potential further non-approval) by the Court.

Hence, the proposed approach, agreed by the parties, is fully justified in the particular circumstances of this case.

The exercise of costs management is not an advance detailed assessment (PD 3D, paragraph 12). It is explicitly not the role of the Court to fix or approve the hourly rates claimed, or to fix or approve specific hours and disbursements (Yirenki v Ministry of Defence [2018] 5 Costs LR 1177 per Jacobs J). The underlying detail is intended to assist the Court in fixing the budget. It is for the Court to approach the claimed costs on a phase-by-phase basis.

CPR 3.15 makes no provision for the Court to approve incurred costs, but the Court may record comments in respect of incurred costs which are to be taken into account in any subsequent assessment proceedings (CPR 3.15(4)). The Defendants have expressly invited this Court to do so. In light of the scale of the costs incurred, we feel bound to accept that invitation.

As for future costs, an approved budget will stand, in respect of budgeted costs, as the costs to be allowed on detailed assessment in the absence of good reason to depart from that budget (CPR 3.18). The consequence of this is that, as the Defendants point out, the costs management process in which the parties have engaged is their opportunity to challenge the claimed costs (should in due course they be liable to pay any proportion of them), unless a good reason may later be shown.

Proportionality

The Claimants contend that the litigation is worth, conservatively calculated on the basis of £4,000 per Claimant, in excess of £6bn if the Claimants are successful. This is, of course, disputed by the Defendants. It is a matter of public record that (without admitting liability) VW paid £193m in settlement of around 91,000 claims following the preliminary issue judgment of Mr Justice Waksman referred to above, equating to just over £2,000 per Claimant.

As indicated above, at the conclusion of Tranche 2, the litigation may be in the region (were every issue to be fought to the end) of about one-third of the way through.

The Claimants' incurred and estimated costs of approximately £350m therefore – at least on a linear basis – suggest that their total common costs would exceed £1bn. Moreover, it may be thought that it is in consideration of causation and loss that the burden on the Claimants in terms of evidence and disclosure will increase, such that the number of Claimants is much more relevant than in relation to liability issues. Applying the same to the Defendants' budgeted costs, the aggregate spend across all the parties would be around two thirds of the sums at stake, assuming the lower of the figures above, and would on this analysis be well within the foothills of disproportionality.

However, a simple comparison between spend and recovery is not the only measure of proportionality. It must be seen in the context of all the factors set out in CPR 44.3(5):

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(d) any additional work generated by the conduct of the paying party; and

(e) any wider factors involved in the proceedings, such as reputation or public importance.

The Court is well aware that this large-scale litigation involves not just large sums, but has layers of complexity caused by the need for co-ordination, in each of the Claimants'/Defendants' camps, and inter se; that the litigation is reputational for the Defendants; and that it concerns matters of public importance. However, that does not give any of the parties a blank cheque for the purposes of recoverable costs. As Waksman J observed in the CMC hearing dealing with what was then a 'judicial eye-brow raising' £10m cost budget for the claimants in the context of a two-week legal and technical preliminary issue in the VW litigation, 'the number of claimants in my judgment doesn't really affect the budget and it certainly doesn't affect it for the preliminary issues which aren't, for example, dealing with questions of causation and loss'. It is of note that, in that case, the original budget submitted by the Claimants was £10.2m, and following Waksman J's request for a revised (and lower) budget, it was amended to £5.3m and then approved at £3.6m. Whilst we accept that there are logistical and administrative burdens in dealing with a large cohort of Claimants, the number of itself provides little justification for the extraordinary costs claimed in many phases, in which the scope of work required is largely or completely unrelated to the number of Claimants. In reality, the function of the number of Claimants is to increase the individual costs, rather than the common costs. The Claimants tend, therefore, significantly to overstate the complexity of the tasks they face which – in respect at least of Tranches 1 and 2 – boil down to the resolution of discrete issues of law and regulatory/statutory construction coupled with the type of technical investigation which will focus on independent expert evidence of a type the High Court is entirely familiar with. The sums budgeted are wholly disproportionate when seen in this light.

Moreover, proportionality is, of course, not the sole benchmark against which recoverability is measured: costs have also to be reasonable. The costs claimed have to bear some resemblance to the work reasonably required to properly, but efficiently, advance these claims. As explored more fully below, there appears to be little effort – nor, it seems, incentive – to run this litigation in a manner so as to minimise, as far as is reasonably possible, the number of lawyers and the hours they suggest they need to work in order sensibly to progress this litigation.

The Reasonableness of the Claimants' Costs Budget: Overview

The Defendants contend that the Claimants' costs budgets are replete with numerous examples of costs which simply cannot be justified; and that, frequently, costs have been wrongly allocated by the Claimants across their budgets. They point to what they say can only be mass-duplication of costs across the costs budgets. They criticise the assumptions which purport to underpin the costs budgets as vague, boilerplate and unreliable, and serve only to obfuscate what has been claimed rather than provide any meaningful explanation. Numerous examples of the concerns expressed by the Defendants were advanced in their Precedent H discussion documents, skeleton arguments and in oral submissions.

The Claimants insist that their budgeted practices are efficient and any duplication, such as there is, is required in the context of some of the constraints imposed by confidentiality rings in different GLOs. They contend that the burden falling upon the Claimants is significantly greater than any individual Defendant, not least because it faces in each direction, but because it does not have the advantage of familiarity and internal resourcing that the Defendants enjoy by reason of the fact that they have been investigating equivalent allegations in many jurisdictions for many years. They complain about the avalanche of emails and letters received from the Defendants' well-resourced and highly paid City law firms which need to be responded to. None of these points is, of itself, entirely without merit, although the Court would take this opportunity to note that in terms of wasteful inter-solicitor correspondence, it does take two to tango: over-lengthy, unnecessarily argumentative or wasteful correspondence may still have to be read (ideally once), but it can be appropriately responded to politely and briefly. It does not necessitate reciprocity. As indicated during submissions, the Court will not sanction this outdated approach to litigation in the 21^st century through Costs-recovery.

The numerous examples of obvious excess and/or duplication combined with the lack in many cases of meaningful explanation or justification (some of which are referred to in the observations made below on a phase-by-phase basis, but all of which have been considered by the Court when working through the relevant Schedules) are more than sufficient to persuade the Court that, notwithstanding the extraordinary sum of £3.65m said to have been spent by the Claimants on the costs-budgeting exercise alone, it has little faith in the reliability of the Claimants' budgets. We accept the Defendants' submissions that there is generally insufficient reasonable justification for the Claimants' inferred approach to resourcing the case. The sums incurred and estimated by the Claimants appear to the Court to demonstrate scant regard for carrying out work in an efficient, non-duplicative and cost-conscious manner. To coin Mr Justice Turner's phrase in Maurice Hutson & Ors v Tata Steel UK Limited [2020] EWHC 771 (QB), the Claimants' approach to budgeting is redolent of financial incontinence. It may be that this approach is driven by the overall model of this group litigation in which the traditional downward pressure imposed by a client on their lawyers is lacking in the overall funding model (described to some degree in the context of the Defendants disclosure application at [2024] EWHC 695 (KB)). Whatever the reason, the staggering costs both incurred and estimated are in numerous individual respects and in the aggregate frankly absurd and – whether or not the Claimants still intend to incur and charge for work on such a basis – this Court will not sanction this wholly unreasonable expenditure of costs.

The Reasonableness of the Defendants' Cost Budget: Overview

The Claimants make the point that it can be inferred from a number of the Defendants' budgets that the hourly rates included are below the true hourly rates being charged by the law firms. This is, in a sense, the opposite of the 'indemnity principle' issue, in which, of course, budgets may not exceed the sums the clients are going to be liable to pay to the law firms for their services. Here it is said that the budgets 'lowball' the true costs to be incurred by the Defendants by reference to a suppression of hourly rates within the budgets. The fact that the Defendants are in some instances paying higher rates than those claimed is not disputed by the Defendants; its characterisation and impermissibility is.

Providing there is transparency, we consider that there is nothing in principle wrong with a party recognising in advance that the rate they have agreed to pay their lawyers will not be justified on assessment, because it exceeds the relevant guidelines or does so to an unjustified amount. It is self-evident that, in these circumstances, the Court must exercise caution in any exercise of comparison. We are therefore alive to this point, and have sought to look at the numbers of hours claimed and not just '£' totals when drawing any conclusions by way of comparison as to the reasonableness of any parties' budgets. In general terms, we accept the Defendants' submissions that in terms of their assumptions and justifications (including in respect of offers made), we are provided with considerably more information than we have often been provided with by the Claimants, and to this extent their approach is more satisfactory.

We reject the Claimants' contention that the Defendants' costs budgeting exercises are artificially seeking to reduce the budgets so as to provide no utility to the Court (in the manner of concern to Coulson J as he then was in Findcharm Ltd v Churchill Group Ltd [2017] EWHC 1109 (TCC)). Indeed, far from being 'unrealistically low' (a phrase regularly used by the Claimants in their Precedent R forms when agreeing the sums), there are some amounts claimed within the Defendants' budgets which we consider also cannot be justified as reasonable and proportionate for particular phases. We consider this notwithstanding the fact that the Claimants have often agreed the amounts, no doubt for tactical reasons, and then used the aggregate of such agreed sums from across the Defendants' cohort as a springboard to justify by way of comparison their own exorbitant costs. As set out above, with the parties' agreement, we have reduced sums wherever we consider it necessary to do so irrespective of whether any sum has been agreed between the parties (rather than simply refusing to approve them).

The Validity of Comparisons

A headline point made by Mr Williams KC, for the Claimants, in his written and oral submissions is the comparison between the Claimants' costs and the aggregate of the Defendants' costs. Indeed, the submission is put as high as an expression of surprise that the Claimants' estimated future costs (at the time of making the submission: c.£234m) stands at less than c.5% more than the aggregate of the Defendants' costs (c.£224m).

The Court has often remarked that it will not be a slave to comparisons (see for example Various Claimants v Scott Fowler (A Firm) [2018] EWHC 1891 (Ch), per Chief Master Marsh at [17]; Woolley v Ministry of Justice [2024] EWHC 304 (KB), per Kerr J at [39]; and GSK Project Management Ltd (In Liquidation) v QPR Holdings Ltd [2015] EWHC 2274 (TCC) per Stuart-Smith J).

However, the suggestion that in a case such as this that it would be a valid exercise generally to compare the Claimants' aggregate costs with the aggregate of the costs of all the Defendants is wholly untenable. Each of the Defendants is (in general terms) a different and separate manufacturer or manufacturer group or ancillary selling or financing business. There is no suggestion that these different groups – who are to a large extent in competition – could be jointly represented, although it is of course true that the Court expects, as has been demonstrated during case management hearings, co-operation and de-duplication of common submissions. In the most general of terms, whilst it would be expected that the costs of the Claimants would exceed the costs of any one Defendant group, it is plainly not the case that the Claimants would be expected to spend the same as all of the separately represented Defendants added together. They should be considerably less for a number of obvious reasons: there should be significantly less duplication than that which is inherent in separate representation; to the extent there is any Claimants' disclosure (which is effectively none in relation to Tranches 1 and 2), it is a single exercise, whereas each Defendant has their own disclosure and, at least to some extent, consideration of co-Defendants' disclosure; the same is true for witness evidence; the Claimants will have a single expert team, whereas each Defendant has their own experts (at least for liability); each Defendant will be entitled to attendance at each hearing relevant to them, by way of solicitors and Counsel, which will aggregate to a significantly higher number than the number of solicitors and Counsel reasonably required to represent the Claimants at trial. Thus, whilst there is some asymmetry of work when the Claimants are compared to any single Defendant, arising from a number of factors including the familiarity, which the Defendants may have with the issues (at least in the earlier, investigatory periods), the true position in our view falls far short of justifying the comparison between the Claimants' costs and the aggregate of the Defendants' costs urged upon us by Mr Williams KC.

Allocation of Costs Between Budgets

A number of the criticisms advanced by the Defendants relate to the budgets into which costs have been allocated by the Claimants. Costs which, the Defendants say, are capable of being identified as OEM-specific costs have at times been placed in the Pan-NOx budget, and vice versa. There is truth, of course, in the submission that providing the cost itself is a valid one and this does not go to the appropriateness of inclusion within the budget per se, but we have taken a view whilst carrying out our review of the budgets where we consider, most appropriately, a cost should fall. We add that where there is a legitimate debate or where we are not sure, we have erred in including the sum within a broader category (Pan-NOx or Lead/ALGLO (for Tranche 2)) rather than a narrower one so as to leave over the question of more precise allocation upon making inter partes costs orders or detailed assessment, should that day arrive.

Allocation of Costs Between Firms

The Claimants' budgets contain estimated time to be spent by "Lead Solicitors" and by "Non-Lead Claimant Firms". The former is, however, not limited to firms which are formally Lead Solicitors under the respective GLOs. It captures the work expected to be done by any of Pogust Goodhead, Leigh Day, Slater & Gordon, Hausfeld, Milberg and KP Law Ltd. The "Non-Lead Claimant Firms" are not identified in the budgets and their estimated fees are presented as lump sums for each grade of fee earner.

For 8 of the GLOs, the joint Lead Solicitors are Pogust Goodhead and Leigh Day. For 4 others, it is Pogust Goodhead alone. For Vauxhall, it is Milberg and KP Law. With the exception of Mercedes, BMW and Vauxhall, each GLO provides that:

"The Lead Solicitors are responsible for the management and co- ordination of the Claimants' claims, and shall have sole conduct of all investigations, applications and proceedings in respect of the GLO issues and preparation for trial of any Lead Claims relating to any of the GLO Issues subsequently ordered by the Court."

The Mercedes GLO, BMW GLO and Vauxhall GLO are different in that they appoint a Steering Committee as well as Lead Solicitors. The Steering Committee in the Mercedes GLO consists of the Lead Solicitors (Pogust Goodhead and Leigh Day) as well as Slater & Gordon, Hausfeld and Milberg. The Steering Committee in the BMW GLO consists of the Lead Solicitors (Pogust Goodhead and Leigh Day) and Milberg. The Steering Committee in the Vauxhall GLO consists of the Lead Solicitors (Milberg and KP Law) as well as Pogust Goodhead and Leigh Day. In each case the equivalent provision to that set out above states that the Steering Committee (rather than the Lead Solicitors) is responsible for the management and co-ordination of the claims and has sole conduct of all investigations, applications and proceedings in respect of the GLO Issues including preparation for trial of any Lead Claims relating to any of the GLO Issues.

The Claimants say that, notwithstanding the provisions of the GLO, there should be no criticism of hours being allocated to firms other than the allocated Lead Firms. We do not agree. As the Defendants submit, the purpose of the provision within the GLOs is to ensure that there are one, or two, firms effectively exclusively responsible for the proceedings. This is to maximise efficiency and minimise potential duplication. That does not mean that, where there is a proper explanation, particular costs may not be incurred by a different firm (an explanation was given of a particular Milberg cost in the expert phase), but being outside the norm expected, and indeed required, by the GLOs themselves, without proper explanation, there will be an assumption that such allocations are the breeding ground for inefficiency and potential unjustifiable duplication.

The Defendants also criticise the Leigh Day differing working practices, when compared with the Pogust Goodhead model. The different approaches are set out in the Claimants' skeleton, which give the following explanation in the context of attendance at the Fortnightly Meetings and some hearings (and the consequent allocation to different parts of the budget):

(1) Leigh Day fee earners generally attend on behalf of the Claimants in a particular GLO. A partner from the Ford team will attend on behalf of the Ford Claimants – and that cost therefore appears in the Ford-specific budget.

(2) However, at Pogust Goodhead (PG), attendance is often consolidated so that on rotation, a single partner team may often attend on behalf of the Claimants in multiple GLOs. A partner in one of the Emissions teams may attend on behalf of both the Peugeot-Citroën and FCA Claimants (for example) – and that cost therefore appears in the Pan-NOx budget.

The Court readily accepts that this is an extremely brief explanation of what may be considerably more complex and nuanced organisation. It is, in addition, not for the Court in the context of costs-budgeting to tell parties' solicitors how they may, or may not, organise their firms. It is also readily accepted that in relation to some information, the separate confidentiality rings within different GLOs may require particular silos to exist which necessitate a degree of inefficiency, if not strict duplication, where a single task must have involvement from a number of different solicitors which may not happen absent that complication.

However, not least by reason of the huge number of hours that are claimed, the Court has formed a clear view that such enormous numbers could only be generated by wildly inefficient resourcing and what might be referred to, using less blunt language than that deployed in the Defendants' submissions, as over-lawyering. This may well be contributed to by a structure where each aspect of the case is looked at by separate groups whilst ignoring the commonality which will plainly exist. It also requires significant quantities of intra-firm co-ordination which is not objectively justifiable.

In terms of the Non-Lead Firms, considerable reductions in budgeted sums were made by the Claimants just prior to the hearing, which drew much of the sting of the Defendants' well-founded observations that there appeared to be extremely large, and somewhat inconsistent, inclusion of Non-Lead Firm time within the various budgets. In general terms, absent a particular explanation as to Non-Lead Firm time we have allowed little or nothing, given the terms of the GLOs.

Hourly Rates

In general terms, the criticism made by the Claimants of the Defendants' claimed hourly rates is the under-estimating point, dealt with above.

The Defendants' principal point (aside from their criticism of the Non-Lead Firm rates point which is, to some extent, reduced in significance given the approach to recovery of these costs explained above) is that Pogust Goodhead claim two rates, distinguishing between 'generic' and 'common' work, the latter commanding a higher hourly rate: Grade A £725 (£650 for common work), Grade B £575 (£450 for common work), Grade C £425 (£350 for common work), Grade D £300 (£225 for common work). The justification is, effectively, the difference in retainer between work carried out in respect of Pogust Goodhead's own clients' claims and that work carried out as Lead Solicitor for a Claimant cohort, in which they are effectively capped by reference to the hourly rates contained in the retainer between the relevant Non-Lead Firm's retainer with the ultimate client.

While it is not the role of the Court to fix or approve the hourly rates claimed in the budgets (CPR 3.15(8)), in general terms, we do not take issue with the rates claimed by either the Claimants or the Defendants. Some of the rates do appear to be too high, for example Grade A rates in excess of £600 and Grade D rates in excess of £198 (the 2024 guideline hourly rate for "very heavy commercial and corporate work by centrally based London firms"). However, the extraordinary levels of costs incurred and estimated are generated by the extraordinary number of hours purportedly anticipated to be incurred, rather than the rates themselves.

Non-ALGLO work

We have formed the view that both the Claimants and the Non-ALGLOs have significantly over-estimated the amount of involvement and time required to be spent through to the conclusion of Tranche 2. The involvement of the Non-ALGLOs is limited. Their principal engagement pursuant to the March Order is involvement in the 3-week (1 week in reserve) Closing Submission hearing following the Tranche 2 evidential hearing involving the Lead/ALGLOs in October 2025.These submissions are to be restricted to the issues of law/regulatory construction (which originally, at the March CMC, the ALGLOs contended could and should be considered with no live evidence, disclosure, witness evidence etc). These submissions are also to be non-duplicative. It is, of course, accepted that the findings of that hearing, in respect of the issues of law/construction, will be binding upon them, and that for obvious reputational and financial reasons the Non-ALGLOs are quite entitled to take their (limited) role seriously. This will involve keeping a relatively broad eye on the progress of Tranches 1 and 2, with ramped up work immediately following the evidential hearing and prior to the Closing Submission hearing. But the scale of the costs anticipated to be spent by the Non-ALGLOs and by the Claimants (whose assumptions in this respect are particularly vague) in respect of the Non-ALGLOs is generally disproportionate to their role in the coming stages. We have reduced the costs budgeted accordingly.

Authorised Dealerships and Finance Defendants

In some cases, OEMs and their linked authorised dealerships and finance partners are represented together (for example, Mercedes, Renault, and the now-settled initial litigation in this jurisdiction against Volkswagen). In some cases, however, the Defendant OEMs, their authorised dealerships and finance partners are separately represented, as follows:

(1) Volvo Car Corporation, Volvo Cars UK Ltd, Volvo Cars Financial Services UK Ltd and the Volvo Authorised Dealers are represented together. Volvo Lex Autolease and Volvo Santander are each separately represented;

(2) Peugeot-Citroën and Peugeot-Citroën Authorised Dealers are separately represented (with the exception of some Authorised Dealerships who are for now unrepresented). Both groups used to be represented jointly by Kennedys until 17 April 2024, when Cleary Gottlieb came on the record for only the former group;

(3) BMW and BMW Authorised Dealers are separately represented;

(4) The Nissan manufacturing defendants are represented together, but Nissan Authorised Dealers are separately represented;

(5) FCA and FCA Finance Defendants are represented together, but FCA Authorised Dealers are separately represented. Again, both groups used to be represented jointly by Kennedys, until 16 May 2024, when Cleary Gottlieb came on the record for only the former group.