Guidance from the High Court on costs budgeting in the context of a preliminary issues trial in a group action
The High Court, in Crossley and others v Volkswagen AG and others, provided helpful guidance earlier this year on costs budgets in the context of a trial of preliminary issues within a group action. Freshfields acted for the Defendants.
This post is intended to highlight the Court’s approach to costs budgeting in the context of a group action involving Claimants represented by different firms of solicitors and counsel. The decisions made by the Court in this case are likely to be of interest to parties seeking to infer the English Court’s future approach to parties’ costs budgeting in such a context.
Further, the scrutiny that the Court applied to the costs budgets submitted in respect of potentially duplicative work to be conducted by the two Joint Lead Solicitors, and a third firm which, together with the Joint Lead Solicitors, composed the Claimant Steering Committee, will be of particular interest to Defendants facing similar costs hearings in future.
The context in which costs budgeting took place
The exercise to be undertaken by the Court when reviewing budgeted costs is detailed in Practice Direction 3E which states that “the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.”
The budgets submitted by the parties in this case - each in Precedent H format - related to a trial of two preliminary issues. By way of background, when ordering the trial of these two issues, the Court described the first as “essentially a point of law or a point of law and a relatively confined analysis of documents” and the second as “essentially a pure question of law”. Two working weeks were set aside for the trial.
Costs budgets dealing only with the preliminary issues trial (not the rest of the group action) were ordered to be prepared by the parties in advance of a CMC but, due to other business, were not addressed in detail at that hearing. However, the Court did observe at that CMC that “judicial eyebrows have been raised” by the claimant firms’ collective budget which was in excess of £10 million (approximately £9 million of those costs being estimated costs). This, the Court noted, “seemed like an awfully high amount of money” in light of the fact that the number of Claimants in the group action “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”.* Discussion of the budgets was then held over to a Costs Case Management Conference and the parties were given permission to amend their preliminary issues costs budgets and re-file and re-serve them.
The costs sought at the Costs Case Management Conference
Apparently in light of the Court’s initial observations at the CMC, the Claimant Steering Committee revised their cost budget downwards, in advance of the Costs Case Management Conference, from in excess of £10 million to a sum just under £5.3 million. The Defendants contended that this sum was still disproportionately and unreasonably high for a ten-day trial that was to be subject to limited disclosure, and limited factual and expert evidence in circumstance where no cross examination was anticipated. The Court proceeded to consider the Steering Committee’s budget on a phase-by-phase basis
The Court’s observations in relation to the Claimants’ costs budgets
In conducting its assessment of the parties’ budgets, the Court made a number of salutary observations:
- The Court was keen to emphasise that work should be carried out efficiently between the three Claimant firms. The Court expressed some doubt as to whether the Claimants’ estimates indicated that this would in fact be the case observing that, for the Issue/Statements of Case phase, it was not “persuaded that that exercise has been done in the most efficient manner.”
- In relation to the sums sought for the Disclosure phase, for instance, the Court observed that the sums sought were “highly disproportionate” noting that there was no reason why a “relatively junior” fee earner could not review the bulk of the materials to be reviewed by the Claimants. The proportionality of a two-tier review by paralegals at a cost of £150 per hour and grade D fee earners at a cost of £350 per hour was not accepted by the Court.
- Further, the Claimants’ approach to splitting work between all three firms in relation to the Witness Statements phase led the Court to: “assume they’re all going to be doing effectively the same thing since none of them are the primary contributor to this witness statement at all. And that simply makes absolutely no sense.”
- The Court adopted a similar approach in relation to work conducted by different counsel emphasising that work should be carried out in an efficient manner. For example, “real discipline” to control costs was urged by the Court in relation to the Disclosure phase.
- Work ought to be carried out by fee earners of an appropriate seniority. One claimant firm had, in certain phases, budgeted for all work to conducted by partners and those of grade A level. The reasonableness and proportionality of this was questioned by the Court, which ultimately resulted in reductions in the sums approved.
- The Court was particularly critical of the Claimant Steering Committee’s budget in relation to the trial. The Claimants has budgeted approximately 1,400 hours of solicitor time for that phase, which the Court found to be “frankly, ridiculous.” Indeed, the Court observed “I’m afraid to say that I regard the way in which the solicitors’ time is allocated to trial absurd”. Instead, the Court took the view that charges of ten hours per day per fee earner were a reasonable starting point. Further, whilst the Court accepted the Claimants’ submission that all three firms ought to have a solicitor present at the trial, it was not accepted that senior presence was required. The idea that senior solicitors based outside of court would be working full time on the trial was also explicitly rejected, again as “absurd”.
- The Court also commented upon the Claimants’ proposals for counsel at trial (“clearly over the top”), which the Court understood would involve six different Claimant barristers, noting that this would be “plainly absurd” and that the parties could not “possibly run a trial bouncing backwards and forwards on that basis.” Again, the importance of efficiency was emphasised.
Ultimately, the Court deducted approximately £1.7 million (from the £5.3 million sought) from the Claimant Steering Committee’s budget, resulting in an approved Steering Committee budget of approximately £3.6 million. The Claimant Steering Committee’s approved budget was therefore around £6.4 million less than had originally been sought.
Not only did the Court reduce the Claimants’ estimated costs in this way, but it also recorded certain comments in relation to the incurred costs in the Claimants’ costs budget. CPR 3.15(4) provides that the Court may do this, and Practice Direction 3E confirms that the Court “will take those costs into account when considering the reasonableness and proportionality of all budgeted costs”. At the Defendants’ invitation, the Court made two such comments:
- Pre-action costs incurred prior to the formulation of the preliminary issues were, the Court noted, capable of being claimed in relation to the preliminary issues trial costs budgets, albeit that the costs judge ultimately assessing such costs would “need to be astute that all of the incurred costs claimed do, indeed, relate to costs incurred in relation to the two preliminary issues”. Such costs were not, the Court noted, required to be part of costs in the main action.
- The Court commented that the figure for incurred costs in the Issue/Statements of Case phase appeared disproportionate, both in relation to the costs of fee earners and counsel. Particular emphasis was placed upon the narrow focus of the preliminary issues.
The Court’s future approach
Although Defendants in group action proceedings are likely to welcome the robust approach adopted by the Court when scrutinising collaborative budgets submitted by Claimant firms, the Court’s approach to dealing with issues of reasonableness and proportionality in relation to costs in a preliminary issues trial context will be of interest to both Claimants and Defendants in future.
The hearing also offers a salutary lesson to practitioners that, whilst the sums at stake in group actions might be sizeable, and the Claimants many, the courts are extremely unlikely to allow that fact - even in the context of very complex cases - to lead to the approval of unjustified costs budgets.
*At the CCMC, the Court further noted that this initial sum was “just far too high” and that the initial observations made at the CCMC had been “fairly self-evident”.