In his monthly column, originally written for and published by Practical Law, James Bickford Smith discusses changing judicial approaches to the costs and scale of interim applications, and related changes to the Admiralty and Commercial Courts Guide.
At a time when much judicial attention has been focused on “making the Jackson reforms work”, the continued tendency of High Court litigation to generate applications litigated at substantial cost and with much forensic heat has become something of an embarrassment. It is one thing to accept that the costs in a complex or high-value claim might be substantial were the matter litigated to a conclusion. It is another thing to see substantial six figure sums spent on interim applications. That is all the more true if those applications cannot be dispositive of the proceedings and do not involve injunctive relief.
The application that spirals out of control will be familiar to many readers. Common tell-tale signs include:
These problems can also, albeit generally on an initially less expensive basis, characterise heavy applications in County Court litigation. There the common (but by no means universal) added problem lies in court delays and confusions leading to a build-up of outstanding cross-applications. I recently heard of a case in which more than five such applications fell to be dealt with in a two-hour listing.
Whether more detailed rules of court governing the conduct of applications would help or hinder resolution of common practical problems has been an open question for some time. The argument in favour of such rules is that the current CPR is surprisingly vague on common issues that arise. The argument against is the risk of satellite disputes over whether any rules had been complied with and/or the fact that any set of rules would be unlikely to cover the multiplicity of scenarios that can emerge.
An alternative view has been that the best way to deter litigants from indulging in disproportionate interlocutory battles is to make it clear that cost recovery in them will be limited. Here, the well-known problems have related to:
Over the last eighteen months, however, there have been signs of change. The Technology and Construction Court has increasingly held successful parties to low costs recovery in interlocutory matters, and in Vitol Bahrain EC v Nasdec General Trading LLC and others (2013) (unreported) (www.practicallaw.com/2-549-3656) (see Legal update, Commercial Court exercises its powers to control costs (www.practicallaw.com/3-549-3991)), Males J, as he assessed the successful defendants’ costs of a one day application down from £165,421.80 to £75,000, observed that:
“the message should go out loud and clear that the Commercial Court will not assess costs summarily in such disproportionate amounts merely because the figures on both sides are broadly comparable. Control will be exercised to ensure that the costs claimed from the unsuccessful party are reasonable and proportionate.”
(Vitol Bahrain EC v Nasdec General Trading LLC and others (2013) (unreported), at paragraph 12.)
That message has now been substantially sharpened and reinforced. In Kazakhstan Kagazy Plc and others v Zhunus and others  EWHC 404 (Comm) (see Legal update, Payment on account of costs: determining the correct amount (High Court) (www.practicallaw.com/4-602-3885)), Leggatt J found as follows (emphasis added):
“these proceedings are an instance of what is often euphemistically described as “hard fought litigation” in which neither side shows any sense of moderation. The claims are based on allegations of dishonesty and the amounts of money involved are very large. Some of the allegedly fraudulent transactions in issue are of considerable complexity. Both sides have many lawyers working on the case. At the hearing on 20-21 January 2015 the claimants were represented by two senior leading counsel, as well as junior counsel. So were the main group of defendants. The first defendant, Mr Zhunus, was separately represented by leading and junior counsel.
In a case such as this where very large amounts of money are at stake, it may be entirely reasonable from the point of view of a party incurring costs to spare no expense that might possibly help to influence the result of the proceedings. It does not follow, however, that such expense should be regarded as reasonably or proportionately incurred or reasonable and proportionate in amount when it comes to determining what costs are recoverable from the other party. What is reasonable and proportionate in that context must be judged objectively. The touchstone is not the amount of costs which it was in a party’s best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party’s own account and not recoverable from the other party. This approach is first of all fair. It is fair to distinguish between, on the one hand, costs which are reasonably attributable to the other party’s conduct in bringing or contesting the proceeding or otherwise causing costs to be incurred and, on the other hand, costs which are attributable to a party’s own choice about how best to advance its interests.
There are also good policy reasons for drawing this distinction, which include discouraging waste and seeking to deter the escalation of costs for the overall benefit for litigants.”
(Kazakhstan Kagazy Plc and others v Zhunus and others  EWHC 404 (Comm), at paragraphs 12-13.)
The net result, in this particular case, was a finding that the second, third and fifth defendants’ costs of the applications had been unreasonable, and the order of an interim payment on account of only £100,000, despite costs bills of over £700,000. That implied, and Leggatt J expressly stated, that he considered likely costs recovery would be £150,000. That is a striking reduction. More importantly, Leggatt J’s reasoning emphasised above, if accepted, will have significant effects on the level of recoverable costs in High Court litigation, and seems particularly apt to catch the extravagant litigation of applications. It is, in many ways, on a par with decisions on costs budgeting that have insisted on the proportionality of costs irrespective of other countervailing factors.
Last month, another application in the same case (Kazakhstan Kagazy Plc and others v Zhunus (Rev 1)  EWHC 996 (Comm); see Legal update, Security for costs and guidance for practitioners conducting large cases (Commercial Court) (www.practicallaw.com/4-609-5434)) prompted the following strong words from Walker J:
“A1.2 The need for a sense of proportion
This case is an example of something which the court is seeing with increasing frequency. Claims are made for large sums. Emergency orders are obtained, without notice to the other side, which freeze assets worldwide up to the value of the sums claimed. From then on there is a series of interlocutory applications. They are heavier than they should be. Not weeks, but months, are spent assembling material to be put in evidence. Correspondence is exhibited. In some cases it includes something which correspondence should never include, namely the trading of insults between the solicitors for the parties. There has been little, if any, attempt to agree facts or issues. Time estimates for pre-reading are given which underestimate the time needed to read the key evidence and gain a grasp of what the real issues may be. The time needed is far more than it ought to be, largely because no expense has been spared in taking every point. There is an urgent need for commercial practitioners to bring a sense of proportion to this type of litigation.”
(Kazakhstan Kagazy Plc and others v Zhunus (Rev 1)  EWHC 996 (Comm), at paragraph 2.)
Walker J also set out the following suggested principles:
“A1.3 Some suggested universal guiding principles
In that regard it seems to me that there are universal guiding principles which practitioners should always have in mind. Below I make some suggestions as to what those universal guiding principles may include. I stress that they are not rules. They are not intended to define or to limit. My suggested universal guiding principles would include: (1) The court expects solicitors and counsel to take appropriate steps to conduct the debate, whether in advocacy or in correspondence, in a way which will lower the temperature rather than raise it.
(2) This remains the case even where – indeed particularly where – any concession is perceived as anathema by one or other or both sides. It is perfectly possible to be vigorous without being insulting.
(3) Imputations on others, whoever they may be, should only be made if they are both necessary and justified. If they are not strictly necessary, or they are not objectively justified, they should be rigorously excluded. Sometimes they are necessary, for example when seeking a freezing order, or when an allegation of bad faith is necessary. They must be confined to what is necessary. As to what is objectively justifiable, regard should be had to the degree of proof that is needed. What is needed in order to support an application for a freezing order may differ from what may be required if an imputation is to be made and sustained in a different context.
(4) Rather than focus on criticisms of the other side, the focus should be on working out a timetable which will enable opposing parties to consider what facts and issues can be agreed, and what information and revised estimates for reading and hearing time can be given to the court prior to the hearing so as to ensure that the court’s time is used efficiently and productively.
(5) If it is likely that a point which might be taken by a party, or it becomes likely that a point previously taken by a party, will not significantly advance that party’s case, or will require a disproportionate amount of time or resources if it is to be resolved, then notification should be given that the point will not be relied upon for present purposes. The notification can be accompanied by an appropriate reservation as to the position in future.”
(Kazakhstan Kagazy Plc and others v Zhunus (Rev 1)  EWHC 996 (Comm), at paragraph 3.)
In tandem with these decisions, the Commercial Court has amended the Admiralty and Commercial Courts Guide (www.practicallaw.com/2-205-4009) with immediate effect to limit skeleton arguments in “heavy” applications to 25 pages and those in “normal” applications to 15 pages (see Legal update, Commercial Court: limits on the length of skeleton arguments for applications (www.practicallaw.com/1-609-5690)). The former rule change also carries with it an obligation to apply for leave before serving a longer skeleton “sufficiently in advance of the deadline for service to enable the court to rule upon it before then”.
The message to take from these developments is simple. The combination of procedural rules to limit the scope of skeleton arguments, some strong dicta on the conduct of applications, and a much more exacting approach to costs recovery following them, are plainly intended to lead to change in the approach to applications taken by those parties unwilling to write off 60-75% of their legal expenditure even if successful. One doubts that all parties will pay much heed to these strictures, and all are familiar with the dynamics that a hard-fought case can take on. These developments will nevertheless be well received by those who complain of the cost of litigation and/or of the cost of London as opposed to some other international legal centres. In any event, parties will expect their advisers to be on the right side of these developments and bring them to their attention when considering whether to make, or how to respond to, potentially costly applications.