Legal update: disproportionate costs on a detailed assessment

12 March 2015

Where disproportionate costs had been claimed in relation to interim applications, the costs likely to be recoverable on a detailed assessment were assessed conservatively.

In KAZAKHSTAN KAGAZY PLC & 6 ORS v (1) BAGLAN ABDULLAYEVICH ZHUNUS (2) MAKSAT ASKARULY ARIP (3) SHYNAR DIKHANBAYEVA (4) GEOGLOBAL LTD (5) SHOLPAN ARIP (2015) following an unsuccessful application to amend the particulars of claim in proceedings they had issued against the defendants, the claimant group of companies had been ordered to pay the defendants' costs of the application. The proceedings involved substantial fraud claims, in which a worldwide freezing injunction had been granted over the defendants' assets.

The claimant companies had also been ordered to pay the costs of the fifth defendant's application to vary the freezing injunction to clarify that it did not apply to their assets. The court granted an order for payment on account of the costs and the parties consented to the court dealing with that interim payment issue on paper should agreement not be reached.

The defendants provided statements of their costs which amounted to around £945,000. The claimant companies did not attempt to agree interim payments. Instead, they applied for an order referring the costs for detailed assessment because the total claimed was disproportionate, alternatively, they requested a half-day hearing be fixed if there was to be an order for payment on account.

The Court held: The request for a hearing was contrary to the terms of the agreed order for the matter to be dealt with on paper. It was also a disproportionate and wasteful request. None of the parties showed any sense of moderation. In cases involving allegations of dishonesty concerning very large sums and some complex transactions, a party might consider it reasonable to spare no expense that might possibly help to influence the outcome of the proceedings. However, when determining the costs recoverable from the other party, it did not follow that such expense was reasonably or proportionately incurred, or reasonable and proportionate in amount. That had to be judged objectively.

It was a question of looking at the lowest amount which a party 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 above that was not recoverable. It was fair to distinguish between costs reasonably attributable to the other party's conduct in bringing or contesting the proceedings or otherwise causing costs to be incurred, and costs which were attributable to a party's choice as to how best to advance its interests.

There were also good policy reasons for that distinction. Where a court was not conducting a detailed assessment and so did not have the associated detailed information, there was additional reason to be conservative. A disproportionate costs claim should not affect the sum which it was reasonable for a party to pay on account.

The defendants' costs claims were neither reasonable nor proportionate. However, the factor by which they should be discounted to arrive at a reasonable and proportionate amount could only properly be determined by a detailed assessment. Therefore, the recoverable amount should be estimated in broad terms and then discounted to reflect any margin of error and the principle that an interim payment should err on the side of awarding less than was ultimately likely to be recovered.

A substantial amount of work was needed to oppose the amendment application. However, a sense of perspective was necessary: it was not a trial, but a one-and-a-half day hearing of an application to amend a statement of case. A team of three solicitors rather than seven, and one, rather than two, leading counsel would have been reasonable and proportionate. Likely recoverable costs were assessed and interim payments ordered.

The fifth defendant's application should have been dealt with by consent and at minimal cost. That had not occurred largely because of the claimant companies' unreasonable conduct in opposing the application without any valid basis for doing so. Nevertheless, both sides wasted significant time in cantankerous correspondence and unnecessary evidence. The costs incurred by the fifth defendant bore no relation to the nature and difficulty of the matter. In the absence of any reliable information concerning the costs likely to be recoverable on a detailed assessment, that amount was assessed conservatively and a sum ordered to be paid on account

Key points to note

  • It may be reasonable for a party incurring costs to spare no expense in a case where large amounts of money are at stake (particularly in cases involving dishonesty or complex transactions.
  • It does not follow that such expense should be regarded as reasonably or proportionally incurred when it comes to determining the costs to be paid by the other party.
  • The touchstone is the lowest amount a party could reasonably be 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 is for a party’s own account and not recoverable from the other party.
  • This approach discourages waste, deters the escalation of costs and is for the overall benefit of litigants.
  • A paying party should engage in constructive responses to applications for interim costs.
  • Court is unlikely to allow request for a hearing to determine costs if it is contrary to the terms of an earlier court order for the matter to be dealt with  on paper.

Kristina Morgan

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