Maximising Costs Recovery
With the onset of paperless files, the stark reality of the recent judgment in Deutsche Bank AG v Sebastian Holdings Inc  EWHC 9 (SCCO) should be at the forefront of every practitioners mind and their daily routine when involved in any case in which they hope to recover costs from the other side.
In short, the Claimant’s Bill of Costs was reduced by over 30% despite the detailed assessment being on an indemnity basis, due to the lack of supporting evidence to substantiate the time being claimed.
The Defendant, Sebastian Holdings is a company registered in the Turks and Caicos Islands. It is an investment fund run by Norwegian billionaire Mr Alexander Vik.
The Claimant, the Deutsche Bank, sued the Defendant for about $530 million to cover losses incurred in currency trading during the Credit Crunch in 2008. The Defendant counterclaimed that the bank had engaged in improper conduct and had terminated traits which otherwise would have realised substantial profits. The Defendant estimated that the cost of the margin calls cost the fund as much as $8 billion. He testified that he had not authorised a former trader who had worked for the firm to place deals of such magnitude and as such it had been the responsibility of the Claimant not to accept the orders. In defence to the counterclaim the Claimant stated that Defendant knew of the risks that were being taken and estimated that the $8 billion losses were ambitious.
In the initial judgment in 2013, the Defendant was ordered to pay the bank the sum of £36 million and subsequently was required to meet 85% of the bank’s legal costs which were estimated at £60 million. Payment of £32 million plus VAT needed to be made within two weeks of judgment.
Mr Alexander Vik was the sole director and shareholder in the Defendant company and controlled the proceedings on its behalf and as such was joined as a party to the proceedings in December 2013 for the purposes of costs and on 13 September 2016 an order was made that Mr Vik was to pay the Claimant’s costs awarded against the Defendant on an indemnity basis.
Subsequent appeals against the order made following trial and by Mr Vik against the non-party costs order were unsuccessful.
This was a huge case and the size of each parties claims made this one of the largest cases to be heard in the English Commercial Courts. Indeed, it was a hard fought case involving a manual review of over 1.5 million documents within the Claimants disclosure; the parties served 54 statements of witnesses of fact and 40 experts reports; the expert reports ran to over 6,500 pages. Written opening submissions ran to over 1,700 pages. Written closing submissions ran to over 2,700 pages. Following a 44 day trial in the Commercial Court the judgment handed down was 428 pages. Both parties instructed teams of Counsel; the Claimant instructed 2 QCs and 2 Junior Counsel and the Defendant 1 QC, 1 Senior Counsel and 3 Junior Counsel.
It was recorded that the detailed assessment proceedings were also huge and were equally hard fought and commenced in 2017. Following a number of applications involving various issues, to include the type of bill to be served and the dates for the compliance for serving Points of Dispute and Replies, a formal Bill of Costs was served on 25 January 2019 in the sum of £53,388,736.00 (being 85% of £62,105,855.00). The disbursements were over £30 million and included Counsels’ fees and experts’ fees.
Mr Vik served Points of Dispute (289 pages) in July 2019. Replies were served in December 2019 in the composite document ran to 483 pages.
Various hearings took place in February 2020 and then remotely in April and May 2020 and were concerned with the Preliminary Issues raised in the Points of Dispute; following which the Claimant served Supplementary Replies in October 2020. Following the hearings in November and December 2020, a reserved judgment was handed down in March 2021 concerning the reasonableness of the fees of Deloitte, which were about £24 million. Further experts’ fees were considered in March 2021. The remainder of the hearing days in 2021 and 2022 were taken up with the Chronological part of the Bill of Costs and 40 document schedules.
There were recurring criticisms raised by the Defendant in relation to how the Claimant solicitors had recorded their time in that the descriptions were inadequate and failed to identify precisely what work had been done and that most composite entries did not divide the time spent between the different tasks. The time recorded was often covering very long days and lengthy periods at a time.
The assessment was made more difficult by the fact that the files and documents were stored on a server, and they were in no particular order, which precluded any structured reading and consideration.
There were very few attendance and/or file notes and those that were located were deficient in detail.
Unfortunately, most of the documents that were located were in fact emails and it was clear these were incomplete as well.
At the end of the detailed assessment, that lasted in excess of 97 days, the Defendant was successful in achieving an overall 32% reduction, to include a 40% reduction in the solicitors’ profit costs, which is a significant result, especially on an assessment undertaken on the indemnity basis.
The Costs Judge was critical of the length of the hearing, which was down to 3 factors:
- The way in which time was recorded;
- The lack of documents, in particular attendance and/or file notes; and
- The Defendant’s challenge to almost every item in the Bill of Costs.
In light of the significant absence of attendance and/or file notes and other documents and by the way in which the time was recorded ie: vague and composite entries, the Court was of the view that the costs of the assessment should not be borne out in totality by the Paying Party and accordingly therefore, the following Order was made:
The Defendant do pay 70% of the costs of the assessment, on the standard basis, subject to detailed assessment.
This case (and the earlier case of Fattal v Walbrook Trustees (Jersey) Ltd (2009)) highlight the need to keep detailed attendance and/or file notes, detailing what precise work/tasks were undertaken and why.
Don’t block record time for the day, split the time recorded into tasks.
In essence, every member of the legal team involved in a case need to be aware that every aspect of their time recorded will be scrutinised, especially by the Costs Judge on assessment.
In addition, they need to be aware that the filing of documents, emails and attendance and/or file notes need to be detailed and in a structured order.
This means that the paperless e-files need to be in an orderly fashion capable of manipulation by the reader, who, invariably, will not be the person that is entering them on the system, so beware.
How can PIC help?
We are here to help.
We offer costs advice and are here to support Practitioners in maximising their costs recovery, through greater awareness, providing argument on and anticipating and navigating the legal disputes. If you need any help, please do not hesitate to get in touch.
Steve Jepson, Senior Costs Lawyer and Chartered Legal Executive