A Court of Appeal judge has complained about the difficulty of estimating recoverable costs for the purposes of a payment on account “when the amount of costs claimed is so obviously unsustainable”.
Lord Justice Leggatt – sitting in the High Court on a case he was handling before his elevation to the appeal court – ended up ordering payment on account of less than a quarter of the nearly £1.9m in costs claimed by the massive investment company BlackRock, in Dana Gas PJSC v Dana Gas Sukuk Ltd and Ors  EWHC 332 (Comm).
The case concerns the validity and effect of a $850m Islamic finance transaction. BlackRock intervened in the proceedings and was added as a defendant ahead of the trial of a preliminary issue. BlackRock won and claimed costs of £408,000.
It also sought costs on account for a series of applications in which it was again successful. It submitted a statement of costs for £1,473,087. BlackRock sought 60% of these sums (£1.1m) as payment on account.
Leggatt LJ said: “When in heavy commercial litigation, eye-watering amounts of costs are claimed on assessment or on account. It is common for the costs claimant to seek to justify the level of costs claimed by reference to the size of the claim. BlackRock has sought to do so here.
“I certainly accept that the sum at stake is a relevant factor in considering whether costs have been reasonably and proportionately incurred and are reasonable and proportionate in amount. But the fact that a party stands to gain or lose a fortune if it wins or loses the case may also be a reason why it chooses to spend money on legal fees which goes beyond, and sometimes well beyond, the amount of costs that it can expect to get back from the other party if successful.”
He stressed that this meant his comments were not to be seen as expressing any view on whether the work done and fees charged by BlackRock’s lawyers – the London office of US firm Weil Gotshal and Manges – represented good value for money. “The only question is whether the costs incurred exceed the sums which are likely to be recoverable from Dana Gas.”
He accepted certain criticisms made by the claimant of BlackRock’s costs for the preliminary issues trial, including the “extremely high” hourly rates – six of the nine fee-earners involved charged more than £700, with the highest £946, while even a trainee was charged out at £282 an hour.
“From my experience of assessing costs and reviewing cost statements and budgets in complex cases in the Commercial Court, competent representation can be obtained at much lower rates, in the region of around half the hourly rates paid in this case.”
Also, a “very high proportion” of the work was done by grade A fee-earners – of 37 hours attending on counsel and 38 hours attending on BlackRock, more than half was spent by partners whose time was charged at £900 or £946 an hour.
Third, all court hearings were attended by four representatives of BlackRock’s solicitors, as well as by leading and junior counsel. “I think it is seldom reasonable (particularly for hearings at which no witness is giving evidence) to claim the costs of attendance by more than two solicitors. At any rate, a claim for a greater number requires justification and none has been provided.”
In all, he thought around £200-£250,000 of the £408,000 claimed would be recoverable, and ordered payment on account of £175,000.
While Leggatt LJ accepted that the applications were “heavy”, BlackRock’s claim for nearly £1.5m “bears no reasonable relationship to the level of costs likely to be regarded as reasonable and proportionate on a detailed assessment”.
He found the level of detail provided in the cost statement “remarkably scant” and, in the absence of any proper explanation, “it is extremely difficult to see how 1,481.5 hours of solicitors’ time could reasonably have been incurred in preparing for the hearing of applications which largely involved legal argument”. The same criticisms from the preliminary issues trial also applied.
Leggatt LJ concluded: “When the amount of costs claimed is so obviously unsustainable, it is particularly difficult to form a realistic estimate of the level of costs likely to be recovered on a detailed assessment. Doing the best I can based on my knowledge of the case, I would estimate this figure at around a quarter of the amount claimed, in the region of £300,000-£400,000.
“This is based on an impression that something of the order of half the time spent was reasonably and proportionately incurred and that reasonable and proportionate charging rates (including greater use of more junior lawyers) would be roughly half those actually charged. Allowing an appropriate further margin of error and aiming on the side of conservatism, I consider that a reasonable sum to be paid on account is £250,000.”
This meant that, in all, Dana Gas was ordered to pay £425,000 on account of costs.
Daniel Hubbard, instructed by Squire Patton Boggs, acted for the claimant, and Andrew Scott, instructed by Weil, Gotshal and Manges, for BlackRock.