Case No: HQ09X02843
Neutral Citation Number: [2010] EWHC 2790 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 04/11/2010

Before :

MR JUSTICE STADLEN
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Between :

	EUROCALL LIMITED	Claimant	
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	(1) ENERGIS COMMUNICATIONS LIMITED
(2) NIGEL DUDLEY WARR	Defendant	

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Mr Craig Orr QC (instructed by Davies Arnold Cooper LLP) for the Claimant
Mr Michael Lazarus (instructed by Pincent Mason) for the 1st Defendant
Mr Craig Orr QC (instructed by Davies Arnold Cooper LLP) for the 2nd Defendant

Judgment
Mr Justice Stadlen : 
1.	The question arises as to the appropriate Order to make in relation to costs following the failure of the First Defendant’s applications to strike out the claim alternatively to enter Summary Judgment for the First Defendant on the ground that the claim is void for Champerty.  As appears from my substantive judgment on those applications in the event I was invited to treat them as a preliminary issue and I held and declared that the relevant provision in the Amendment Agreement is not void for Champerty.
2.	The Claimant and the Second Defendant (“Mr Warr”) (who was added as a party to the proceedings on 31 March 2010 for the purposes of costs) asked for an Order that the First Defendant (“Energis”) pay the costs of and occasioned by its application dated 17 December 2009, such costs to be assessed summarily in the amount of £55,395 and that those costs be paid within fourteen days of the Order being drawn up.  In Energis’ submissions on costs it accepted that Mr Warr is entitled to an Order that it pay his summarily assessed costs of its application within fourteen days.  It thereby abandoned a contention made in correspondence that there should be a stay of all questions of costs pending a possible appeal against my substantive judgment.  It also thereby accepted that such costs as are ordered to be paid by it should be paid to Mr Warr and that such costs should be summarily assessed.  Thus as submitted by Energis the only live issue is as to the quantum of costs payable by it to Mr Warr.  
3.	The Claimant’s costs of and occasioned by the application sought to be recovered from Energis amount to £55,395.  The detailed breakdown of those costs is exhibited to a witness statement of Mr Bramhall, the partner at Davies Arnold Cooper LLP (“DAC”) with conduct of the action on behalf of the Claimant and Mr Warr, in which he verifies the amount of costs incurred.  
4.	Energis challenges this figure on a number of grounds.  It submits that the overall figure is disproportionate to the amount at stake, namely £228,419 on the claim and £167,393 on the counter claim.  It contrasts the costs incurred by the Claimant in resisting its application with those which it incurred, £21,185, which it submits was a proportionate sum for an application of this kind.  Energis submits that in reality, and as was obvious from the way the application was argued, the application raised questions of law about the validity of a grant of the right to litigate in the name of another in the light of Trendtex and subsequent authorities.  No more than some limited explanation of the background to the two relevant agreements was required.  The Claimant’s submission that costs should be awarded on an indemnity basis at least from 22 March 2010 (the date given for acceptance of a without prejudice save as to costs offer made on 17 March 2010 by the Claimant to accept only 50% of its costs if the application was withdrawn) is resisted on the basis that the offer, made shortly before the hearing, involved making only a modest concession on costs and should not entitle the Claimant/Mr Warr to costs on an indemnity basis.  In addition specific challenges are made to individual items in the schedule of costs prepared by DAC exhibited to Mr Bramhall’s witness statement.
5.	On behalf of the Claimant and Mr Warr, Mr Orr QC submits that in view of the serious and concerted efforts made by the Claimant to settle the application the Court should assess the Claimant’s costs on the indemnity basis at least from 22 March 2010 and approach with circumspection Energis’ allegations about the unreasonableness of the Claimant’s costs.  If Energis had accepted the Claimant’s offer the application would have been withdrawn in return for Energis paying £16,376 to the Claimant in respect of costs, representing 50% of the costs incurred by the Claimant up to 20 March 2010.  That is some 35% less than the costs to which Energis now concedes the Claimant is entitled, namely £25,017.  Thus submits Mr Orr there is no doubt that the offer is one which should have been accepted.  It is one which, on the first Defendant’s own case, it has not bettered.
6.	Although not made under CPR Part 36, the offer he submits should be treated as having equivalent effect for costs purposes to a Part 36 Claimant’s offer to settle which proves to be more advantageous to the Defendant than the Court’s judgment.  Under CPR 36.14(3)(b) such an offer ordinarily entitles the Claimant to costs on the indemnity basis from the date on which the offer should have been accepted.  
7.	Mr Orr submits that the CPR makes clear that when determining the amount of costs the Court must have regard to admissible offers of compromise: see CPR 45.5(3)(a) and Costs Practice Direction para 8.4 at 44PB.2.  Part of the culture of the CPR is to encourage settlement by giving parties an incentive to make and accept appropriate settlement offers.  That incentive would be undermined if parties could ignore with impunity efforts to settle of the kind made by the Claimant in this case.  The First Defendant ignored the Claimant’s offer at its peril and should now bear the burden of proving the allegations of unreasonableness which it levels against the Claimant’s costs at least from 22 March 2010.  
8.	For reasons which will become apparent in my view very little turns on whether Mr Orr’s submission that the rejection of the Claimant’s offer should result in costs being paid on an indemnity basis after the 22 March 2010 is well founded.  The essential differences between costs awarded on a standard and indemnity basis are that in respect of the former but not the latter there is a requirement of proportionality and in respect of the former the burden of establishing reasonableness is on the receiving party whereas in respect of the latter the burden of proving unreasonableness is on the paying party.  In my view the costs incurred by the Claimant after 22 March 2010 were not disproportionate having regard to the importance of the application and the sums involved respectively in the action and the costs of the application.  Had the application succeeded the Claimant’s claim would have failed in limime.  The costs incurred after 22 March 2010 were not in my view disproportionate to the sums at stake in the action.  As to the difference in the burden of proof between standard and indemnity costs, nothing in my view turns on that.  In relation to those costs claimed which in my view the Claimants are entitled to recover in respect of the period after 22 March 2010 I am positively satisfied that they were reasonably incurred.  In relation to those costs which in my view are irrecoverable in respect of that period I am satisfied that they were unreasonably incurred.  Thus the outcome would be the same whether costs were assessed on an indemnity or a standard basis.  
Costs Incurred before 22 March 2010
9.	In the written submissions of Mr Lazarus, who appeared on behalf of Energis, Energis takes no issue with items 1, 2, 7 or 8.  The biggest challenge is to item 4 (incorrectly referred to as item 3).  The sum claimed in item 4 is £21,294.  Energis’ proposed reduction is £15,970 or 75%.  The Claimant’s figure is challenged both on grounds of proportionality, having regard to the size of the Claimant’s counterclaim and on grounds of reasonableness.  It is submitted that the time spent on this item was manifestly excessive, comprising six hours by a partner, sixty one and a half hours by a senior solicitor and twenty eight hours by a trainee.  That amounts to a total of 95 hours or the equivalent to two and a half working weeks.  The particular criticisms made are as follows. One of the items covered, namely preparing detailed correspondence, is said to have involved only three substantive letters in relation to the application.  As to “preparing detailed and lengthy witness statements” they comprised only sixteen pages of evidence.  The remaining items covered under this item are said to be too general to analyse. It is submitted that the solicitors involved must have done one or more of the following:-
(a)	Taken too long on individual tasks
(b)	Duplicated work as between themselves 
(c)	Duplicated Counsel’s work
Item 4
10.	The description of this item in DAC’s bill of costs is “attendances on documents. To include: consideration of defendant’s application, draft order, considering issues of Champerty, and maintenance.  Preparing detailed correspondence to parties to the proceedings (not claimed elsewhere).  Attending upon co-fee earners in respect of tactics, strategy and allocation of task to be undertaken.  Reviewing and considering files, extracting documents requested by the Defendant’s representatives.  Reviewing and considering files, preparing instructions to counsel.  Identifying additional information and documents required. Considering historical documents relevant to the Defendant’s application, considering spreadsheets and schedules in respect of shareholdings.  Preparing detailed and lengthy witness statements and preparing exhibits to same. Attending witness statements to reflect comments.  Preparing bundles of documents.  Considering counsel’s comments in respect of additional information, and considering counsel’s comments on tactics, strategy and additional information required.  Considering all areas of law relevant to the Application and undertaking all attendances (not claimed elsewhere) general attendances.”  
11.	Item 4 represents about 40% of the overall bill of costs.  If one excludes counsel’s fees it represents approximately 60% of the total bill.  In his witness statement Mr Bramhall, anticipating a complaint by Energis about the amount of the Claimant’s costs when compared to the amount of its own costs, stated that the vast bulk of the work for the application had to be carried out by the Claimant, who had to retrace the history of the sale of Eurocall to Your Comms in order to explain the nature of the adjustments made to the consideration payable by Your Comms.  That work was all necessary and by its nature detailed and time-consuming. Mr Lazarus submits that in fact as the witness statements of Mr Warr and Mr Ashton show, this was not a complex exercise.  For the most part the statements are said to comprise recycling of the terms or effect of the agreements, argument, factual matters that must have resided in the memories of the witnesses and discussion of the merits of the underlying claim which was not relevant to the application.  It is said to be hard to see what work DAC could have done to retrace the history of the sale of Eurocall apart from proofing the witnesses and analysing the Agreement.
12.	In reply Mr Orr makes the general point that it is apparent from Energis’ submissions on costs that it has no real answer to the Claimant’s argument that the comparison made by Energis between its costs and those of the Claimant is  inapposite given the disproportionate burden of work faced by the Claimant in resisting the Application.  The total sum of  claimed by the Claimant in respect of costs (and by implication the sum claimed in respect of item 4 in particular) is said not to be an extraordinary sum as asserted by Energis for an application of this kind which involved consideration of complex commercial agreements and took a full day to argue in Court.  The number of pages of the parties’ witness statements is not a fair or reliable indication of the scope of work involved in dealing with the application.  The amount of costs incurred by the Claimant was both reasonable and proportionate bearing in mind that the application threatened the Claimant’s very right to bring these proceedings.  Had the Claimant lost it would not only have been liable for its costs and those of Energis but would also have lost the right to pursue the claim at all. 
13.	Mr Orr submits that Energis is wrong to imply that the application was from the outset made on a narrow legal basis and that the facts were never in dispute.  Although the argument finally advanced by Energis in oral submissions at the hearing was a narrow legal one on the basis of admitted facts (in fact they were not admitted but assumed), this was not how the application was mounted or presented prior to the hearing. In his witness statement in support of the application Mr Walsh appeared to deny that the grant to Mr Warr of the right to pursue the claim was part of the adjustment of the purchase price in relation to the net asset value of the company.  He also complained about the lack of explanation of the inclusion of Clause 3 in the Adjustment Agreement and alleged that “Your Comms could not have felt that the claim was worth pursuing.”  Mr Orr submits that it was therefore necessary for the Claimant to address those matters and the rest of the factual matrix to Clause 3 of the Adjustment Agreement in its evidence in some detail.  Further after service of the Claimant’s evidence, there was no admission by Energis of the Claimant’s explanation of events.  It seemed that the facts were still in controversy.  In Energis’ skeleton argument, for example, it persisted in contending that Your Comms attributed no value to the claim, despite Mr Ashton’s evidence to the contrary.  The suggestion now made by Energis that all the Claimant needed to do was to provide “some limited explanation of the background to the two Agreements.” is unfair, wrong and inappropriate in the light of the way it conducted the Application prior to the hearings.  
14.	Nor submits Mr Orr was it apparent from Energis’ application notice or pre-hearing correspondence that the legal argument advanced was a narrow one.  In none of that material did Energis explain the point upon which it ultimately relied, namely that Mr Warr’s interest in the value of the claim prior to the Adjustment Agreement did not qualify as a genuine commercial interest in the claim within the scope of the Trendtex test because it was not an interest in enforcement of the claim.  That point was explained for the first time in Energis’ skeleton argument served the day before the hearing.  Until then the basis for Energis’ Champerty argument was obscure.  Moreover Energis chose not to engage with the Claimant in debating the Champerty issue when responding to its letter of 1 March 2010 in which the Claimant set out in some considerable detail the substance of its argument including, citation from the Massai Aviation case.  Instead it limited itself to saying that it did not agree with the Claimant for reasons that would no doubt be discussed in greater detail in the submissions at the hearing.  Thus submits Mr Orr it is wrong to suggest that the confined nature of Energis’ argument was obvious.  
15.	In response to Mr Lazarus’ detailed criticisms, Mr Orr submits that the focus on the reference in item 4 to preparation of inter-parties correspondence is misplaced since that is merely one of the many matters covered by item 4.  The Claimant does not suggest, nor does its bill imply, that preparation of inter-parties correspondence accounts for a significant let alone major part of the costs claimed under item 4.  The bulk of item 4 obviously relates to work on the documents and preparation of witness evidence.  As to the allegations of incompetence made against DAC, it is submitted that they cannot fairly or properly be made out on the basis of the material before the court.  As to the preparation of witness statements it was necessary to marshal the relevant documents and examine them with the witnesses.  The care and detail which that exercise required is submitted to be evident from the witness statements, in particular that of Mr Ashton to which I made extensive reference in my judgment.  The merits of the underlying claim to which the Claimant’s witnesses made only limited reference are submitted to be relevant given Mr Walsh’s contention that the claim could not have been perceived to have any value by Your Comms and the absence of any explicit confirmation by Energis, whether in its application notice or in Mr Walsh’s witness statement, that it accepted that the claim was a bona fide one with reasonable prospects of success.  Even in its skeleton argument for the March hearing Energis persisted in arguing that Your Comms attributed no value to the claim apparently in an attempt to bolster its argument (which it then abandoned at the hearing) that Mr Warr’s “belief” that value should be attributed to the claim was insufficient to justify the grant to him of the right to pursue the claim.   Finally it is submitted that Energis’ attempt to portray its application as uncomplicated and straightforward is belied by its own statement of costs which reveals that Pinsent Masons had four fee earners working on the application and were charging hourly rates well in excess of the guideline rates for Leeds.
16.	In assessing the appropriate costs order to make I am required under CPR 44.3 to have regard to all the circumstances of the case including in particular the conduct of the parties.  In my judgment it is appropriate to approach this aspect of the Claimant’s application for costs on the basis that they should be assessed on the standard basis.  The costs were incurred before the expiry of the date for acceptance of the Claimant’s ‘without prejudice’ offer and I do not consider that Energis’ conduct of itself justifies an award of indemnity costs in respect of costs incurred before 22 March 2010. Nor is there any other feature which takes the case so far out of the ordinary as to attract such an award.  It follows that in my view the criterion of proportionality is applicable and it is for the Claimant to discharge the burden of establishing the reasonableness of the costs claimed. 
17.	In broad terms, I consider that there is much force in Mr Orr’s submissions.  Proportionality involves consideration among other things of the amount of money involved, the complexity of the issues, the importance of the matter and the financial position of each party: CPR 1.1 (2) (c).  Bearing those matters in mind, in my view the sums claimed under Item 4 were proportionate.  So far as reasonableness is concerned, the legal arguments involved consideration of a number of lengthy authorities and the nature of the way in which the Champerty challenge was advanced and sought by the Claimant to be resisted did in my judgement require the Claimant to explore with its witnesses in some considerable detail the nature of the underlying transactions, the value of the claims as perceived by Mr Warr and the nature of the agreements.  The latter, as appears from my judgment, were not uncomplicated and a proper understanding of the arguments required a close examination of the agreements and the way in which the transactions were structured.  I do not consider that the criticisms of the DAC solicitors is justified and I accept that it is likely that the exercise of proofing the witnesses and preparing witness statements is likely to have been time consuming.
18.	That said, the burden of establishing reasonableness lies on the Claimant and there is no detailed break down in Item 4 of the time spent by each solicitor on each specific task.   That is of course an exercise which would be undertaken if the matter went to detailed assessment on taxation by a costs judge.  However the matter falls to be considered by me by way of summary assessment. Of necessity in the absence of a detailed breakdown this involves to some degree an element of broad impression.  It may be that on a detailed assessment the reasonableness of the whole of this item could have been made out by reference to an examination of DAC’s detailed files.  Doing the best I can on a summary assessment and taking into account the inferences I draw from my understanding of the issues raised in the application and the legal and factual material which was put before the court I consider that the sum recoverable under Item 4 should be £16,000 thus representing a deduction of £5,940.
Items 5 and 6
19.	These items were for fees paid to Leading Counsel, Mr Orr QC and Junior Counsel in the respective amounts of £3,655 and £1,860 for work undertaken prior to delivery of briefs.  Energis submits that the size of the case did not justify instructing Leading Counsel or two counsel and that a more appropriate figure would be £3,500, representing a discount of £2,015.  The Claimant’s response is that the decision to instruct Leading Counsel was reasonable and proportionate bearing in mind the importance of the application and the engagement by Energis of very senior and experienced junior counsel. Mr Lazarus is of 1987 call whereas Mr Orr QC is of 1986 call.  The Particulars of Claim were drafted by Junior Counsel of considerably less seniority (2007 call). It is submitted that there is no ground for penalising the Claimant for engaging counsel for the hearing of comparable experience to the First Defendant’s counsel.  The work carried out at this stage to which items 5 and 6 relate is said to have included preliminary review and consideration of the applicable law on Champerty, advising on evidence for the application and advising on drafts of the Claimant’s witness statement.  The amount of the fees for the work done is said to have been reasonable and proportionate.
20.	As appears below in the context of the more substantive challenge to the Claimant’s Counsel’s fees for the hearing, in my judgement there is no merit in the submission that it was not reasonable for the Claimant to instruct Leading Counsel. Mr Orr QC was of comparable call and experience to Mr Lazarus.  The importance of the application to the Claimant and Mr Warr was self-evident and the complexity of the arguments involved justified instructing senior experience counsel. In my view it was reasonable to instruct Leading Counsel of Mr Warr’s call.  Nor do I see any ground for challenging Junior Counsel’s fee. Accordingly, I reject the challenge on Items 5 and 6.
Costs incurred after 22 March 2010
21.	Item 12
The amount claimed is £661 in respect of internal email correspondence and discussions regarding the Defendants’ application and in preparation for the hearing. It is challenged as being “not understood, especially as it seems to involve a senior solicitor and others not instructed in relation to the case”. The entirety of the item is thus disputed.  The Claimant’s response is that the suggestion that the item involves costs of solicitors not involved in relation to the case is wrong.  The costs relate to solicitors instructed on the case. In my judgement there is nothing to this challenge even on the basis of the burden being on the Claimant to establish reasonableness, having regard to the nature of the application and the proportion borne by this item to the overall bill, in my judgment it is a reasonable amount.
22.	Item 13
The sum claimed is £1,439 for attendance on documents to include consideration and review of Statement of Costs, review of hearing bundle, skeleton arguments, witness statements and exhibits.  The amount claimed is in respect of some six and a half hours of solicitors’ time.  Energis submits that reviewing documents for a total time of almost six and a half hours is excessive and that half that figure would be appropriate thus proposing a reduction of £661.  The Claimant’s reply is that this item includes the costs of and reviewing:
(i)	The Claimant’s bill of costs
(ii)	The hearing bundle
(iii)	The Claimant’s skeleton argument as drafted by Leading Counsel
(iv)	The First Defendant’s skeleton argument
To charge six and a half hours for the process of considering, reviewing and where appropriate, commenting upon them, is said not to be excessive.  In my judgement that submission is correct, the sum claimed was reasonably incurred and I reject the challenge to this item.
Items 14 and 15
23.	Item 14 is for attendance at the hearing of the Defendant’s application and is in the amount of £4,097.50 representing five and a half hours for each of Mr Bramhall, Ms Jones, the Senior Solicitor dealing with the case and Ms Davis, a trainee solicitor.  Energis submits that it is excessive to charge for three solicitors to attend the hearing and that only the cost of the Senior Solicitor, Ms Jones, should be allowed, she being at an equivalent level to Mr Walsh who attended for the Defendant. Thus the proposed reduction is in the amount of £2,667.
24.	Item 15 is in the sum of £740 representing the cost of Ms Jones and Ms Davis attending the handing-down of my judgment.  Energis submits that it is excessive to charge the costs of two solicitors and that only the cost of the Senior Solicitor, Ms Jones, should be allowed, thus resulting in a proposed reduction of £220.  The Claimant’s response to these items is that this was an important hearing and attendance of the solicitors working on the case was reasonable.  In my judgment there is force in Energis’ submissions, albeit in my judgement it was reasonable for Mr Bramhall as the partner having conduct of the action to attend the substantive hearing, together with a trainee. Accordingly, in my judgement, Item 14 should be reduced by £1,430(the sum claimed in respect of Ms Jones’ attendance) and the total recoverable under Item 14 should thus be £2,667.50. In respect of Item 15 there should be a discount of £220 in respect of Ms Davis’ time and the amount recoverable under this item should be £520.
Item 16
25.	The amount claimed under this heading for preparing a note of my judgment is £1,111.40. This is challenged by Energis on the basis that seven and a half hours is excessive for preparing a note of a judgment which took less than one and a half hours to deliver.  A 50% reduction of £557 is proposed.  The Claimant’s response is that the note prepared by DAC represented its best effort to produce as verbatim a record as possible of my judgment. It was a time consuming exercise and was necessary to ensure the correctness of the note, not only with the Senior Solicitor on the case, but also with Leading Counsel.  Quotations from authorities had to be checked and proof-read against the text of the judgments in question.  The overall time taken is said not to have been excessive.  I agree.  In my view the sum claimed was reasonably incurred. Accordingly, the sum claimed under this item should in my judgement be allowed in full.
Items 18 and 19
26.	These items are in respect of the brief fees paid to Mr Orr QC in the amount of £9,750 for the substantive hearing and £1,909 for preparing cost submissions. Energis submits that these fees are excessive, that figures of £5,000 and £1,000 would be generous and proposes a reduction of £5,659.  As to the substantive hearing Mr Orr submits that the fee is commensurate with the amount of work involved in preparing and presenting the Claimant’s argument, both in writing in the skeleton argument and at the hearing.  Energis’ argument required close analysis of the facts in the context of the Trendtex test. The Claimant’s response also embraced the public policy underlying the Champerty doctrine which Energis sought to ignore or at least marginalised.  It is submitted that I was assisted by the fuller and more comprehensive citation of authority on this point by the Claimant, including two important authorities which were not mentioned by the First Defendant in its skeleton argument. Analysis of the applicable case law inevitably took time and is reflected in Leading Counsel’s fee. As to the fee for preparing the Claimant’s initial costs submissions it is said that they had to cover a range of issues all of which were then in dispute including Energis’ belated and misconceived attempt to defer all questions of costs.  It is said to be inappropriate for Energis to raise issues in correspondence which it later abandons but then to complain about the costs incurred by the Claimant in dealing with the issues in the meantime.  Further, the Claimant had to set out in its costs submission, the basis for its application for costs including an order for payment of the cost to Mr Warr.  While that and other matters are now conceded by Energis they still had to be addressed by the Claimant and the costs incurred in doing so were reasonable.
27.	I accept the Claimant’s submissions in respect of these items.  In my judgement the sums claimed were both proportionate and reasonably incurred and Energis’ submission that they were unreasonable is unfounded.  The issues raised on the application involved close analysis of a number of authorities as well as close analysis of the relevant agreements and the nature of the underlying transactions.  This is reflected in the seniority and experience of counsel instructed by Energis who was of roughly similar call to that of Mr Orr QC.  I would allow these costs in full.
Item 23
28.	This is the brief paid to Leading Counsel in the sum of £1,909.  That is said by Energis to appear to duplicate Item 19.  If it represents a claim for the costs of reply submissions on costs then the total costs of preparing cost submissions are said to be clearly excessive and the whole of this amount is proposed to be reduced. In response the Claimant states that Item 23 does not duplicate Item 19 which relates to the cost of the Claimant’s initial costs submissions filed on 15 April 2010.  Item 23 is said not to be excessive but rather to be commensurate with the time and work spent in responding to Energis’ costs submissions.  The arguments raised by Energis on quantum necessitated close examination of the nature and justification for individual items of costs. That was inevitably a time-consuming task for which the fee charged was reasonable and proportionate. I accept that submission and reject the challenge under this item.
Conclusion
29.	It follows from what I have said above that in my judgement the following deductions should be made from the costs claimed in respect of the following items:
Item 4:	£5,940.00
Item 13:	£1,430.00
Item 14:	£220.00
TOTAL	£7,590.00
30.	Thus from the amount claimed of £55,395.50 there should be deduced £7,590.00 and the costs recoverable should be in the amount of £47,805.50. Accordingly, having regard to the concessions made by Energis, it follows that Energis should pay the sum of £47,905.50 to Mr Warr, within 14 days of the handing down of this judgment.