Costs News

07 June 2018
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“Who writes the cheque” test did not reflect winner in group travel claim, says Court of Appeal

A High Court judge was wrong to equate ‘who receives the cheque’ with the successful party in a complex group claim, the Court of Appeal has ruled.

It also bemoaned the fact that the main driver of the case had long been the costs – estimated at nearly £2m where damages for each of 838 claimants would be no more than a few hundred pounds – rather than the damages.

Sirketi v Kupeli and Ors [2018] EWCA Civ 1264 concerned a claim by people who had booked flights with CTA, the national airline of the Turkish Republic of Northern Cyprus, when its air operator's licence was suspended and the fleet grounded. It never flew again.

Atlasjet entered into an agreement with the government of Northern Cyprus to transport stranded passengers to their destination, but in the end none of the claimants was given a replacement flight, meaning they had to buy new tickets with other carriers or were simply unable to travel and so lost their money.

The proceedings were never formally incorporated into a group litigation order (GLO), but the claims were joined and managed together. Solicitors Hudson Morgan Williams represented all the claimants on a conditional fee basis, including a 100% success fee but no after-the-event insurance.

As a result of Mrs Justice Whipple’s trial of preliminary issues and lead cases (called the part 1 trial), only 46 of the claims were successful, with Atlasjet required either to provide a return ticket to Turkey or Northern Cyprus, or pay damages of £400 each.

Going from the starting point that the claimants had won – as the defendant had written a cheque – Whipple J ordered Atlasjet to pay 33% of the claimants' costs, having taken the outcome on particular issues and the conduct of the parties into account.

On appeal, Mr Justice Hickinbottom said “one can only have sympathy for the trial judge who, having dealt with the substantive issues between the parties comprehensively, compellingly and unimpeachably in her main judgment, was then faced with the challenging issue of costs of the part 1 trial, in respect of which both the claimants and Atlasjet asserted they had ‘won’ and ‘won’ by some margin”.

But, finding that Whipple J had used who had written a cheque to be the “determinative, if not sole, factor that hallmarked success in the part 1 trial”, he said this was “too crude an approach to such litigation as this”.

While who pays whom may be “a straightforward and easily identified mark of who the unsuccessful party might be” in money cases between two parties, there are other factors in a group claim, Hickinbottom LJ said.

On the basis of CPR rule 44.2(2), as a starting point, Atlasjet was entitled to its costs from the unsuccessful claimants in relation to their individual claims, he said. “It seems to me that that is particularly so in the absence of a GLO.”

He continued: “Second, a group claim is managed so that any trial not only conclusively determines any lead claims. The trial is intended and designed to determine matters, through the vehicle of preliminary issues and/or lead claims, that will determine or assist in the determination of the balance of the claims by agreement or later individual small-scale trials. Consequently, the direction any money travels as a result of a group claim trial may not always properly reflect "success".

“Looking at the litigation as a whole, whether a party is 'successful' is an issue which has to take into account both the extent to which a party has been successful in such issues and the consequences of the trial for the balance of claims. These are, quite clearly, material considerations so far as the issue of costs as between the parties is concerned.

“These factors can be taken into account in a variety of ways, each of which involves an assessment which is quintessentially fact-specific.”

Looking again, Hickinbottom LJ said it was clear that “neither party had anything close to complete success, and indeed that honours were fairly even”. He concluded that the appropriate order was no order as to costs.

In a postscript, he added: “Although not directly bearing on the issues with which the appeal is concerned, I consider it would be remiss if I did not express my dismay at the way in which the costs of the parties have so vastly, and so obviously, exceeded any substantive claim that the claimants may have had.”

He said the total costs spent by both sides could not have been “far shy” of £2m. While accepting that the claimants were, as their counsel said, "modest folk", for whom the loss of the money spent on flights not made would have had a real impact, the fact was that the sum claimed for each one was “very modest”.

“We do not have details of the CFA between the claimants and their solicitors; but we do know (i) that the solicitors must have regarded the claims as being high risk, as the success fee was put at 100%; and (ii) the claimants did not have the protection of after the event insurance. On any view, this litigation, for the Claimants, presented a very high commercial risk out of all proportion to the potential prospective rewards.

“On the other hand, knowing that the claims were necessarily very modest in amount, Atlasjet refused to consider any form of compromise, until shortly before the trial, when, in effect, its efforts were both too little and too late. The judge correctly observed that this case cried out for some early, sensible consideration of compromise.

“From a very early stage, the main driver of these proceedings was clearly not the substantive sums claimed but costs. In the circumstances, although playing no part in my ultimate conclusion, or my analysis leading to it, it seems to me that no order as to costs is particularly appropriate.”

Lord Justice Davis agreed, saying: “This is a melancholy tale. It is reasonably evident that the main issue in this litigation has for a while in truth been the issue of costs.” The approach of both sides was “out of all proportion to the practicalities”. He concluded: “As I see it, neither side comes out of all this with much credit.”

Jonathan Adkin QC and Robert Marven QC (instructed by Zimmers Solicitors) for the appellant, and Matthew Bradley and Jamie Carpenter (instructed by Hudson Morgan Williams) for the first respondents. The second respondent did not appear and was not represented.

 

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