Costs News

31 March 2021
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Challenge to default costs certificate fails after party did not instruct Costs Lawyers promptly

A costs judge has refused to set aside a default costs certificate (DCC) on a $3.7m bill after ruling that the paying party’s solicitors had not acted quickly enough to get themselves in order.

Master Rowley was critical of US firm King & Spalding (KS) for taking a fortnight just to instruct Costs Lawyers after receiving the DCC and its failure to serve draft points of dispute ahead of the hearing to set it aside.

He was dealing with the costs of National Bank of Kazakhstan & Another v The Bank of New York Mellon & Ors, a case which made headlines following lockdown last March as the first fully virtual trial in the Commercial Court.

On behalf of the claimants, London firm Stewarts commenced detailed assessment proceedings on 15 December 2020 for a bill totalling $3.7m.

KS did not served points of dispute by the deadline of 5 January 2021. On 6 January, Stewarts applied for a DCC, which the court issued and served on the same day. Stewarts declined KS’s request to set aside the DCC voluntarily.

KS filed its set-aside application on 15 January. Partner Egishe Dzhazoyan later told the court that the firm did not have an in-house costs function and it took “several days to seek and obtain client instructions and agree terms with the Costs Lawyers”.

Overtons Costs Consultants were not instructed until 19 January and did not receive the files and electronic data until 4 February.

Mr Dzhazoyan said this was because of the “need to seek and obtain certain internal approvals from my firm’s director of records and information governance concerning collating and sharing this type of data in light of my firm’s data privacy protection policies and procedures”.

No points of dispute were prepared for the hearing on 11 March – Mr Dzhazoyan said they needed more time.

Rule 47.12 provides that a DCC will generally only be set aside if the applicant shows a good reason to do so; Master Rowley said the three-stage Denton test provided “some structure” for determining this.

There was “no doubt” that the failure to comply with the time limit for serving points of dispute was a serious breach of the rules with a significant consequence on the paying party, and there was no good explanation for the breach.

He continued: “Having been alerted to the existence of the certificate, promptness is then required, as with all applications for relief from sanctions, and as is specifically mentioned in the practice direction directly relevant to this application.”

Mr Dzhazoyan acted promptly in writing to Stewarts and then filing the application, Master Rowley said. “Regrettably, the same promptness cannot be glimpsed in Mr Dzhazoyan’s efforts to produce draft points of dispute… In the absence of any in-house expertise, it ought to have been apparent that external assistance would be required.”

The explanation of why it took so long to instruct Overtons “does not make good reading”, the judge observed – having received a DCC, “I would have expected the speed of instruction of Costs Lawyers to have increased rather than decreased”.

Master Rowley continued: “Moreover, I would have expected any litigation firm to have links with external Costs Lawyers so that instructions could be sent immediately.

“In these days of costs budgets and costs and case management hearings, the interplay between Costs Lawyers and instructing solicitors goes far beyond the traditional instruction of a cost draftsman to prepare a bill (or points of dispute) at the end of a case when the substantive proceedings have concluded.”

The time it took to instruct Overtons “does not suggest any urgency”, he added. The judge described taking a further fortnight to produce a data file as “surprising”, while the internal governance excuse was “both surprising and unconvincing”.

Master Rowley accepted that the need for draft points of dispute to accompany a set-aside application was only a general rule under paragraph 11 of practice direction 47 – but said that did not mean they should not be produced for the hearing.

He went on: “Where there are large bills of costs, it will often be the case that points of dispute cannot be produced quickly enough to be exhibited to an application notice that is issued promptly. If [the defendants’] submission is correct, it would mean that the court would regularly expect to see draft points of dispute in smaller cases and not the larger ones.

“That does not seem attractive to me and I do not see that paragraph 11.2 should be construed in that way. The wording of the paragraph to my mind is very largely aimed at the court hearing the application. That is particularly so in respect of 11.2(2) and also in 11.2(3) for the need to consider the good reason being put forward.

“That consideration is expected to take place with the benefit of the evidence, the bill and the draft points of dispute to hand. In the normal way, the evidence and documents will be appended to the application notice, but where that cannot happen, it should be provided in time for the hearing.”

The assumption was that the general rule would apply absent a case-specific reason and there was not one here, the judge said.

“In my view, the need for points of dispute, in some shape or form, is fundamental to the prospects of setting aside the DCC in most cases. Unlike setting aside a default judgment, the paying party in detailed assessment proceedings has already been found to be liable to the receiving party by virtue of the order for costs on which the bill is based.

“The detailed assessment proceedings are essentially a matter of quantifying that liability. Some of the challenges to the bill of costs may be fundamental to whether any costs are payable, but mostly the challenges will be about the extent of the costs claimed.

“In the absence of points of dispute setting out either fundamental or quantum challenges, the court has no precise information about what a detailed assessment hearing, if the proceedings were allowed to continue, would involve.”

Here it left only the general submission that, upon a detailed assessment, bills of costs were usually reduced – which the judge dismissed on the ground that the DCC procedure would be pointless if the certificate could be set aside on this basis – and “the most general of comments” from the costs draftsman that the costs claimed appeared to be excessive.

If meaningful points of dispute could not be drafted in time, the costs draftsman could have produced a witness statement or some other document “to give an indication of the nature of the points he was expecting to take”.

Master Rowley concluded that the defendants failed to act “with sufficient promptness so as to be able to set out any putative case in the detail expected” at the set-aside hearing and “such actions as have been taken do not weigh sufficiently in the balance to grant relief in the circumstances”.

Mr I Simpson appeared on behalf of the claimant and Mr R Marven QC on behalf of the defendant.


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