Arroyo & Ors v Equion Energia Ltd, Court of Appeal - Technology and Construction Court, December 21, 2016, [2016] EWHC 3348 (TCC)

Issuing Organization:Technology and Construction Court
Actores:Arroyo & Ors v Equion Energia Ltd
Resolution Date:December 21, 2016

Case No: HT-2013-00003

Neutral Citation Number: [2016] EWHC 3348 (TCC)




The Rolls Building

Fetter Lane, London EC4A 1NL

Date: 21/12/2016

Before :


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Between :

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Alexander Layton QC, Sudhanshu Swaroop QC, Robert Marven (instructed by Leigh Day) for the Claimants

Charles Gibson QC, Oliver Campbell QC, Nicholas Bacon QC (instructed by Freshfields Bruckhaus Deringer LLP ) for the Defendant

Hearing dates: 28th November 2016

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  1. The background for this judgment on costs is to be found in the Main Judgment delivered on 27 July 2016, [2016] EWHC 1699 (TCC) [``the Main Judgment'']. The direct result of the Main Judgment was that Lead Claims 39, 50, 54 and 74 were dismissed. After consideration of the Main Judgment the Claimants decided not to attempt to appeal any part of it and that the remaining claims in the Ocensa Litigation should also be dismissed. The Claimants also accepted that, in the light of the Defendant's success at trial, there should be an award of costs to be paid by the Claimants to the Defendant. They submit, however, that the Defendant should not be entitled to an order for the payment of 100% of its costs and that the appropriate order is that the Claimants should be ordered to pay 60% of the Defendant's costs on the standard basis. The Defendant submits that there should be no reduction in the percentage of its costs that the Claimants should be ordered to pay, and that the Claimants should be ordered to pay the Defendant's costs of the litigation on the indemnity basis.

  2. The costs incurred in the litigation are huge by any standards. They run to tens of millions of pounds on each side and dwarf any sums that the Claimants might have hoped to recover at trial even on the most optimistic projections. In August 2013 the Defendant's incurred and estimated costs for the litigation were over £27 million. In September 2014 the Claimants' Costs Budget amounted to over £24 million. Because of developments in the litigation after those dates and the tenaciously combative conduct of the litigation on both sides, I am certain that those estimates on each side will have been exceeded. The evidence of Mr Isted, the partner at Freshfields having conduct of the litigation on behalf of the Defendant, suggests that the Defendant's incurred costs of the litigation are now in the region of £34 million. I have no up to date estimate of the Claimants' costs.

  3. There is an ATE Policy in existence, taken out by or on behalf of the Claimants. It has a sum insured of £1.8 million, which is a small proportion of the sums incurred by the Defendant in defending the claims. Its existence provides the explanation for an agreed order that there should be an interim payment on account of the Defendant's costs in the sum of £1.8 million. As for the rest, the Claimants themselves could not possibly begin to discharge more than a tiny fraction of the Defendant's costs even if it was feasible to try to enforce an order against them, as to which I say nothing. The Court was told that the issues which it is called upon to decide are not academic, for reasons which I do not need to investigate. I accept that assurance.

  4. The consequential issues about costs were the subject of additional evidence from Ms Srinivasan, the partner at Leigh Day having care and conduct of the litigation on behalf of the Claimants, and from Mr Isted. The main materials relied upon in support of each side's submissions are to be found in the Main Judgment, as amplified by the additional evidence from the solicitors.

  5. Although the evidence of Mr Isted and Ms Srinivasan and the submissions made on either side identified particular passages from the Main Judgment upon which they relied, the full weight of the criticisms made by each side of the other cannot be properly gauged by cherry-picking specific references. For that reason, although I shall refer to particular passages in the Main Judgment in the course of this one, deciding how to exercise my discretion on costs in a way that is just and in accordance with established principle requires an overview of the whole scope of this enormous and exceptionally demanding litigation. As the Main Judgment makes clear, the demands imposed on both sides were exceptional by any standards of modern litigation. I make full allowance for the pressures generated by those demands at every point when deciding the issues of costs that are the subject of this consequential judgment.

  6. Where I refer to passages in the Main Judgment I will indicate paragraph numbers as follows: MJ[x].

  7. In summary, and for the reasons set out below, I have concluded that the appropriate and just order to make is that:

    i) The Claimants shall pay the Defendant's costs subject to a reduction to reflect the Defendant's failure on the dangerous activities doctrine;

    ii) The payment of the Defendant's costs shall be assessed (if not agreed) on the standard basis in respect of costs incurred until 28 August 2014 and, subject to (iii) on the indemnity basis thereafter;

    iii) The costs of and occasioned by the hearing on 28 November 2016 shall be assessed (if not agreed) on the standard basis.

    The Principles to be Applied

    The general approach

  8. The Claimants' application that there should be a reduction in the percentage of the Defendant's costs that they should pay and the Defendant's application for indemnity costs engage different principles, which I shall consider in turn. However, the considerations which will lead to orders I make on each application have a degree of overlap. Each application involves an exercise of discretion in accordance with established principles. Accordingly, although I shall summarise and discuss the parties' submissions on each application in turn, it will be necessary to stand back at the end of the exercise and to decide at that point what orders are right, both individually and in conjunction with each other.

    Reducing the costs recoverable by a successful party

  9. CPR 44.2, provides the framework:

    ``(1) The court has discretion as to -

    (a) whether costs are payable by one party to another;

    (b) the amount of those costs; and

    (c) when they are to be paid.

    (2) If the court decides to make an order about costs -

    (a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

    (b) the court may make a different order.


    (4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including -

    (a) the conduct of all the parties;

    (b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

    (c) any admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply.

    (5) The conduct of the parties includes -

    (a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction - Pre-Action Conduct or any relevant pre-action protocol;

    (b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

    (c) the manner in which a party has pursued or defended its case or a particular allegation or issue; and

    (d) whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.

    (6) The orders which the court may make under this rule include an order that a party must pay -

    (a) a proportion of another party's costs;

    (b) ...

    (c) costs from or until a certain date only;

    (d) ...

    (e) ...

    (f) costs relating only to a distinct part of the proceedings; and

    (g) ...

    (7) Before the court considers making an order under paragraph (6)(f), it will consider whether it is practicable to make an order under paragraph (6)(a) or (c) instead.

  10. The principles to be applied when implementing this framework and exercising the Court's discretion have been summarised on a number of occasions, and are well established. Gloster J provided a convenient summary, which I gratefully adopt, in HLB Kidsons (A Firm) v Lloyds Underwriters [2007] EWHC 2699 (Comm) at [10]-[11]:

    ``10 The principles applicable as to costs were not in contention. The court's discretion as to costs is a wide one. The aim always is to ``make an order that reflects the overall justice of the case'' (Travellers' Casualty v Sun Life [2006] EWHC 2885 (Comm) at para 11 per Clarke J. As Mr Kealey submitted, the general rule remains that costs should follow the event, i.e. that ``the unsuccessful party will be ordered to pay the costs of the successful party'': CPR 44.3(2) . In Kastor Navigation v Axa Global Risks [2004] 2 Lloyd's Rep 119, the Court of Appeal affirmed the general rule and noted that the question of who is the ``successful party'' for the purposes of the general rule must be determined by reference to the litigation as a whole; see para 143, per Rix LJ. The court may, of course, depart from the general rule, but it remains appropriate to give ``real weight'' to the overall success of the winning party: Scholes Windows v Magnet (No. 2) [2000] ECDR 266 at 268. As Longmore LJ said in Barnes v Time Talk [2003] BLR 331 at para 28, it is important to identify at the outset who is the ``successful party''. Only then is the court likely to approach costs from the right perspective. The question of who is the successful party ``is a matter for the exercise of common sense'': BCCI v Ali (No. 4) 149 NLJ 1222 , per Lightman J. Success, for the purposes of the CPR , is ``not a technical term but a result in real life'' ( BCCI v Ali (No. 4) (supra)). The matter must be looked at ``in a realistic ... and ... commercially sensible way'': Fulham...

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