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	England and Wales High Court (Senior Courts Costs Office) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Senior Courts Costs Office) Decisions >> Sirius International Insurance Corporation & Ors v Aktien-Gesellschaft [2002] EWHC 9010 (Costs) (09 July 2002) URL: http://www.bailii.org/ew/cases/EWHC/Costs/2002/9010.html Cite as: [2002] EWHC 9010 (Costs)

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IN THE HIGH COURT OF JUSTICE
SUPREME COURT COSTS OFFICE

		Supreme Courts Costs Office Cliffords Inn Fetter Lane London EC4A 1DQ
		9 July 2002

Master Wright
1. The background to this matter is set out in the narrative to the Claimants' bill of costs and further information relevant to the issue of proportionality is given in the Skeleton Argument of the Claimants' Counsel, Mr Mark Friston, dated 23 May 2002.
2. The Defendant also lodged a Skeleton Argument for the hearing on 24 May 2002 which, in addition to referring to the provisions of the CPR which are relevant to the issue of proportionality, also refers to Section 11 of the Costs Practice Direction which deals with the factors to be taken into account in deciding the amount of costs.
3. At the hearing on 24 May, Mr Friston referred me to a substantial bundle of correspondence between the parties indicating efforts to bring about a settlement during the four years before the proceedings were issued and submitting that the Defendant's conduct before and after the issue of proceedings had brought about the escalation in costs. The Defendant's representatives sought to rebut these submissions.
4. The claim was issued on 23 February 2000 but was not served until 12 July 2000. The Defence and Counterclaim was dated 23 October 2000. The Reply and Defence to Counterclaim was dated 18 December 2000. Both the Claimants and the Defendant served and responded to Part 18 requests for further information and a case management conference was fixed for 23 March 2001 to be heard by Mr Justice Langley.
5. The List of Issues prepared for the CMC shows that the following matters were common ground by 15 March 2001:

"1.1 In January 1992 the Defendant granted reinsurance protection to the Claimants for risks attaching on or after 1 January 1992 on the terms of the slip number 35282/11 ("the slip").

1.2 The Defendant initialled and stamped the slip at their underwriting offices in Munich on 17 January 1992.

1.3 Under the terms of the slip, in consideration of 30 per cent of net premium on underlying business:

1.3.1 The Defendant agreed to provide to the Claimants 100% comprehensive general contractors liability reinsurance, subject to a limit of indemnity of US $750,000 any one accident or occurrence in excess of US $250,000 any one accident or occurrence (aggregate to be agreed as per original policy); and

1.3.2 The wording of the reinsurance cover was to be "as original", subject to any specified conditions.

 

1.3.3 There was a condition in the slip, which stipulated, "wording based on ISO 1986 Form as attached".

1.4 The Claimants have presented claims under the reinsurance contract, including claims in relation to bodily injury and property damage liability, on a "losses occurring", as opposed to a "claims made", basis.

1.5 The Defendant has made some claims settlements to the brokers LSR.

1.6 The Defendant has failed and/or refused to pay the full amount of claims presented to it."

 

6. The List of Issues goes on to describe the outstanding issues between the parties. These were:

"The Claimants' Claim

Issues on Liability

2. Did the original business underwritten by the Claimants provide cover in respect of liability for bodily injury and property damage on a "losses occurring" basis or on a "claims made" basis?

3. Did the Defendant provide reinsurance to the Claimants in respect of liability for bodily injury and property damage on a "losses occurring" basis or a "claims made" basis?

4. In particular, on a proper construction of the reinsurance contract, what "ISO 1986 Form" was referred to in the slip? Did this form provide cover, in respect of liability for bodily injury and property damage on a "losses occurring" basis or on a "claims made" basis?

Issues on Quantum

5. What is the quantum of outstanding claims which are payable by the Defendant under the terms of the reinsurance contract?

The Defendant's Counterclaim

Issues on Liability

6. Is the Defendant entitled to repayment of money paid in settlement of claims in respect of liability for bodily injury and property damage, which have been presented on a "losses occurring" basis? The following sub-issues arise in this connection:

6.1 Is the Defendant contractually obligated to pay such claims under the terms of the reinsurance contract?

6.2 If not, has the Defendant paid any such claims in the mistaken belief that it was contractually obliged to do so?

6.3 If the Defendant has paid any such claims in the mistaken belief that it was contractually obliged to do so, is a restitutionary remedy available to it?

7. Does the Defendant have a valid counterclaim for breach of contract by the Claimant? This gives rise to the following sub-issues:

7.1 Is there an implied term in the reinsurance contract that claims would be notified by the Claimants to the Defendant in a proper and regular form and within a reasonable time of the Claimants being advised of such claims?

7.2 If so, have the Claimants acted in breach of this implied term?

Issues on Quantum

8. What is the quantum of claims wrongly presented on a "losses occurring" basis, which the Defendant has paid in the mistaken belief that it was contractually obliged to do so?

9. What (if any) loss has been suffered by the Defendant by reason of the Claimants' alleged failure to notify claims to the Defendant?"

7. In their case management information sheet the Claimants stated that the issues at paragraphs 2 to 4 of the List of Issues were suitable for trial as a preliminary issue and that they proposed to call underwriters to give factual evidence and to call expert evidence in relation to the history and market usage of the CGL forms/wording in respect of the proposed preliminary issue. They estimated that the trial of the preliminary issues would last 3 days.
8. In its case management information sheet the Defendant stated that the court should be asked to consider the issue at paragraph 4 of the List of Issues as a preliminary issue and that it probably did not propose to call witnesses of fact for the preliminary issue. In relation to the proposed preliminary issue "possibly a market expert on the history of the CGL forms" would be called.
9. At the hearing on 23 May 2001 Mr Justice Langley ordered that a trial should be held at the soonest available date following the start of October 2001 in respect of the issues in paragraphs 2, 3 and 4 of the List of Issues and gave further directions.
10. The Claimants' pre-trial check list gives an estimate of the Claimants' costs already incurred (to 31 July 2001) in a total sum of £323,248.94. The estimate of the Claimants' costs from then to conclusion of trial was a further £131,340 making a grand total of £454,588.94.
11. The Defendant's pre-trial check list gives an estimate of the Claimants' costs already incurred (to 1 September 2001) in the total sum of £28,343. The estimate of the Defendant's costs from then to the conclusion of hearing of preliminary issues was a further £37,050 making a total of £65,393.
12. The Claimants provided witness statements from four witnesses of fact and from one expert witness. The Defendant provided a witness statement from one witness of fact but did not provide any expert evidence.
13. The Claimants wrote to the Defendant on 25 September 2001 asking for confirmation as to whether they wished any or all of the Claimants' witnesses to attend trial (which was fixed for 29 October 2001).
14. The Defendant's reply on 26 September was:

"You may take it that we wish to test the evidence of your witnesses by cross-examination."

15. In reliance of this letter, the Claimants made preparations to call their witnesses.
16. On 19 October 2001 the Defendant wrote:

"Our clients have been considering this matter. Especially so in the light of their management commitments in dealing with 11 September. They wish to explore whether this dispute can be resolved amicably".

17. The preliminary issue was settled two weeks before the trial date. The Consent Order made by Mr Justice Thomas dated 29 October 2001 provides:

"2. All further proceedings herein be stayed upon the terms set out in the schedule hereto, save that there shall be liberty to apply for the purpose of enforcing such terms.

3. The Claimants' costs to date are to be paid by the Defendant forthwith, to be assessed on a standard basis if not agreed."

18. In its Points of Dispute on the Claimants' bill of costs the Defendant says:

"Proportionality

The Claimants' solicitors are seeking a total of £490,742.85 in respect of their costs pursuant to the Order dated 29 October 2001. The Defendant considers this excessive and totally disproportionate to the issues involved.

 

This was a simple claim for declaratory relief in respect of a reinsurance contract dated 17 January 1992 and which centred on (by way of preliminary issue) the true construction of the underlying LSR lineslip. The Claimants contended that the underlying lineslip provided cover on a "losses occurring" basis (ie in respect of losses incurred during the policy period, regardless of when the relevant claim was made). The Defendant contended that the contract provided cover on a "claims made" basis (ie only for losses in respect of which claims were made during the policy period).

The Claimants relied upon just four witnesses of fact together with one expert witness. The Defendant relied upon just one witness of fact and no expert evidence. The matter was settled just before trial.

On the Claimants' own admission, the documents in the trial were very few in total - see Claimants' Counsels' suggested reading list dated 24 October 2001.

Accordingly, the Defendant submits that the costs now being claimed are totally disproportionate to the issues involved and seeks the appropriate reduction on the grounds thereof."

19. The Claimants reply states:

"The Claimants dispute that this was a simple claim for declaratory relief, indeed, with quantum still an issue, the claim is likely to exceed US $3,500,000 plus interest. The Costs Judge is referred to a brief description of the claim in the Claimants' bill of costs. However further explanation is provided below.

The claim form was not in fact served until 12 July 2000 - the reason for this delay was that the Defendant refused to accept service in England (despite the fact it had appointed Barlow Lyde & Gilbert as their solicitors from at least 10 March 2000) and the Claimants were obliged to serve through official channels in Germany.

The Defendant served its Defence and Counterclaim alleging inter alia that claims should have been presented under the reinsurance on a "claims made" rather than "losses occurring" basis. The Defendant alleged in its counterclaim that it was entitled to damages for claims presented in an improper and irregular fashion.

At the case management conference on 23 March 2001, a trial of preliminary issues was ordered. The key issue was whether the original insurance policies and the reinsurance contract provided cover on a "claims made" or "losses occurring" basis. A stay was ordered in relation to all other issues of liability and quantum in the action. The trial of preliminary issues was fixed for 2 - 3 days from 29 October 2001.

 

Pursuant to the Order at the CMC, standard disclosure relevant only to the preliminary issues took place on 4 May 2001. The Claimants disclosed some six lever arch files of documents drawn from their review of the documents provided by all eleven clients and the broker. The Defendant disclosed merely 124 pages of documents. The Defendant subsequently admitted on the witness statement of Joachim Krane that its files contained "very few if any underwriting and placing documents and the documents which have been disclosed are almost in their entirety reconstructed from documents which have been provided to my company by LSR and/or Sirius who led the lineslip".

As agreed at the CMC, witness statements were exchanged on 20 July 2001. The Claimants served statements from the two lead underwriters on the underlying lineslip, Mr Colin Mico and Mr Richard Norman, and evidence from the LSR broker who placed the reinsurance, Mr Mark Watson. It became known by the Claimants on 10 July 2001 that the Defendant had not made any effort to contact Mr Uwe Paschen, who was their own underwriter who wrote the reinsurance contract. As his evidence was clearly material to the issue in dispute, the Claimants contacted him and took his witness statement (on 12 July 2001) which was also exchanged on 20 July 2001. The Defendant merely served one witness statement, that of their claims manager, Mr Joachim Krane, who, on his own admission, first became involved in the claim in March 1998, six years after the contract was written.

Pursuant to the terms of the CMC Order, on 30 August 2001 the Claimants served an expert report of Mr Richard Outhwaite in relation to the history and market usage of the CGL forms/wording. The Defendant did not elect to serve any expert evidence despite having commented in its case management information sheet that it was possible an expert might be needed as to the history of the CGL Forms.

From 30 August 2001 onwards, the Defendant had access to all the evidence that would be presented at trial on behalf of the Claimants. Despite this, it still chose not to make any approach to the Claimants who were accordingly obliged to make full preparations for trial. On 25 September 2001, the Claimants wrote to the Defendant in order to enquire whether it would require all its witnesses to attend court to be cross examined including the Claimants' expert witness. On 26 September 2001, the Defendant confirmed it would require all witnesses to attend court.

On 19 October 2001, just six working days before the start of the hearing, the Defendant made a settlement approach to the Claimants. A settlement was subsequently negotiated and agreed on 25 October 2001, merely 2 working days before the start of the trial, whereby the Defendant conceded the preliminary issue and completely abandoned its counterclaim.

In conclusion, the Claimants contend that the conduct of the Defendant placed a significant additional burden on them in pursuing and progressing the claim and the costs are proportionate to this event. In this respect, the Costs Judge is referred to CPR 44.5(1)(a) and (3)(a)."

20. CPR Rule 44.4(2) provides:

"Where the amount of costs is to be assessed on the standard basis, the court will -

(a) only allow costs which are proportionate to the matters in issue; and

(b) resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party."

21. CPR Rule 44.5(1) provides:

"The court is to have regard to all the circumstances in deciding whether costs were -

(a) if assessing costs on the standard basis -

(i) proportionately and reasonably incurred; or

(ii) were proportionate and reasonable in amount."

22. CPR Rule 44.5(3) provides:

"The court must also have regard to -

(a) The conduct of all the parties, including in particular -

i. conduct before, as well as during, the proceedings; and

ii. the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;

(b) The amount or value of any money or property involved;

(c) the importance of the matter to all the parties;

(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;

(e) the skill, effort, specialised knowledge and responsibility involved;

(f) the time spent on the case; and

(g) the place where and the circumstances in which work or any part of it was done."

23. Sections 11(1) and 11(2) of the Costs Practice Direction provide:

"11(1) In applying the test of proportionality the court will have regard to rule 1.1(2)(c). The relationship between the total costs incurred and the financial value of the claim may not be a reliable guide. A fixed percentage cannot be applied in all cases to the value of the claim in order to ascertain whether or not the costs are proportionate.

11(2) In any proceedings there will be costs which will inevitably be incurred and which are necessary for the successful conduct of the case. Solicitors are not required to conduct litigation at rates which are uneconomic. Thus in a modest claim the proportion of costs is likely to be higher than in a large claim, and may even equal or possibly exceed the amount in dispute."

24. In his judgment in Home Office v Lownds [2002] EWCA Civ 365 the Lord Chief Justice, Lord Woolf said:

"28. The reference in 11.2 to costs "which are necessary" is the key to how Judges in assessing costs should give effect to the requirement of proportionality. If the appropriate conduct of the proceedings makes costs necessary then the requirement of proportionality does not prevent all the costs being recovered either on an item by item approach or on a global approach. The need to consider what costs are necessary is not a novel requirement. It was reflected by the former provisions of RSC Order 62 which applied to the taxation of costs prior to 1986. Rule 28(2) dealt with costs on a party and party basis and stated:

"... there shall be allowed all such costs as were necessary or proper for the attainment of justice ..."

29. In assessing costs Judges should have no difficulty in deciding whether, in order to conduct litigation successfully, it was necessary to incur each item of costs. When an item of costs is necessarily incurred then a reasonable amount for the item should normally be allowed. Any item that was not necessary should be disallowed.

30. In his advice the Senior Costs Judge drew attention to the problems that can arise from "double jeopardy"; in other words from making a deduction when considering the bill item by item and then looking again at the situation as a whole and making a further global deduction. This danger will be avoided if a party receives at least a reasonable sum for the items of costs which were necessarily incurred.

31. In other words what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This in turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner."

25. In this case costs of nearly £500,000 are claimed where the issues between the parties appear to have been clearly and quickly ascertained so that it was possible to refine them into a preliminary issue which turned upon the identification of the terms of the contract between the parties.
26. The evidence was quite limited, the documents were few in total, there were only four trial bundles and the matter was settled before trial. Of the total costs claimed, Counsel's fees amount to some £25,000. A large team of fee earners was employed in the matter by the Claimants' solicitors and a total of 1,799 hours 56 minutes is claimed by that team as time spent in the preparation and perusal of documents alone during the period December 1999 to 2001.
27. The Claimants say in their replies to the Points of Dispute that the claim is likely to exceed US $3,500,000 plus interest. However the amount of the claim is not the determining factor. CPR Rule 44.4(2)(a) provides that the court will only allow costs which are proportionate to the matters in issue and Rule 44.4(2)(b) provides that the court will resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.
28. The court must have regard to the matters set out in CPR 44.5(3). I have already referred to the provisions of Rule 44.5 (see 21 and 22). I have considerable doubts as to whether the refusal by the Defendant to accept service in England, the terms of its Defence and Counterclaim, its failure to contact Mr Paschen to obtain his evidence or its service of only one written witness statement can be regarded as conduct which would justify (without further explanation) the quantum of the Claimants' bill of costs. Nor do I consider that the failure of the Defendant to approach the Claimants to settle the preliminary issue until very shortly before the trial can (without further explanation) justify the quantum of those costs.
29. In my judgment the Claimants' bill of costs appears as a whole to be disproportionate and accordingly the detailed assessment will be conducted on the basis that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner.
30. A further passage from Lord Woolf's judgment in Home Office v Lownds must be borne in mind. At paragraph 37 the Lord Chief Justice said:

"Although we emphasise the need, when costs are disproportionate, to determine what was necessary, we also emphasise that a sensible standard of necessity has to be adopted. This is a standard which takes fully into account the need to make allowances for the different judgments which those responsible for litigation can sensibly come to as to what is required. The danger of setting too high a standard with the benefit of hindsight has to be avoided. While the threshold required to meet necessity is higher than that of reasonableness, it is still a standard that a competent practitioner should be able to achieve without undue difficulty. When a practitioner incurs expenses which are reasonable but not necessary, he may be able to recover his fees and disbursements from his client, but extra expense which results from conducting litigation in a disproportionate manner cannot be recovered from the other party."

CW\2\Sirius v ERC