2 All ER (Comm) 181
Society of Lloyd’s v Jaffray and others (No 2)
QUEEN’S BENCH DIVISION (COMMERCIAL COURT)
21 DECEMBER 1999, 25 JANUARY 2000
Costs – Order for costs – Costs-sharing order – Lloyd’s fraud litigation – Order that parties with similar claims join register if not already party to litigation – Lead claimants seeking application that those on register share costs of lead claimants’ solicitors – Guidance.
The claimant association, UNO, which represented Lloyd’s names in fraud litigation against the Society of Lloyd’s, applied for an order that claimant names who were not members of the association pay a proportion of the costs and disbursements of the lead claimants’ solicitors, despite the fact that the solicitors were not on the record for those non-members. The application followed an order made by the court that a system of registration be established so that names who were not members of UNO could take a limited part in the proceedings, in effect permitting such names to instruct solicitors or counsel or to appear in person, but not to adduce additional factual or witness evidence. Moreover, such names would not be permitted to cross-examine witnesses but could adopt cross-examination of witnesses by counsel instructed by the lead claimants’ solicitors, and would be allowed to make written closing submissions.
Held – The principle to be striven for was that each name should contribute some predetermined amount to the costs and disbursements sustained in the general prosecution of the proceedings and that that amount ought to be no more than the name could reasonably afford. The appropriate amount ought to be determined with some regard to apportionment. However, apportionment in the usual way was not easy in the instant case, as the quantification of the individual names’ claims had not been achieved. In addition, the number of names who were members of UNO or registered with the court could alter until the end of the registration period. There was no doubt that if a name was to register and take the benefit of the conduct of the proceedings by the lead solicitors, in fairness the name ought to make some contribution, for even if the name chose to have separate legal representation, if the result of the trial was successful it would in large measure be due to the work which preceded the trial and took place during the trial by the solicitors acting for UNO and counsel instructed on UNO’s behalf. It would therefore be ordered that, once the number of names registered or legally aided was known and the amount spent in putting the claim together ascertained, an investigation by reference to objective criteria as to how much each given name could afford would take place. The investigation would have regard to the disposable income and disposable assets of each name, the total of which would be applied to a number of contribution bands. If such instructions were given to the investigating master, it might not be an insuperable task for a result to be arrived at within a few weeks of the commencement of the trial and if in those circumstances any of the names assessed by the master felt that they were unable to contribute the amount for which they had been assessed, they would have liberty to apply or to extract themselves from the litigation. As regards those who might pay less than their181 rateable contribution, they ought only to have to contribute if they succeeded in recovering damages which enabled them to fund the amount of their contribution, having regard to the ceilings which had been calculated by reference to their affidavit of means. If, on the one hand, the names succeeded in recovering damages, the damages would have to be paid into court and the costs and disbursements of the lead solicitors paid out of court to them, which would involve a calculation by reference to that name’s proportion of the total costs and disbursements of the solicitors having regard to the numerical apportionment of the total amount of costs. The balance would be paid to the names as their damages. If, on the other hand, the names were to lose, and the position was that there were no damages to distribute, the ceiling which had been arrived at would govern and the names would have to pay the balance (see p 182 j to p 183 d and p 184 c to e h to p 186 b, post).
For the jurisdiction of the court to award costs, see 37 Halsbury’s Laws (4th edn) para 713.
The United Names Organisation (UNO), which represented Lloyd’s names claiming damages from the claimant, the Society of Lloyd’s, applied for an order that claimants in that litigation who were not members of UNO pay a proportion of the costs and disbursements of its solicitors. The facts are set out in the judgment.
Michael Freeman of Grower Freeman & Goldberg and James Edwards of More Fisher Brown for the United Names Organisation.
Thomas Weitzman (instructed by Donne Mileham & Haddock, Brighton) for Michael Holman.
Brian Cummins (instructed by Magrath & Co) for Mr J A Troostwyk.
Stephen Houseman (instructed by Freshfields) for Lloyd’s.
Sir William Jaffray appeared in person.
Richard Carter appeared in person and for Kenneth Adams.
Simon Butler appeared in person.
John Evans appeared in person.
Carey Harrison appeared in person.
Cur adv vult
25 January 2000. The following judgment was delivered.
COLMAN J. The United Names Organisation’s (UNO) application that claimants in the Lloyd’s fraud litigation who are not members of the organisation should be ordered to pay a proportion of the costs and disbursements of the lead claimants’ solicitors, More Fisher Brown, even though that firm is not the solicitor on the record for those non-members, raises an important problem in the management of group litigation.
It seems to me that the principle which one should strive to achieve is that each name should contribute some predetermined amount to the costs and disbursements sustained in the general prosecution of the proceedings, and that that amount should be no more than the name can reasonably afford. The182 appropriate amount which should be determined seems to me to be an amount which must have some regard to apportionment.
Now, apportionment is something which is not easy to do upon lines which would ordinarily be used, simply because the quantification of individual names’ claims has not, as I understand it, been accomplished. There are at the moment general claims for damages for fraud but, so far as I know, there is no very precise quantification of the amount which any particular name would claim to recover. Even if there were, it might not reflect what, if the name was successful, what that name would recover.
There are of course at the moment a certain number of names who are members of UNO and a certain number of names who have registered in accordance with the order of Cresswell J, but who are not members of UNO and that is a finite number. The problem is that that number can change right up to 21 February, which is only seven days before what is currently projected to be the start of the trial. Accordingly, the quantification of what might be a proportionate contribution to whatever was decided as the global costs cannot take place until after 21 February if it is to be done on a numerical basis—that is to say on the basis of simply taking the total number of names and dividing that into the total amount of relevant costs.
It does seem to me that there are other general considerations which have to be taken into account. Firstly, there is the position that, for reasons which have been explained this afternoon, More Fisher Brown are unwilling to act as solicitors on the record for any name who is not a member of UNO. In so far as the legally aided names are concerned, they are to be represented by Mr Freeman, and an arrangement has been arrived at whereby those legally aided names’ position can be compatible with More Fisher Brown’s continuing control over the conduct of the proceedings as the lead firm of solicitors. In other words, More Fisher Brown will be the lead firm of solicitors and Mr Freeman’s firm will support it. Equally, More Fisher Brown will be the firm which instructs the leading and junior counsel who are to be representing the names.
An enormous amount of work has, of course, been put into this case and it seems to me that the way that the litigation has been constructed (and I have had a good deal to do with the earlier stages of this) has been directed to identifying certain typical factual situations by reference to the dates when particular names joined Lloyd’s, and trying to arrive at a position where the substance of the claim in fraud against Lloyd’s was determined in respect of each of those three separate factual situations with the object that, once this determination had been arrived at, that would be an end of the litigation and that the determination would enable everybody else who might have a claim against Lloyd’s to see that they either could or could not succeed.
For the purpose of adding machinery in support of this purpose, Cresswell J ordered the system of registration which has been put in place here so that, as it is now provided in the extended order, until 21 February, names who are not members of UNO can register and, if they do, they can take a very limited part in the proceedings. That is set out in para 4 of Cresswell J’s order of 10 December 1999. Really what it amounts to is this: that, subject to any order to the contrary, such other names can instruct a firm of solicitors and indeed counsel of their choice to appear, or they can appear as a litigant in person, but whatever they do they cannot adduce any additional factual evidence or witness evidence. They cannot cross-examine anybody called by Lloyd’s but they can adopt the cross-examination of witnesses by counsel instructed by More Fisher Brown. [*184]
However, they will be able to make closing submissions in writing and to make oral closing submissions, such oral closing submissions as the trial judge shall allow.
There are various provisions about bundles being shared between names who come in on this basis. The order also makes it clear that if a name does not register by the relevant date then the consequence of that would be that that name will thereafter be precluded from advancing any allegations based on fraud of the same kind as those raised by the claimants in these proceedings without further order of the court.
There is no doubt at all, as I see it, that if a name is now to come in and register and take the benefit of the conduct of the proceedings by the lead solicitors and by counsel instructed by them, that name in all fairness properly ought to make some contribution to the putting together of the claim, or counterclaim as the case may be. A huge amount of money has been spent on this exercise and a huge amount of money will continue to be spent.
It is perfectly true that in the course of the trial the names will have, or can do if they choose to do so, separate legal representation with a limited input by way of final submissions. Nevertheless, if the result of the trial is that the names are successful that result will be due in very large measure to the vast amount of work which has preceded the trial and indeed which takes place while the trial is going on in the hands of the solicitors acting for UNO and counsel instructed on behalf of UNO. I consider that, as I said last time, it would be unfair if no contribution were made to those costs.
However, there are acutely difficult problems which arise as to how the contribution which is made to those costs ought to be arrived at. There are two aspects to this: how the calculation ought to be done and by reference to what principles; and secondly, the machinery for doing it. It seems to me that there is an argument (and it may be one which we shall have to discuss tomorrow) for the appointment of a master of the Supreme Court to conduct an inquiry and an account of the costs and of what would be an appropriate apportionment of those costs so that the outcome of that exercise would be that each name who registered as a non-member of UNO would know his proportion of contribution which ought to be made to both historic costs and to ongoing costs. It seems to me that this could be done provided that the court laid down appropriate objective criteria by reference to which the person conducting the inquiry account could operate. Absent appropriate objective criteria the matter would be too much at large and too indefinite for any appropriate machinery to be operated.
There are two stages or sets of circumstances in which this problem has to be addressed. There is the stage at which one will arrive after 21 February. At that point of time, unless something very dramatic happens in the meantime, there will be known the final number of names who have registered and who are not members of UNO. There will also be known the final number of those names who are legally aided. There will also be known, or at least ascertainable, the total amount which has been spent putting this claim or counterclaim, as the case may be, together and which is the amount in relation to which apportionment would have to operate.
As it seems to me, an order which would accomplish that which I have in mind would involve this: there would have to be an investigation (and this could not take place before 21 February, as I see it) by reference to objective criteria as to how much it would be appropriate that any given name should contribute to the [*184] common fund. This clearly, as I see it, ought to have regard to the fact that contribution would be expected to be paid before any damages were recovered, so that what a name could afford would have to depend on disposable assets—disposable income and disposable assets. It should be possible to put together, for example, a body of information which told you what a given name would have by reference to, say, one year’s disposable income, together with that name’s total disposable assets and then add the two together and apply to that a number of bands of contribution which really are matters which would have to be discussed and which are difficult to identify but obviously should not be particularly high. I would have in mind, for example, that one would have a nil rate band rather as one does for tax purposes so that if the aggregate of one year’s disposable annual income and total disposable assets were, say (and I do not put this forward as any concluded view) £50,000, there would be nil contribution up-front. If the total were more than £50,000, say between £50,000 and £100,000, one might say that 5% should be the up-front contribution; and above £100,000 perhaps 10 or 15%.
If such instructions were given by the court to the investigating master for the purpose of ascertaining what the position was and how much each name ought to pay, it might not be an insuperable task for a result to be arrived at within a few weeks of the commencement of the trial and if, in those circumstances, any of the names who had been assessed by the master in that way felt that they were unable to contribute the amount for which they had been assessed, they would have liberty to apply; or alternatively they could simply extract themselves from the litigation in accordance with the let-out provision of the kind which I suggested last time the matter was before me on 21 December 1999. Nobody would have imposed upon them an intolerable contribution up-front before the final issue of damages was decided.
So far as the position of those who might pay less than their rateable contribution because of the way in which the percentage is worked out is concerned, it would seem to me that they should only have to contribute at the end of the day if they in fact have succeeded in recovering damages from Lloyd’s which enabled them to fund the amount of their contribution, having regard to the ceilings which have been calculated by reference to their affidavit of means. If the names succeeded in recovering damages the position would have to be, as I see it, that the damages would have to be paid into court and the costs and disbursements of More Fisher Brown would have to be deducted from the amount and paid out of court to them. That would then involve the question: how much of each name’s proportion of the damages should be charged to, or accounted to, the amount that had been paid to More Fisher Brown. That would have to be done, as I see it, by reference to that name’s proportion of the total costs and disbursements of More Fisher Brown as determined having regard to the numerical apportionment of the total amount of costs. That could all also be done by the master instructed to carry out the inquiry and account of the damages and costs under this regime.
Once that had been calculated the balance of the fund in court could be paid out to the names because that would be their damages and would not have to bear any further costs, except, of course, they would have to pay whatever they might become liable to pay to their own legal advisers if they chose to instruct any legal advisers. They might not, they might just choose to act in person and not incur any legal costs. In that event, they would take the whole of the damages that were there. [*186]
If, on the other hand, the names were to lose and the position then was that there were no damages to distribute against which proportionate contributions could be made to the costs and disbursements of the UNO solicitors and counsel, the ceilings which had been arrived at initially by the application of the percentages and the nil rate band and so on, which I have already described, would govern and, if and in so far as those ceilings were not already exhausted, then the names would have to pay the balance. If the application of the ceiling originally calculated was, say, £25,000, and in the course of the hearing some £23,000 had already been spent out of that by way of contributions to More Fisher Brown’s costs and disbursements, and so on, then there would only be another £2,000 to pay out because there would be an absolute finite ceiling on the contribution which any particular name was required to make. All that, as I see it, could be administered by means of the appointment of a master who would, in effect, act as receiver and who would, as I say, conduct an inquiry and account for the purposes of ensuring that there was equitable contribution but not a contribution which any particular name could not afford to make.
This is, I accept, a completely novel concept in group litigation. Nobody has ever done it before. I have to tell you that I have had preliminary discussions with Master Miller who is, as some of you may know, the Queen’s Bench Division Master who works most closely with the Commercial Court. He is satisfied that if the court makes appropriate orders he would have jurisdiction to do what the court invited him to do. I, in turn, am satisfied, unless anybody persuades me to the contrary, that if orders of this kind were made they would be within what is now seen as the necessarily proactive means of dealing with group litigation and therefore within the jurisdiction of this court.
The problem, as I see it, is to work out the detail. The devil is very much in the detail. I am not a drafting committee. The ideas which I have put forward need thinking about by what is, in effect, a drafting committee to put together a regime which would work and enable the various different interests to be dealt with fairly and in a way which is manageable by the master. One must not lose sight of the importance of ensuring that More Fisher Brown are actually paid. After all, it is they who are incurring the disbursements on a day-to-day basis and they whose time and energy is being taken up by the conduct of these very heavy proceedings.
There are one or two separate points which have occurred to me which need to be dealt with and I think the most satisfactory way of dealing with all this, rather than pressing anybody into committing themselves (and I include in ‘anybody’ Mr Freeman) at this stage, is to deal with it tomorrow morning. The points which have to be dealt with which seem to me to be important at this stage are these. It is going to be necessary if this thing is going to work at all to work out ceilings or caps on what people are expected to contribute having regard to their disposable annual income and disposable assets. In order to get at the latter it is going to be necessary for them to put in affidavits of means. Now, I am not absolutely convinced that Mr Freeman’s very detailed draft affidavit of means is really needed. I think it may be possible, by a much simpler route, to arrive at this.
Perhaps I should explain what I mean by this. I mean the disposable annual income of a particular name, namely what cash and securities not charged to anybody that name has at its disposal. I am not including here houses or anything of that sort for present purposes. I am including by annual income and disposable assets literally income which they receive and assets of which they can186 immediately dispose. That should enable one to get a pretty fair idea of where the hardship lies. Where one fixes the nil rate cap is a matter for judgment. I would find this quite difficult. I would have to get the solicitors’ help on this, and indeed the help of everybody concerned.
Equally, however many further bands one has, it might be quite difficult to work out at what level they ought to be set. I put forward a moment ago a band which extended from £75,000 to £150,000, or something like that. It is a very hit or miss approach but it has to be kept very simple indeed, because if it is not very simple you get into an Inland Revenue situation where the master is really confronted by an impossible number of permutations and it would make it very difficult to administer this sort of scheme. I would not be in favour of more than three bands which set the percentages of the total disposable assets of the name in question.
Then the question of what past costs arises. I have, subject to Mr Freeman persuading me to the contrary, formed a very clear view that the past costs can only be the costs of the Jaffray litigation and no other. The Leighs and Wilkinson litigation and the Frazer litigation have simply, in my view, got no part whatever to play in the calculation of the pot. I appreciate that it was all part of a historic development which led to the position at which the names have now arrived. The fact remains that that is water under the bridge so far as the costs to which rateable contribution ought to be made are concerned and I would not be disposed to make any order which took into account costs other than putting together the defence—by that I mean putting together the fraud claim and the fraud counterclaims which are relied upon as the whole basis for the allegations of tort and the right to recover damages against Lloyd’s.
Accordingly, the overall costs are going to have to be stripped down to those levels and part of the remit of the master, it seems to me, would have to be to ascertain what the More Fisher Brown costs were and if there are Grower Freeman & Goldberg costs which relate to this area (and I am quite satisfied from my recollection that there will be quite substantial costs) how much they amount to, and add the two together and one arrives at the total historic costs bill. But it has to be done, so far as I can see, in that way.
So far as concerns the employment of further lawyers by the names who are not members of UNO, the legally aided names are already looked after. It is the other names which now concern me. They have a choice. They can either instruct their own lawyers or they can be litigants in person. If they instruct their own lawyers there are the following considerations. Firstly, there is no reasonable prospect at all, given that the trial is due to start in five weeks time, of those lawyers ever getting to grips with a great deal of the detail of this action. The documentation is vast. There are 40-odd witnesses to be called by Lloyd’s alone; and no doubt lots of witnesses to be called by the names. It is simply asking more than an ordinary solicitor or barrister can provide to expect them to get that little lot up by 28 February. Accordingly, the contribution which any such additional lawyers could make will necessarily be limited.
Not only will it be limited because there is not time for it to be anything else, but it will be limited because Cresswell J has confined the participation of such lawyers within the narrow limits set out in para 4 of 10 December 1999 order. So the names who are not members of UNO will have to ask themselves very clearly: is it really worth spending additional funds on further legal input over and above that which is being provided already? That is a decision that everybody [*188] will take according to their own means and their perception of what part they want to play in this litigation.
All I would say is that it does not seem to me, in principle, right that the fact that they choose to go to an additional lawyer for the purposes of further legal back-up, over and above that to be provided by More Fisher Brown and their counsel, should entitle them to any reduction in the contribution which they make to the overall costs fund. It seems to me that so much more work will be done by the UNO lawyers in the course of the trial, so much more work has already been done than ever can be done by additional lawyers, that the justification for a reduction in contribution on that basis simply is not there.
I can put together overnight a rather more coherently expressed scheme than I have explained orally now. I have ensured that what I have just said has been recorded and I am hopeful that it can be put on transcript overnight.
It seems to me that these matters will have to be discussed rather carefully by all concerned, particularly UNO and Sir William Jaffray and the others who are concerned to take part in these proceedings. I think the principle is reasonably clear. The machinery can be set up and, as I say, it is the detail of the contributions, and so on, which needs attention. By this means I am satisfied that one would be able to avoid calling upon names who could not really afford to pay to put money up-front. They would not have to pay if they could not afford to put it up-front until damages were recovered, and if damages were not recovered then the amount which they would be expected to contribute to the common costs would be capped in accordance with the provisions which I have suggested.
I know there will be a continuing degree of uncertainty until the master resolves various quantifications and that necessarily cannot be avoided because of the time limits involved and the trial coming on so quickly. I am satisfied that this is a way of doing justice between the parties, the claimants, which will ensure that the principles of equitable contribution are satisfactorily adhered to and which will avoid hardship where otherwise it might be sustained. It will also mean that anybody who does not like what they get when the master has resolved how much should be paid can simply leave. If he leaves, then, of course, he can only hope that those who are still in the action succeed. By those means he might at some future time be able to persuade Lloyd’s to pay him some money. As things stand at the moment, once he leaves that is it, unless he gets the leave of the court to come back in and take further points against Lloyd’s. That is the end of the matter as far as he is concerned.
So there it is. I do not think, unless anybody feels called upon to do so, there is a great deal to be said for continuing the debate now. I would rather leave time for consideration of the ideas I have put forward, but I want to arrive at finality tomorrow.
James Wilson Barrister (NZ).