High Court lays down important points of principle for costs budgeting in large-scale and complex group litigation

In a judgment handed down today, the High Court has laid down a number of significant points of principle for cost management exercises in complex multi-party group actions.

The judgment follows a three-day cost management hearing held between 11-13 June 2024. The hearing scrutinised the parties’ budgeted costs for approximately the next two years in the “Pan-NOx” emissions group litigation, in which 13 separate Group Litigation Orders (GLOs) are subject to collective case management by the High Court, with four of the GLOs proceeding as “lead” GLO front runners. In March, the High Court ordered the case to be managed in tranches, scheduling two preliminary issues trials between now and 2026, which were the main focus of the budgeting exercise. Freshfields is acting for one of the defendant groups. 

Here, we consider the key implications of the judgment.

The Court is prepared to significantly cut costs it considers are unreasonable and disproportionate, even in mammoth group actions

While the Court acknowledged the scale and complexity of the Pan-NOx litigation, it stressed that none of these factors gives the parties a “blank cheque” for the costs they can recover. In particular, the Court noted that the mere existence of a large number of claimants in group proceedings does not justify the “extraordinary” sums being sought.

Consequently, the Court reduced the claimants’ overall estimated costs (which totalled over £207 million) by almost 75% to £52 million. Reductions were also made to the defendants’ budgets, though to a lesser extent (allowing £114 million in aggregate). To put those sums in context, the Court estimated that the budgets presented covered only one-third of the progression of the litigation as a whole, and only the common (as opposed to individual) costs. 

In arriving at their 75% reduction, the Judges noted that the Claimants' budgets were found to be “replete with numerous examples of costs which simply cannot be justified”; “redolent of financial incontinence”; “strain[ing] all credulity”; and “wholly disproportionate”. The claimants’ “obvious excess and/or duplication” and lack of “meaningful explanation or justification” for their budgets meant that the Court had “little faith in the reliability of the Claimants’ budgets” as a whole.

Group litigation should maximise efficiencies and minimise duplication

The judgment provides a reminder that GLO structures in group actions are intended to “maximise efficiency and minimise potential duplication”. In the Judges’ view, therefore, reasonable costs mean costs that reflect the work required to advance the claims properly and efficiently. 

The Court was particularly alive to the allocation of work between the “Lead Solicitor” claimant law firms (who, under the terms of almost every GLO in the Pan-NOx litigation, are responsible for managing and coordinating the claims) and the several “Non-Lead” claimant firms (who are not). In the absence of a proper explanation, the Court’s assumption was that work delegated from the Lead Solicitors to the Non-Lead claimant firms is “the breeding ground for inefficiency and potential unjustifiable duplication”.

The defendants had argued that the claimants’ costs were the result of several different claimant firms carrying out the same duplicative work and coordinating between themselves to an unjustifiable extent. Although the Court felt it was not appropriate in a costs budgeting context to “tell parties’ solicitors how they may, or may not, organise their firms”, it scrutinised the way the claimants allocated their costs between the various claimant firms and commented that the numbers sought by the claimants were so enormous that they could only be generated by “wildly inefficient resourcing” and “over-lawyering”.

The Court will not be a “slave to comparisons” 

The claimants advanced an argument that it was valid and useful to draw comparisons between the claimants’ budgets and the aggregate of the 22 defendant budgets. The defendants responded that it was wrong to make any such comparison since the defendants were separately represented competitors, unlike the claimants who generally shared a common case strategy so cost efficiencies could be made. 

The Judges took the view that such a comparison in a muti-party group action was inappropriate; the defendants were different groups – who to a large extent are in competition with each other – and entitled to be separately represented. The claimants’ argument in this regard was therefore “wholly untenable”.

The Court is prepared to depart from usual limits on its authority where appropriate

Citing the scale of the budgets, the Judges deemed it appropriate to scrutinise each phase in every budget, including those that the parties had agreed ahead of the hearing. The Judges accepted, with reference to the procedural rules and recent High Court authority, that the Court cannot usually disapprove and replace budgeted costs for a particular phase where those costs have already been agreed. 

However, the Court invited the parties to authorise the Court to overturn phase totals that had already been agreed between the parties in this case. In a joint note to the Court, the parties gave their authorisation in light of the particular circumstances of the litigation, whilst noting that such an approach “might not strictly ordinarily be possible” under the rules.

In its judgment, the Court commented that it was necessary to depart from the usual rules in this case due to the scale of the budgeting exercise, such that it would have been contrary to the overriding objective to refuse to make a costs management order and order the parties to file revised budgets.

This unconventional approach by the Court is consistent with the Court’s previous remarks regarding the need for these proceedings to be conducted “in a slightly unorthodox way”. See further our recent blog on trends in English & Welsh group actions for more on the Court’s innovative approach to these proceedings. 

The Court is comfortable with parties departing from “true” hourly rates, provided there is transparency

Certain of the defendants included hourly rates in their budgets that were lower than the “true” hourly rates those firms were charging their clients, instead calculating them in some cases by reference to an uplift on the relevant guideline hourly rates set by HM Courts & Tribunals Service. The claimants criticised that approach as a tactical strategy by some of the defendants to “lowball” their budgets so that it would be easier for the defendants to criticise the high costs sought by the claimants upon comparison by the Court.  

The Court was clear that it did not see an issue in principle with a party reducing their rates for the purposes of costs budgeting in circumstances where they recognise in advance that that the rate they have agreed to pay their lawyers “will not be justified on assessment, because it exceeds the relevant guidelines or does so to an unjustified amount” – such an approach was in essence “the opposite of the ‘indemnity principle’”. The Court caveated this by adding that a party must be transparent if it is to budget based on reduced hourly rates but was satisfied that the relevant defendants in this case had been sufficiently transparent. 

The Court was also alive to the fact that it may be difficult to compare budgets based on the overall costs sought due to the different levels of hourly rates claimed in the budgets but, in this particular case, was more concerned with the “extraordinary number of hours purportedly anticipated to be incurred, rather than the rates themselves”.

Judges record firm views on level of incurred costs

Although the Court does not have the power to approve incurred costs as part of the costs budgeting process, it may nonetheless comment on the level of incurred costs which may be taken into account in subsequent costs assessment proceedings. 

In this case, the defendants invited the Judges to comment adversely on the claimants’ incurred costs of £135 million, an argument which the Judges felt “bound to accept”. The Court commented on incurred costs throughout the judgment, describing the claimants’ incurred costs in one particular line item, by way of example, as “incredible”. It added that incurred costs on both sides were “as eye-watering as the [estimated] costs” the parties had sought.