Pan-NOx Emissions Litigation

Pan-NOx Emissions Litigation: Budgets Were Considered to be Excessive, Unreliable and Unjustified

The Costs Management Conference of the Pan-NOx emissions litigation recently took place over 3 days in the London High Court. Mr Justice Constable and Senior Costs Judge Gordon-Saker considered some interesting points relating to Group Litigation, the construction of these budgets and costs budgeting generally. In this matter the Court was critical of the approach by the Claimants and dramatically reduced the costs. The Claimants’ costs were reduced by 75% and the Defendants’ costs were collectively reduced by 46%.

Background

The Case Management Conference took place in March 2024 and it was directed that the litigation would be managed and budgeted with reference to three specific stages. Tranche 1 will consist of a 2 week preliminary issue hearing taking place in October 2024, tranche 2 will deal with the main evidential issues which will culminate in a 10 week hearing in October 2025 and tranche 3 will consist of the quantum trial, expected to take place in October 2026. The parties were required to prepare costs budgets up to tranche 2.

Due to the extent of the litigation a number of budgets were served by the number of parties, meaning the exercise of case management was both complex and voluminous. A total of 1,071 costed phases and almost £650m across the various Claimants and Defendants had to be considered by the Court (£342,642,342.80 for the Claimants and a combined sum of £306,835,712.14 for all Defendants).

The Claimants produced a costs budget for ‘Pan-NOx Costs’ which would cover all costs impacted by all of the GLOs and required coordination with all 20 lead Claimant firms. A further category was included within the tranche 2 budget to distinguish the costs that would be attributable to the Lead/Additional Lead Defendants who would be participating in the tranche 2 hearing. The Claimants also produced a Defendant-specific costs budget and a ‘general’ category of costs which would not be directly attributable to either tranche but would include costs to be included during the periods of tranche 1 and 2. This essentially includes generic or outline statements of case, general case and GLO management costs and other general liaison and/or co-ordination between the parties. Each Defendant also served its own costs budget.

Agreed Phases

The Court referred to CPR 3.15(1) and noted that, whilst the Court could revise phases that remained in issue, it had no authority to revisit any agreed phases and, should it disagree with the amount of the agreed phases, the only option open to the Court would be to request that the parties revert with revised budgets. Interestingly however, the Court invited the parties to agree that it would be appropriate for the Court to substitute an approved phase total in the place of an agreed total on this occasion even though this was not strictly possible under the rules. Consequently it appears that an exception was made due to complexity and volume of the budgeting documents.

Proportionality

It was noted that the Claimants estimated quantum conservatively at a value of £4,000 per Claimant, which would be a total in excess of £6bn if successful. The Court also considered that, on conclusion of tranche 2, the parties would realistically be only a third of the way through the litigation, meaning that the total costs incurred could well exceed over £1bn. This meant that the aggregate spend of all parties would be around two thirds of the sums in issue, which was considered to be “well within the foothills of disproportionality”.

The Court also referred to the factors set out in CPR 44.3(5). It was noted that the large-scale litigation did not only involve large sums of money but also included layers of complexity due to the need for co-ordination between each of the Claimant and Defendant firms. It was also accepted that the litigation is of particular importance to the Defendants due to reputational concerns in addition to including issues relating to wider public importance. However, neither these issues nor the administrative burdens of dealing with a large number of Claimants did in itself justify the extraordinary level of sums claimed. In reality, the number of Claimants involved should affect the individual costs and not the common costs of the claim. The costs should bear some resemblance to the work reasonably required to efficiently advance the claims and it was noted that there appeared to be little effort to work sensibly to do so.

Specific Criticisms of the Parties Budgets

The approach taken by the Claimants was heavily criticised; the budgets contained numerous examples of costs which could not be justified, mass-duplication and vague assumptions which essentially rendered the Claimants’ budget to be unreliable. The Claimants had also included costs within incorrect budgets/categories, such as general coordination costs. It was further noted that solicitor time had been allocated to fee earners other than those acting within the lead firms, which was considered to be inappropriate given that the basis of a GLO was to ensure that a small number of firms took the lead on the claim to ensure effective and non-duplicative case management. The Court considered that the enormous hours claimed could only be generated by “wildly inefficient resourcing”. It was noted that the approach to the incurred costs was just as eye-watering, duplicative and over-lawyered.

The Claimants submitted that the Defendants had significantly underestimated their budgets in addition to calculating the solicitor time at hourly rates that were well below the true hourly rate charged by the firms, which had the effect of reducing the overall sums. The Court disagreed and stated that there was no issue in taking this approach. Whilst the Court must exercise a level of caution in comparison where this approach has been taken, this was not the perpetrator for the stark difference in the parties’ budgets here; the time claimed was in fact the culprit.

Validity of Comparisons

The Claimants submitted that the correct approach would be to compare the Claimants’ costs with the aggregate of the Defendants’ costs. The Court disagreed on the basis that each Defendant would essentially be running their own claim; they would obtain their own expert reports provide their own disclosure and all attend the hearing. The Claimants would only be required to undertake these tasks once and the disclosure would likely be minimal in any event. Therefore comparison in this manner would not be appropriate. It was noted that the court would not be a slave to comparisons in any event - Woolley v Ministry of Justice [2024] EWHC 304 (KB), per Kerr J at [39].

Specific Examples of Excessive Costs

• £1.2m of non-phase specific coordination in tranche 1 consisting of 1,800 hours was considered to be wholly unjustified and inadequately explained
• 1,700 hours work along with £332,000 in Counsel’s fees for tranche 1 in relation to expert fees where there was to be a single expert in German Law; one for the Defendants and one for the Claimants
• The total time of 263,000 hours incurred within tranche 2 (equating to 12,500 hours per month) was said to be out of proportion with the work required
• £5m sought by the Claimants in relation to 2 CMCs (including 700 solicitor hours and £700,000 Counsel’s fees) was held to be wholly excessive
• £13m on expert reports in tranche 2, meaning for every £1 spent on expert reports, £2 would be incurred by lawyers in addition to Counsel’s fees of £13m. Given that there should be no input on the actual writing of the report, this was considered to be obviously excessive
• £20m was claimed for the tranche 2 trial preparation period, including £10m of Counsel’s fees. Given that the trial preparation period should only cover a period of 3 months, this would equate to Counsel charging nearly £1m per week, which was inconceivable
• £60 million in general costs to be incurred on matters not specific to the work within tranches 1 and 2 were without proper foundation. £80,000 per weekly progress meeting was reduced to £15,000

Conclusion

Whilst preparing a costs budget for a matter that is subject to a Group Litigation Order will be complex and onerous, proper care must be taken to ensure that duplication is limited and that the budget properly provides for efficient management of the case. It is not sufficient to simply multiply the costs incurred without accounting for the fact that the purpose of the GLO is to minimise the costs incurred by ensuring that key issues are dealt with only once. Any costs which might be considered to be excessive must be properly explained and justified to avoid substantial reduction at the CCMC.