In Deutsche Bank AG v Sebastian Holdings Inc  EWHC 9 (SCCO), the Senior Costs Judge limited the receiving party's recovery of its costs of an "unprecedented" 97-day detailed assessment proceedings to 70% as a result of its conduct.
The judge criticised the receiving party for prolonging the detailed assessment proceedings due to poor case management practices such as poor filing, missing file notes and unclear and insufficiently specific time recording. The Judgment is therefore an important reminder for solicitors of the consequences of poor practices, particularly for those solicitors acting in large, long-running disputes.
The original proceedings related to a hard-fought dispute between Deutsche Bank AG (DB) and Sebastian Holdings Inc. (SHI), regarding the operation of trading accounts.
After a 44-day trial, DB was awarded approximately USD243 million in damages. SHI was ordered to pay 85% of DBs costs on an indemnity basis, plus USD32 million on account of costs.
DB subsequently sought and obtained a third-party costs order against Mr Alexander Vik, the sole director of and shareholder in SHI.
'Very Detailed' Assessment Proceedings
Following an unsuccessful appeal by Mr Vik, detailed assessment proceedings were commenced in 2017.
DB contended that it would "take up to two years and cost approximately £2.5 million" to produce a detailed bill compliant with PD47. The bill itself, totalling approximately USD53.3 million, was served in January 2019 and was vast, with schedules running to over 2,000 pages.
Over the next 33 months, Judge Andrew Gordon-Saker, the Senior Costs Judge, heard the detailed assessment over the course of a number of hearings, spanning a total of 97 days – more than double the length of the underlying proceedings.
Composite time recording won't fly
During the course of the detailed assessment proceedings, Mr Vik sought to challenge DB in respect of "almost every item in [its] bill".
Amongst a number of other complaints, the recurring criticism articulated on Mr Vik's behalf was that DB's solicitors' time recording was poor. Specifically, the descriptions were inadequate to identify exactly what work had been carried out, and most of the entries were composite entries in which time had not been split between different tasks, making it difficult to identify or to criticise costs which were not properly recoverable.
DB had therefore sought to retrospectively demonstrate the work that had been carried out by DB's solicitors. This exercise involved a “forensic archaeology”, in which DB's costs lawyers took the Judge through the tasks that had been done in each month, and corresponding documents that they had been able to find for that month in DB's solicitors’ files. In the course of this process it became obvious to the Judge that DB solicitors' files were stored on a server "in no obvious order". Moreover, DB's costs lawyers had been unable to find a large proportion of the documents that had existed at the time that the work was done. In addition, the Judge remarked that there were very few attendance notes or file notes, and even emails were incomplete.
In light of this enormously time consuming and costly process, which was entirely the result of DB's solicitors' poor time and record keeping, Mr Vik contended that DB should only be entitled to 60% of its costs of the assessment proceedings, themselves to be assessed on the standard basis.
The detailed assessment lasted an unprecedented 97 days. This was over twice as long as originally anticipated by the 2017 directions order, and over twice as long as the original trial.
The Judge concluded that the extended length of the hearing was in large part due to three factors:
- First, the way in which time had been recorded by DB's solicitors.
- Second, the lack of documents, particularly attendance and file notes, in DB's solicitors’ files. In this regard, the Judge referred to Fattal v Walbrook Trustees (Jersey) Ltd  EWHC 1674 (Ch), which set out the potential costs consequences of failing to keep proper attendance notes.
“Here the reduction was very large and the reason for the reduction was in large measure because the solicitors had failed to keep attendance notes. Such a failure materially contributes to the length and cost of assessment proceedings… [It] leads to a scrambling around among the papers when the costs are queried to seek to work out what was done at different stages often without any clear answer, followed by a guessing game on the part of the Costs Judge.”
- Third, was the decision by Mr Vik to challenge almost every item in the bill.
In considering the impact and appropriate consequences of these three factors, the Judge remarked that:
"There may be a superficial attraction to concluding that these factors should cancel each other. However that would be wrong. A paying party who has caused the assessment to be prolonged will, in the ordinary way, pay for the costs (on both sides) of that prolongation by virtue of the usual order. However a paying party should not pay for the costs of prolongation caused by the receiving party."
On this basis, the Judge concluded that the prolongation of the detailed assessment proceedings caused by the absence of attendance notes and other documents, and by the way DB's solicitors had recorded their time justified an order that DB should not be entitled to all of its costs of the assessment proceedings. Accordingly, and taking into account the additional costs that Mr Vik had to incur as a result of DB's conduct, the Judge held that (amongst other things) DB should be deprived of 30% of its costs of the detailed assessment proceedings.
This case is a reminder to practitioners that the way they conduct the substantive proceedings can have significant ramifications when it comes to costs.
In this case, the Costs Judge was clearly frustrated by the approach taken by both parties in the course of the detailed assessment proceedings, commenting that it being "out of the norm . . . was the result of the conduct of both parties". He noted that, "the parties did not settle once they had a sufficient indication of the court's direction of travel" and that conduct contributed to the length of the detailed assessment. However, it was the failings of DB's solicitors in managing the underlying proceedings that ultimately had the most material impact on their client's ability to recover their costs in the assessment.
Lawyers must take care to manage their time recording and record keeping carefully, and with an eye on the fact that these every day practices can come under heavy scrutiny during, and have material impacts on, costs proceedings months or even years down the line.