A £5m costs budget for a claim worth just over £7m has been ruled disproportionate, with the claimants told to return to the High Court with a new figure.
Mr Justice Morgan took a knife to counsel’s fees, in which one QC had sought more than £500,000 as their brief fee.
Group Seven Ltd v Nasir & Ors  EWHC 620 (Ch) is the civil side of a fraud case that led to a man dubbed the ‘Pope’s banker’ for his claimed links with the Vatican jailed for 14 years, while a solicitor who was duped into helping him got a six-month suspended sentence.
Of the €100m that was defrauded from Group Seven, only €12m was dissipated, and further recoveries meant it was seeking to recover €9m (£7m) from the action, which is being case managed together with the similar claim by Equity Trading Systems (ETS), the now wound-up company used for the fraud and of which Group Seven is the principal creditor.
The judge observed that neither the rules nor the case law to date on proportionality provided much “direct help” when it came to the relationship between the size of the claim and of the budget. In so far as the case law provided any assistance, “they might suggest that a maximum combined costs budget for Group Seven and ETS should be of the order of £3.5m, which is about half of the claim made”.
A budget of £5m “seems to me to a disproportionate sum in relation to a claim for £7.08m”.
He further found the case not to be as complex as the claimants argued, while a possible lack of co-operation by the defendants could be dealt with in the contingencies.
The total for all of the parties’ budgets was £13.3m, but Morgan J said this was not the figure against which to test proportionality, even though there were circumstances in which one party might end up bearing all of the costs.
“However, what is principally required in assessing a costs budget is to consider the proportionality of the amount of the budget so that the court feels that it would be appropriate to award the budgeted sum to the receiving party and require it to be paid by the paying party.”
Though the two actions have some uncommon defendants, Morgan J was pressed to require Group Seven and ETS to submit a single budget, given that the resolution of a disclosure issue meant the two claims were aligned.
He ruled: “For the future, they will use one firm of solicitors and the allocation of work within that firm should not depend on whether there are two clients with two claims (which claims are aligned) or a single client.”
Though the position of counsel was “more troublesome”, he decided that the entire case was capable of being handled by one QC and one senior junior.
“This conclusion does not itself determine whether Group Seven and ETS should prepare a single budget. However, as the budget (or budgets) will relate to the work of one firm of solicitors and a single team of counsel (a QC and a junior) I would expect that the budget for Group Seven and ETS for the future could take the form of a single budget.
“However, if those preparing the budget (or budgets) thought there would be greater certainty produced by preparing separate budgets, I would not regard that as wrong in principle.”
Morgan J went on to review the hourly rates proposed for the parties’ solicitors, and again cut the claimants’ figures most deeply. Group Seven had put forward a grade A fee of £425, and ETS of £550-575; the judge reduced these to £365.
He said this was not a case that required City solicitors. “The case does not involve complicated matters and in particular does not involve anything sophisticated in the way of financial services or banking, even though one of the defendants is a bank. I do not think that it is necessary for Group Seven and ETS to instruct a City firm and, indeed, they have not done so.” Mishcon de Reya is acting for them.
He was unhappy with the counsel’s fees for the claimants and one of the defendants. The fees for trial preparation and the trial in Group Seven’s budget were £793,100 (QC) and £468,650 (junior), including brief fees of £567,500 (QC) and £335,400 (junior). For ETS, it was £345,000 (QC without a junior), with a brief fee of £250,000. For the defendant, the fees were £487,000 (QC) and £319,000 (junior).
The claimants and defendant submitted that these figures were reasonable as they reflected market forces, and that the clients were prepared to agree them.
However, Morgan J said that even if this was the case, “the sums being claimed are a major reason why these parties’ budgeted costs give rise to sums which are disproportionate”.
Instead, the judge built “the ingredients of what would be reasonable fees for trial preparation and for the trial for these parties”, given that an eight-week trial was anticipated, concluding:
- Claimants’ QC: brief fee of £200,000 plus refreshers of £5,500 per day for 36 days, making a total of £398,000;
- Claimants’ junior counsel: brief fee of £100,000 plus refreshers of £2,750 per day for 36 days, totalling £199,000;
- Defendant’s QC: brief fee of £125,000 plus refreshers of £5,000 per day for 25 days, meaning £250,000 in all;
- Defendant’s junior: brief fee of £65,000 plus refreshers of £2,500 per day for 36 days, making a total of £155,000.
In so far hourly rates were used, he approved maximum sums of £500 and £275 for leading and junior counsel respectively.
Morgan J concluded by telling the parties to submit revised budgets within 14 days for a final review, which he indicated would likely take place by telephone or in writing.