Judge upholds $3.7m default costs certificate after delayed reaction

Rowley: Defendants failed to act with sufficient promptness

A costs judge has upheld a default costs certificate (DCC) on a $3.7m bill after the paying party’s solicitors did not show any sense of urgency in dealing with it.

As a result, the London office of US firm King & Spalding (KS) failed to serve draft points of dispute for the hearing to set it aside.

National Bank of Kazakhstan & Another v The Bank of New York Mellon & Ors made headlines at the start of the first lockdown last year as the first fully virtual trial in the Commercial Court.

In the wake of the ruling, London firm Stewarts for the claimants commenced detailed assessment proceedings on 15 December 2020, for a bill totalling $3.7m.

KS, for the second to fifth defendants, did not served points of dispute by the deadline of 5 January 2021. On 6 January, Stewarts applied for a DCC, which the court issued and served the same day. Stewarts declined KS’s request to set aside the DCC voluntarily.

KS filed its set-aside application on 15 January. Partner Egishe Dzhazoyan later told the court that the firm did not have an in-house costs function and it took “several days to seek and obtain client instructions and agree terms with the costs lawyers”.

Overtons Costs Consultants were not instructed until 19 January and did not receive the files and electronic data until 4 February.

Mr Dzhazoyan said this was because of the “need to seek and obtain certain internal approvals from my firm’s director of records and information governance concerning collating and sharing this type of data in light of my firm’s data privacy protection policies and procedures”.

No points of dispute were prepared for the hearing on 11 March – Mr Dzhazoyan said they needed more time.

Rule 47.12 provides that a DCC will generally only be set aside if the applicant shows a good reason to do so.

Applying the three-stage Denton test, Master Rowley said there was “no doubt” that the failure was a serious breach, and there was no good explanation for it.

He continued: “Having been alerted to the existence of the certificate, promptness is then required, as with all applications for relief from sanctions, and as is specifically mentioned in the practice direction directly relevant to this application.”

It ought to have been clear to KS that it would need external help and the explanation of why it took so long to instruct Overtons “does not make good reading”, the judge observed – having received a DCC, “I would have expected the speed of instruction of costs lawyers to have increased rather than decreased”.

Master Rowley continued: “Moreover, I would have expected any litigation firm to have links with external costs lawyers so that instructions could be sent immediately.

“In these days of costs budgets and costs and case management hearings, the interplay between cost lawyers and instructing solicitors goes far beyond the traditional instruction of a cost draftsman to prepare a bill (or points of dispute) at the end of a case when the substantive proceedings have concluded.”

The judge described taking a fortnight to produce a data file as “surprising”, while the internal governance excuse was “both surprising and unconvincing”.

Master Rowley accepted that the need for draft points of dispute to accompany a set-aside application was only a general rule but said they should at least be produced for the hearing.

The need for points of dispute was “fundamental to the prospects of setting aside the DCC in most cases”.

If nothing else, KS should have produced a witness statement or some other document to give “an indication” of the nature of the likely points.

Master Rowley concluded that the defendants failed to act “with sufficient promptness so as to be able to set out any putative case in the detail expected” at the set-aside hearing and “such actions as have been taken do not weigh sufficiently in the balance to grant relief in the circumstances”.

Stewarts partner Fiona Gillett, who worked with senior costs draftsman Joseph Dowley on the case, said: “However experienced a litigator you are, input from in-house costs specialists is invaluable to a full-service client offering.

“Having the necessary in-depth understanding and experience in practice of the costs rules and the SCCO Guide in-house at Stewarts undoubtedly resulted in a successful outcome for my clients in their continued enforcement of costs orders against the defendants.”

Claire Green, chair of the Association of Costs Lawyers, added: “This case serves as a salutary warning to solicitors that they cannot just ignore costs – there can, quite literally, be a very high price to pay for doing so.

“Our members who work in-house add significant value to their firms, above and beyond drafting bills, while there is a strong community of external costs lawyers ready to help so long as the communication is there.

“At the very least, law firms should make sure they have arrangements in place with costs lawyer specialists for when problems like this arise. The courts are showing less and less tolerance for delays, sometimes with drastic consequences, and that applies to costs just as much as other aspects of civil procedure.”

Anatolie Stati, on behalf of the defendant parties, said: “This costs ruling of the English court has no bearing on the Republic of Kazakhstan’s unconditional liability to the Stati parties arising under a final and binding $545 million Swedish arbitral award.

“Neither does it have any effect on Kazakhstan’s own multi-million dollar cost liability owed to the Stati parties under various European court orders which remain unpaid to this date.”

KS had no comment of its own.

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