Keep Costs under Control: the Perils of Ill-Considered Litigation

23 July 2018

Lucinda Richmond Wigg

Court of Appeal quashes costs order in favour of no order for costs, concluding that "the payer of the cheque" approach to determine success is inappropriate in complex joined cases.

Commentary

Parties to disputes before the English courts are familiar with the basic starting position that the successful party will get their costs paid by the losing party. However, figuring out who is the winner is not always straightforward, particularly in joined cases involving a large number of claimants. This case involving Atlasjet (now AtlasGlobal) illustrates the difficulties that can arise. 

The defendant, Atlasjet, was successful in nearly 95% of the claims and yet the High Court determined that the claimants were the successful party, based on a narrow view focussing on the minority of claims that did succeed and resulted in a pay out of around £9,000 to some of the claimants. Atlasjet was ordered to pay 33% of the claimants' costs, which amounted to £225,000. On appeal, the Court of Appeal quashed that order on the basis that the High Court had chosen the wrong starting point for costs by determining that the claimants were the winner. It considered that in a case such as this, where it is not necessarily clear which party is the winner, it is appropriate to make no order as to costs.

Of particular note is the fact that both Hickinbottom LJ and Davis LJ lamented the level of the costs of the parties – estimated to total around £2 million – which vastly exceeded the value of any substantive claims. This case was high risk for the claimants: the claimants' solicitors had a conditional fee arrangement in place with a 100% success fee (which demonstrates the solicitors' assessment of the risk involved) and the claimants had no after the event insurance. In addition, the Court of Appeal noted the fact that Atlasjet did not consider any early negotiation in order to resolve the dispute, which could have resulted in a far more cost-effective solution. In Hickinbottom LJ's words, this case "cried out for some early, sensible consideration of compromise". In a scathing final remark, Davis LJ noted that "neither side comes out of all this with much credit". This case serves as a salutary lesson for parties involved in this type of complex litigation involving multiple claims, not only in terms of the level of costs that can be incurred in a case such as this – which can be out of all proportion to the substantive claims at issue – but also the risk that costs may not be awarded even where a party is successful in relation to a significant proportion of the claims.

Background

In June 2010, Cyprus Turkish Airlines ("CTA"), the flag carrier for the Turkish Republic of Northern Cyprus, had its air operator's licence revoked. As a result, its aircraft were grounded and its operations suspended. The CTA flights on which the claimants in this case (totalling nearly 850) were booked to fly were scheduled to operate after CTA had its licence suspended. Despite efforts by Turkish airline Atlasjet to repatriate stranded passengers pursuant to an agreement with the Northern Cyprus government, the claimants were not given replacement flights and instead had to either pay for a new ticket with a different airline or had to abandon their travel plans, losing the value of the tickets they had booked with CTA. 

The claimants initiated proceedings against both CTA and Atlasjet to recover their losses before the English High Court. CTA did not participate in the proceedings, or the subsequent appeal. 

High court ruling1 

In brief, the claims against Atlasjet were based on two causes of action: 

(i) breach of contract – the claimants argued that they could enforce their rights as third parties under the agreement between Atlasjet and the Northern Cyprus government and also claimed direct contracts with Atlasjet had been formed following CTA's collapse. There were three categories of contractual claimants, for example some of the claimants were issued with Atlasjet tickets which were subsequently cancelled by the carrier ("Category 1 claimants"); and 

(ii) rights under Regulation 261/2004 ("Reg 261").

In the High Court's judgment, handed down in April 2016, Whipple J concluded that the claims based upon Reg 261 failed because the Regulation was inapplicable in the circumstances as none of the claimants had a confirmed reservation at the time of check-in. As for the contractual claims, a crucial issue in the joined cases was whether Atlasjet had a contract (i.e. confirmed booking) with the claimants. The claims failed in respect of categories 2 and 3 but in respect of the Category 1 claimants, Whipple J concluded that a contract came into effect when the booking was confirmed, not when a ticket had been issued. In 14 individual Category 1 claims, Atlasjet had cancelled confirmed reservations without consent of the travellers and so was found to be in breach of contract. Judgment was entered for the successful claimants in the sum of just under £9,000. A further 76 claims were re-categorised as Category 1 following the High Court judgment and were later settled by Atlasjet. In total, just under 95% of the claimants' claims failed in this case. 

On the topic of costs, both parties argued the appropriate starting position was that the unsuccessful party shall be ordered to pay the costs of the successful party (CPR Rule 44.2(2)) but each argued they had been the successful party. The claimants argued that Atlasjet, as the paying party, should be considered the unsuccessful party when it came to determining costs (relying on the A L Barnes2  line of authorities which describe who pays money to whom as the "surest indication of success and failure").  On the other hand, Atlasjet argued that, despite the fact it had paid money to some of the claimants, it had succeeded, inter alia, on the issues list and all category 2 and 3 claims. It should therefore be considered the successful party and the claimants should be ordered to pay its costs (less a small discount to reflect the successful claims). 

The High Court concluded that the claimants were the "winners" and that the starting point should therefore be that Atlasjet should pay their costs. The Court then went onto consider whether any discount should be applied to those costs. The judge took account, amongst others, of the fact that the claimants lost the majority of the contractual claims but also considered Atlasjet's conduct during the proceedings (for example by failing to disclose logbooks until mid-trial and by refusing all ADR attempts). On balance, the High Court concluded that Atlasjet should pay 33% of the claimants' costs on the standard basis. 

Appeal on costs3

Atlasjet appealed the costs order and various consequent orders. The appeal's main focus was how "success" was assessed for the purposes of CPR Rule 44.2(2). Atlasjet argued the Court should consider the litigation as a whole – while it was ordered to pay small amounts to a minority of claimants, it had been successful on all of the issues and in eight of the ten lead claims, and had defeated two of the three categories of contractual claimants. Taking a holistic view, Atlasjet argued it was the clear winner and therefore the High Court's starting point in relation to costs was incorrect. Rather, the Court should have started with the position that the claimants should pay Atlasjet's costs and those costs should then have been discounted slightly to reflect the claimants' successful cases.

The Court of Appeal accepted Atlasjet's argument that in complex cases such as this involving hundreds of joined claims, it is "too crude" to determine success on the basis of who receives payment from whom. It is widely accepted that cases must be considered as a whole: Atlasjet was successful in 792 of the 838 individual claims. The Court of Appeal concluded that the High Court chose the wrong starting position and that the costs order should be set aside. 

The Court of Appeal went on to determine the appropriate costs order. It acknowledged that neither the claimants nor Atlasjet "had anything close to complete success", and in cases such as this, attempts to determine the overall winner are almost futile. The Court of Appeal concluded that it was appropriate in this case to make no order as to costs, given that neither party was clearly "successful" over the other. Further, to the extent Atlasjet could argue a greater level of success over the claimants, the Court found that would be offset by its conduct outlined above (for example by rejecting all efforts at negotiation). 

Sirketi v Kupeli & Ors 31 May 2018


1 [2016] EWHC 1478 (QB)
2 [2003] EWCA Civ 402; [2003] BLR 331
3 [2018] EWCA Civ 1264