Awarding costs in group litigation: Court of Appeal says "who receives the cheque" does not determine success

A recent Court of Appeal decision illustrates the court's approach to awarding costs in the context of complex group litigation, and how it differs from the approach taken in ordinary commercial litigation: Sirketi v Kupeli [2018] EWCA Civ 1264.

Under CPR 44.2, in exercising its discretion as to costs, the court’s starting point is that the successful party is entitled to recover its costs from the unsuccessful party, though the court can make a different order. In general, in a commercial claim, the most important factor in determining which party is successful or unsuccessful is to look at who writes the cheque.

In this case, which involved some 838 claimants, the High Court applied that approach in finding that the claimants were the successful party following a trial of preliminary issues and lead claims. As that trial had resulted in a damages award to 14 of the lead claimants (for a total of just under £9,000), the judge concluded that the claimants were prima facie entitled to their costs - though she reduced the costs to 33% in light of various other considerations.

The Court of Appeal overturned the judge’s decision, finding that "who pays whom" was not a reliable indication of success in a complex group claim. There are other material factors, including the respective success or failure in the individual claims within the group, and success or failure in the common issues that are intended to assist in determining individual claims.

Background

The claimants had booked flights with the first defendant (Cyprus Turkish Airlines) to travel after 21 June 2010, the date on which its air operator’s license was revoked and it ceased to operate. The second defendant (Atlastjet) entered into an agreement with the Government of Northern Cyprus to transport stranded passengers to their destinations, but ultimately none of the claimants was given a replacement flight.

The proceedings were never formally incorporated into a Group Litigation Order (GLO), but they were joined and managed together in much the same way as if there had been a GLO, and the claimants undertook to be bound by the determination of issues that were common to them.

The claimants alleged that their losses were recoverable from Atlasjet under the Denied Boarding Regulation (Regulation (EC) No 261/2004) and/or as damages for breach of contract.

There was a trial of preliminary issues and lead cases before Whipple J. As a result of that trial, the claims under the Regulation failed. In relation to the contractual claims, the judge found that only the claimants who had a confirmed booking with Atlasjet could prove a contractual relationship with Atlasjet and therefore had a potential cause of action. This applied to only 49 claimants (the “Category 1 claimants”) who were the only ones who claimed they were issued with Atlasjet tickets – though further claimants were given the opportunity to reconsider how they put their case following the trial.

Of the Category 1 claims, 14 succeeded directly as a result of the judgment, as these had proceeded as lead claims and the judge was satisfied that the reservations were cancelled by Atlasjet. These claimants were awarded a total of just under £9,000. A few of the Category 1 claims failed on the basis that the reservations were cancelled by a travel agent rather than Atlasjet.

Following the trial, 76 claims were transferred to the County Court for determination, including some that were ultimately reclassified as Category 1 claims. These were settled on the basis that Atlasjet was to provide a return ticket from a UK airport to Turkey or Northern Cyprus (or the fixed sum of £400 if it failed to do so). The rest of the 838 claims were dismissed on the basis of the main judgment.

In determining costs, Whipple J applied a number of authorities which suggest that, in a commercial dispute, the most important factor in determining the successful party, and therefore which party is prima facie entitled to its costs under CPR 44.2, is to identify the party who is to receive a payment from the other (see eg A L Barnes Ltd v Timetalk (UK) Limited [2003] EWCA Civ 402). She refused to distinguish these authorities on the ground that they were not concerned with group litigation, finding that they applied regardless of the number of claimants involved.

Applying this approach, Whipple J found that the claimants were the successful party, largely because they would receive a cheque from the defendant – though she found that those costs should be reduced significantly on the basis that they had lost a number of the issues and claims. Overall she found that the claimants should recover 33% of their costs. Atlasjet appealed against the costs order.

Decision

The Court of Appeal overturned the judge’s costs order (Hickinbottom LJ giving the lead judgment with which Davis LJ agreed). In treating the question of “who receives the cheque” as the determinative factor, the judge had applied “too crude” an approach to this sort of litigation.

Hickinbottom LJ said it was uncontroversial that, in assessing costs between the parties, the court must look at the litigation as a whole. He noted that the A L Barnes line of authorities each related to a claim for money between two individuals. In such claims, who pays whom might be an easy way to identify the unsuccessful party for the purposes of awarding costs, but in a group claim there are other material factors. In particular:

• A group claim such as this involves multiple claimants. Here there were 838 individual claims, and as a result of the trial Atlasjet was successful in 792 of them. So as a starting point Atlasjet was entitled to its costs in relation to those claims. That was, Hickinbottom LJ commented, “particularly so in the absence of a GLO”.
• The trial of a group claim is designed to determine issues, by way of preliminary issues and/or lead claims, that will assist in determining the rest of the claims, either by agreement or later individual small-scale trials. Therefore, the direction any money travels as a result of the trial does not necessarily reflect success. Looking at the litigation as a whole, the extent to which a party has been successful in such issues, and the consequences of the trial for the balance of claims, are also material considerations in determining success.

The Court of Appeal concluded that Whipple J was wrong to equate “who receives the cheque” with the successful party for the purposes of CPR rule 44.2(2) in the context of this complex group claim. She was required to consider who was successful, in the context of the group litigation as a whole, and that was not truly reflected by the fact that a limited number of claimants were successful in the main trial. In a large proportion of the individual claims (792), it was Atlasjet rather than the claimants who were successful. That had to be reflected in the analysis of who was the successful party, but the judge did not do so.

The fact that the judge’s starting point was wrong was fatal to her analysis and her conclusion, and so her costs order had to be set aside.

The judgment notes that the parties urged the court not to remit the matter for determination by the High Court, but to assess the appropriate costs order itself. It took into count the following matters in particular:

• Atlasjet was entirely successful in respect of the preliminary issues, which were designed to give guidance for the cohort of claims.
• There were mixed fortunes in respect of the three categories of claim and the lead claims themselves.
• Whipple J heard several days of evidence and found firmly for the claimants in respect of the main factual issue live at trial, though she found for Atlasjet on the other factual issue which featured heavily at trial. The judge was entitled to conclude that the claimants were in principle entitled to their costs on the former issue, but equally Atlasjet was in principle entitled to its costs on the latter.

On that analysis, the court said, it was clear that neither party had anything close to complete success, and indeed “honours were fairly even”.

Although the general rule was that the successful party would recover costs, the rules provide that “the court may make a different order”. Hickinbottom LJ commented that in a complex group claim, in which opposing parties each have considerable success, a search for an overall "winner" may be a largely fruitless exercise. In any event, under CPR 44.2, the court must first determine whether to make a costs order at all.

Overall, the Court of Appeal concluded that it would be appropriate to make no order as to costs as between the parties. To the extent Atlasjet had any slight success over and above the success obtained by the claimants at the trial, that was offset by certain aspects of its conduct as found by the judge (in that it failed to disclose certain documents and to make any counteroffer following the claimants’ Calderbank offer).

The courts’ approach to determining costs in group litigation is considered in more detail in our new textbook, Class Actions in England and Wales, recently published by Sweet & Maxwell.