Deutsche Bank AG v Sebastian Holdings Inc.
| Jurisdiction | England & Wales |
| Judge | Master Gordon-Saker |
| Judgment Date | 05 June 2020 |
| Neutral Citation | [2020] EWHC B24 (Costs) |
| Date | 05 June 2020 |
| Docket Number | Case No: SC-2019-BTP-000531 |
| Court | Senior Court Costs Office |
[2020] EWHC B24 (Costs)
IN THE HIGH COURT OF JUSTICE
SENIOR COURTS COSTS OFFICE
Royal Courts of Justice,
London, WC2A 2LL
Master Gordon-Saker
Case No: SC-2019-BTP-000531
AGS/1704493
and
Mr Nicholas Bacon QC and Mr James MacDonald (instructed by Freshfields Bruckhaus Deringer LLP) for the Claimant
Mr Benjamin Williams QC and Mr Tom Morris (instructed by Brecher LLP) for Mr Vik
Hearing dates: 20, 21, 22, 23, 24, 27, 28, 29, 30 April, 1, 4, 5, 6, 7 May 2020 (by Skype)
This judgment was handed down remotely by circulation to the parties' representatives by email and release to Bailii. The date and time for hand-down is deemed to be 4 pm on Friday 5 June 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Master Gordon-Saker Master Gordon-Saker This judgment:
a) sets out the reasons for my decision on preliminary issue 4 in the points of dispute: that the fees of Deloitte LLP for the work detailed in paragraph 2.2 of the Summary dated 13 th December 2019 (core bundle F/1) are properly recoverable as costs of the action, subject to a determination of whether they were reasonably incurred and reasonable in amount and subject to the disallowance of fees which should properly form part of Deloitte's overheads, such as qualitative reviews and risk assessment; and
b) sets out my decisions in respect of counsel's fees for the trial of the action.
The background
Pursuant to an order dated 8 th November 2013, the Claimant is entitled to 85% of its costs of its claim against the Defendant, Sebastian Holdings Inc., to be assessed on the indemnity basis. The order followed a 44 day trial in the Commercial Court. On 10 th October 2016, Mr Vik, a defendant for costs purposes only, was ordered to pay the Claimant's costs awarded against the Defendant.
The Claimant is an international bank. The Defendant is a company incorporated in the Turks and Caicos Islands. As Cooke J. found, the Defendant was a special purpose vehicle and “the creature company” of Mr Vik, who was its sole director and shareholder and had effective control of the proceedings.
The claim and counterclaim arose out of a trading relationship between the Claimant and the Defendant over 2006 to 2008. In summary, the Defendant and Mr Vik conducted foreign exchange, equities, futures and options trading through the Claimant. That trading was supported by collateral. Following the financial turbulence in 2008, and the resulting losses incurred by the Defendant and Mr Vik, the Claimant made substantial margin calls some of which were not met. The margin calls were in part due to the fact that the Defendant's trading had been under-margined due to errors and shortfalls in the Claimant's reporting and margining systems. The Claimant's claim was for the balances owing on the Defendant's trading accounts.
Much of the Defendant's trading had been carried out by its trader Mr Said. The Defendant contended, inter alia, that Mr Said's authority to trade had been limited by oral agreements made between Mr Vik and the Claimant and that the Claimant had allowed Mr Said to exceed those limits and to trade in transactions for which he had no authority. Further the Defendant contended that the Claimant was in breach of its obligations to record and report on Mr Said's trades and to warn Mr Vik of the risky trades that he was entering into. But for these breaches, it was said, the Defendant would not have incurred the losses flowing from Mr Said's trades. Further, because of the Claimant's errors in margining, the Defendant alleged that it had been forced to close out valuable positions, incurring further significant losses. But for those losses, it would have invested those funds in accordance with a “Hypothetical Portfolio” which would have earned substantial profits. Until trial the Defendant contended that its losses exceeded US$103bn.
At trial, Cooke J. did not accept that the oral agreements alleged by the Defendant had been made or that Mr Said's trades exceeded his authority. While there had been failures in the Claimant's margining systems, he found that the Defendant had been aware of those failures and had taken advantage of them. He also found, inter alia, that the Defendant had the ability to meet the margin calls and had not been forced to close out its positions. The Claimant recovered judgment for US$243m and successfully defended the counterclaim, reduced at trial to a sum still in excess of US$8bn.
This was a huge piece of litigation and was hard fought. There were substantial interlocutory skirmishes, including over jurisdiction. The Claimant's disclosure involved the manual review of over 1.5 million documents, with about 200,000 documents disclosed. The parties served 54 statements of witnesses of fact and 40 experts' reports. There were 10 joint experts' reports. The experts' reports ran to over 6,500 pages. Written opening submissions ran to over 1,700 pages. Written closing submissions ran to over 2,700 pages. The judgment ran to 428 pages. Both parties instructed teams of counsel. The Claimant is credited on the title page of the judgment with 2 Queen's Counsel and 2 junior counsel and the Defendant with 1 Queen's Counsel, 1 Senior Counsel and 3 junior counsel.
The costs claimed by the Claimant against the Defendant and Mr Vik are in excess of £53m. The Defendant did not serve points of dispute and, so far, has neither attended nor been represented at the detailed assessment hearing which presently is adjourned part-heard.
Preliminary issue 4 – the points of dispute
The fees of Deloitte are claimed at items 1,707 to 1,734 in the bill. They are described as disbursements paid directly by the Claimant in respect of “Forensic Loss, Margin Calculation, Equity Valuation and Computer Forensic experts and litigation advisors”. The total sum claimed is apparently about £24m.
The points of dispute served by Mr Vik complain that the information disclosed by the Claimant in respect of Deloitte's fees is insufficient. At that time the Claimant had served only Deloitte's invoices, which contained limited information. For example the first invoice, for July and August 2011, (item 1,707) identifies the fee earners by name, their grades and daily rates, and the time each person spent on each day, but does not identify the work that they were doing. In later invoices further information is provided and the amount of time spent by each fee earner in respect of specific workstreams is identified. The invoices between February and May 2012 identify workstreams with a broad description of the work being done. From June 2012 the workstreams are identified rather more baldly. For example the invoice for June 2012 (item 1,717) shows the following headings without further description: “Leadership team and project management”, “Claim”, “Counterclaim”, “Litigation Support”, “Experts” and “Disclosure Review”. These headings change as the case progresses.
Mr Vik served a request for further information under CPR Part 18 with his points of dispute and he complained in the points of dispute that he had no idea of the activities done, the identities of the individuals, their experience, charge out rates, why it was necessary to do the work and how the work related to the issues upon which Deloitte gave expert evidence.
The Claimant chose not to answer the request for further information directly and, given that the information sought would be the subject of litigation privilege, the Defendant chose not to press for a response. Instead the Claimant provided a 22 page narrative account of the work done 1 dated 13 th December 2019 (“the Summary of Work Performed”) which was produced under the oversight of Miss Elizabeth Gutteridge, one of the lead partners at Deloitte.
At the directions hearing on 31 st January 2020 the parties agreed that the court should decide as a preliminary issue:
Whether the Court should (1) analyse the evidence served by the Claimant in response to Mr Vik's request for further information dated 26 July 2019 and if so, (2) give directions addressing the sufficiency of that evidence; and (3) if so, whether the evidence relied on by the Claimant is sufficient, and, if not, what further evidence the Claimant is to serve and by when.
At the hearing of the preliminary issues I decided that it was not for the court to advise a party on whether its evidence is good enough and, if not, how to plug any deficiency. The Claimant offered to produce further monthly summaries describing the work done by Deloitte but, fearing that they would not be produced in time for the assessment, requested an adjournment, which I refused.
The Claimant has however produced monthly summaries for July 2011 to December 2011 which give a better description of the work done in those months. As I understand it the Claimant has now served further summaries for the remaining months.
After the complaint about the lack of information as to what Deloitte was doing, Mr Vik contends in preliminary point 4 of the points of dispute that he is not liable to pay any of their fees for 10 reasons:
1) Mr Vik cannot be liable for fees incurred before the date on which permission was granted for forensic accountancy evidence. That argument was not pursued by Mr Williams QC on behalf of Mr Vik.
2) Work done in identifying and extracting data from the Claimant's systems for disclosure should have been done by the Claimant. Further this work did not require expert forensic accountancy skills.
3) Mr Vik should not be liable for work done “educating, liaising [and] appraising” the Claimant...
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Deutsche Bank AG v Sebastian Holdings Inc.
...in principle) which was argued over a number of days in April and May 2020 and resulted in a reserved judgment dated 5 th June 2020: [2020] EWHC B24 (Costs). Following my conclusion that they were recoverable in principle, the fees were assessed following argument over 12 days in November ......