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The Court of Appeal has criticised both parties in a flight compensation group claim for creating a situation where costs finished up ‘out of all proportion’ to the amount sought.

Lord Justice Davis said Sirketi v Kupeli & Orswas a ‘melancholy tale’ in which the main issue in the litigation had for some time been costs, rather than the sums claimed. Total costs of the litigation are estimated to approach £2m, with the success fee set at 100% and no claimant protection through after-the-event insurance.

Airline Atlasjet had been ordered by Mrs Justice Whipple to pay 33% of the costs of a preliminary trial of test cases that would ultimately determine 838 claims. The claims were split into three categories; two categories were dismissed and, of the final category, 14 were successful.

Whipple made the percentage costs order on the basis of Atlasjet’s conduct during proceedings and her finding that the claimants were winners ‘because at the end of the day, they will receive a cheque from the defendant’.

In the Court of Appeal, however, two judges quashed the order following a one-day hearing last month, ruling that an order for no costs would be just and appropriate.

Lord Justice Hickinbottom noted in his lead judgment that the defendant had been successful in 792 claims and should be entitled to costs in relation to those individual claims (although the defendant’s success was offset by its conduct as found by the judge). The direction money travels in a group claim, Hickinbottom said, may not always properly reflect ‘success’.

He added: ‘Where the concept of overall ‘success’ may be a necessarily ambivalent concept, a search for an overall ‘winner’ may be a largely fruitless exercise.’

In a postscript to the judgment, Hickinbottom expressed his ‘dismay’ at the way costs far exceeded any claim the claimants may have had. For each claimant, the sum claimed in proceedings was estimated in the low hundreds. Litigation for them presented a ‘very high commercial risk out of all proportion to the potential prospective rewards’.

The defendant, for its part, refused to consider any form of compromise until shortly before trial, when its efforts were ‘too little and too late’. Its costs of the trial are around £800,000.

The judge added: ‘From a very early stage, the main driver of these proceedings was clearly not the substantive sums claimed but costs.’

Atlasjet resisted all attempts at discussion or negotiation of the case, which was “crying out for some sensible attempt at negotiation before costs racked up and the parties’ attitudes hardened.”

The lesson from the case is surely that parties will not automatically receive their costs if they win their case, if they fail to negotiate or try ADR such as mediation.