Buncefield and Talco: acid tests for Commercial Court’s costs proposals

All eyes are on supercases in the wake of the long trials working party report.

Buncefield and Talco: acid tests for Commercial Court’s costs proposalsAs the new legal term begins the courts are gearing up to hear two of this year’s biggest cases – ­Buncefield and Tajik Aluminium.

The costs of each are sure to come under intense scrutiny in light of recommendations made by the Commercial Court long ­trials working party.

As it stands, Buncefield’s ­presiding judge Mr Justice David Steel, a keen advocate of the ­working party’s recommendations, appears to have embraced the need to keep costs down.

It is estimated that the cost of the case, which relates to the Buncefield oil storage depot ­disaster in 2005, will be around £58m for the £1bn claim – the equivalent of 5.8 per cent of the award sought.

On the other hand, Mr Justice Tomlinson’s fraud case for Tajik Aluminium (the company was ­formerly known as TadAZ, but now goes under the name Talco) has been reported to have ­estimated costs so far of £85m for its £245m fraud claim, equivalent to 34.7 per cent of the overall claim, or 4.6 per cent of Tajikistan’s 2007 gross domestic product.

Compared with Talco even the BCCI supercase, which lasted 13 years, cost less relative to damages sought: on a claim of £1bn, legal costs were in the region of £110m-£120m. But why has Talco become one of the most costly cases in English legal history?

Herbert Smith partner Simon Bushell, who represents the ­government of Tajikistan, says the complexity of this case is one factor, adding: “The case is massive and likely to last four years [overall].”

The case revolves around Talco, Tajikistan’s state-owned smelter, which claims to have been defrauded out of hundreds of ­millions of pounds through a ­profit-skimming deal set up between the plant’s former ­director and its main supplier of the raw materials for aluminium.

Talco claims that its supplier – a Guernsey-based company run by Tajik national Avaz Nazarov – siphoned off up to £245m in ­profits. Nazarov and eight other defendants deny wrongdoing and are pursuing their own ­multimillion-pound counterclaim.

The different elements in this claim have made it highly ­complicated, meaning the costs have inevitably mounted.

That said, one senior clerk, who has barristers involved in Buncefield, believes the costs in Talco can be seen as disproportionate.

“Buncefield is also complicated, with dozens of offshoots, but Mr Justice Steele has been able to manage it to keep the costs to some sort of acceptable level,” the clerk says.

According to the High Court disclosure that went before ­Tomlinson J back in April, Herbert Smith will rack up more than £50m in fees, with the defendant firms making up the rest. Clyde & Co, Byrne and Partners and Magrath revealed that their ­combined costs since instruction came in at around £27m.
At the height of the Talco case five Herbert Smith partners – including lead partner Bushell, Gary Milner-Moore and Stuart Paterson – as well as 20 fee-­earners for extensive disclosure were working on it.

The firm’s costs include fees for its in-house advocate Murray Rosen QC and three counsel, including One Essex Court’s Neil Kitchener QC.

The fees also cover the expense of PricewaterhouseCoopers’ accountancy expertise, which included analysing Nazarov’s extensive business accounts. It includes the opinions of two ­industry experts on aluminium costs, as well as expert opinion on the foreign law aspects of contracts being drafted under several different countries’ laws with tortious claims under Tajikistan rule.
Even more costs were racked up by the fact that more than 100,000 Russian-language documents had to be translated into English, and with none of the witnesses ­speaking English, oral and ­written statements had to be taken and translated.

One barrister on the Talco case predicts that the costs could go even higher than the original ­estimate, given that the trial is ­likely to run longer than the 18 weeks it has been set down for.

“Though the case is down for four and a half months, being ­realistic, it’s likely to go on for about six months if you think about possible adjournments and so on,” says the barrister.

If this situation pans out it is likely that costs will spiral upwards and will result in the Tajikistan government, if it wins, finding itself receiving less than 80 per cent of the maximum award.

One source close to the case, however, says the damages the government will receive are not the sole consideration.

“You can’t just look at the size of the damages in this case,” says the insider. “This is a case that can be likened to BP fighting over North Sea oil, as it’s a key industry for Tajikistan. It’s crucial to a country trying to get on its own two feet and have independence from Russia.”

It is clear, then, that there is a lot riding on Tajikistan winning this case. As such, the massive costs cannot be likened to the situation when Allen & Overy was blasted by Mr Justice Floyd for racking up almost £5.2m in costs in the patent infringement case Research In Motion UK v Visto (The Lawyer, 21 April).


Herbert Smith leaders
• Simon Bushell, partner: As head of the firm’s London-based corporate fraud, investigations and asset recovery practice, Bushell has a proven track record in this arena. He advised the democratic government of the Republic of Chile and the state-owned copper producer Codelco over $170m (£96.89m) losses in copper and bullion future trading on the London Metal Exchange.

• Gary Milner-Moore, partner: Civil fraud solicitor Milner-Moore proved his worth when he became involved in the quantum proceedings for BHP Billiton Petroleum in relation to its £200m claim against Dalmine concerning the sale of wrongly specified pipe
for the Liverpool Bay Development.


• Murray Rosen QC, Herbert Smith partner:
Herbert Smith’s head of advocacy will act as lead counsel in Talco. Rosen has acted on several ­high-profile fraud cases in the past, advising the US ­Securities and Exchange Commission, for example, on whether it and two Cypriots had the right to millions of dollars in defrauded money.
#Neil Kitchener QC, One Essex Court: Kitchener had a role on the House of Lords case Lesotho Highlands Development Agency v Impregilo (2006), which concerned the powers of the courts to overturn awards made by international arbitrators.

• Fountain Court barrister Deepak Nambisan and One Essex Court’s Henry Forbes Smith are acting as junior counsel.