By Virginia Rylatt
First published in European lawyer Magazine, March 2007

The English High Court’s ability to issue a freezing order supporting substantive proceedings in other jurisdictions is a useful tool for lawyers across Europe, but subsequent costs disputes may throw up complex cross-jurisdictional legal issues. Virginia Rylatt examines a recent ground breaking case from Italy.

The English jurisdiction is arrogant but undeniably effective. A judge of the High Court of England and Wales may make a freezing order that is effective worldwide, in support of substantive proceedings that have been issued elsewhere and, if necessary, without giving notice to the defendants – a tool lawyers Europe-wide may find useful in applying pressure to cases in other, slower-moving jurisdictions.

This is, of course, a draconian weapon for the defendant concerned and it will require the High Court to be appraised of the issues – including the relent law – and evidence in the foreign proceedings. Sooner or later there will be a substantive hearing in the High Court if the defendant wishes to challenge whether the freezing order should be continued and, if so, the extent of the order. If successful, the High Court will deal with the defendant’s costs. The usual order would be for the claimant to pay the defendant’s costs to be assessed, if not agreed.

So far so good, but in practical terms, to enable the defendant to explain the legal issues in proceedings conducted in another jurisdiction, expert evidence will be required. Further, the English legal team must understand the facts’ relevance to the foreign jurisdiction’s law. The reality is that foreign lawyers will be heavily involved in providing support and legal advice to the English practitioners and this juxtaposition of legal systems (usually European) often creates complexity.

In the case of Società Finanziaria Industrie Turistiche SpA v Manfredi Lefebvre D’Ovidio Clunieres di Balsarano and another (SFIT vs Lefebvre), a worldwide freezing order obtained by the claimant in aid of substantive proceedings in Italy against defendants there in the sum against defendants there in the sum of €60m was set aside in November 2004 and the claimant ordered to pay the defendant’s costs on the standard basis. As would be expected, this included the costs of Italian lawyers who gave evidence on Italian law issues and advice to the English legal team.

Any order for standard base costs in the High Court will only allow the defendant to claim costs that are proportionately and reasonably incurred or were proportional and reasonable in amount in accordance with the Civil Procedure Rules 1998 Rule 44.5(1). The question thus arose as to how an English court would assess the costs of foreign lawyers – a particularly difficult problem where the foreign lawyers do not charge on the basis of time spent and hourly rates, as is the system under which English lawyers charge in the High Court. This was a novel point with no previous precedent to guide the Court and the decision should be used as future guidance for all lawyers across Europe.

In SFIT vs Lefebvre the claim came before costs judge Master Gordon Sakar. In his June 2006 judgment he had to decide whether the Italian lawyers’ costs should be assessed in the same way as English lawyers’ ie on the basis of hourly rates and time spent, or whether they should be assessed under the system used in Italy, that is Ministerial Decree No 127 of 2004, which provided for a range of charges for types of work on particular values of cases. Taking the charges which could apply on the value of the case at €60m, for a written opinion the range was between €17,760 and €39,000 with the possibility that, as allowed by article 1(3) of Decree 127, the amount could be doubled or even, at times, quadrupled.

As the costs judge expressed in his judgment the key question was “does one have regard exclusively to Italian methods…or [are they] simply a factor?” This was crucial, as it is not usual for Italian lawyers to keep detailed time notes, or records of time spent on a matter, because their system for charging is based instead on activities undertaken. The key difficulty for the judge, in the Court’s assessment under Part 44 of the Civil Procedure Rules 1998, was thus to determine “to what extent is the Italian practice of charging relevant to the assessment of the reasonableness of the Italian lawyers’ fees?” Was it wholly determinative “so that, if proportionate and reasonably incurred, the fee which would be allowed in Italy must be considered reasonable in amount on an assessment in this country?” Alternatively, was the Italian practice of charging simply one of the factors to be taken into account when assessing under CPR 44.5(3), which sets out the factors the Court must have regard to when assessing costs, and includes as item (f) time spent and as item (g) the place where and the circumstances in which the work, or any part of it, was done.

Ultimately, the Court found that when assessing costs incurred in a foreign jurisdiction, the place where the work was done will assume significant importance and that it would be artificial “to attempt to shoehorn the other factors into an assessment of costs incurred in another jurisdiction where the assessment of costs within the jurisdiction has no regard to those factors”. And that, where it is not practice in that jurisdiction to charge by reference to the time spent, time will be of no relevance.

Most importantly, the Court held that it could not apply English principles of legal charging to other jurisdictions’ systems. When assessing foreign lawyers’ costs the Court should answer the following questions: (i) are the fees incurred overseas proportionate? (ii) if not, were they necessarily and reasonably incurred? And (iii) if they are proportionate, were they reasonably incurred.