The Joint Administrators of Lehman Brothers Holdings Plc v Lehman Crothers Holdings Inc & Ors

Where litigation involves distinct applications or issues, costs should ordinarily reflect the separate success or failure of each materially distinct step. A court may order the unsuccessful party to pay the costs of a failed strike-out application even where that application was heard alongside, and informed by, the substantive issue.

Broad-brush percentage allocations should not be adopted where the court lacks a reliable evidential basis for assessing the relevant division of work. If parties owe costs to one another and a single balance cannot be agreed, set-off may be ordered. A first-instance judge may decline to grant permission to appeal where the proposed appeal should instead be considered by the appellate court.

This was a consequential judgment following the court’s main judgment dated 29 November 2023 in proceedings concerning the administration of Lehman Brothers Holdings plc. The remaining issues concerned the costs of Issue (1), including the relationship between the substantive arguments and a separate strike-out application, and LBHI’s application for permission to appeal the declaration and the priority of principal over statutory interest.

The parties agreed certain costs orders. The contested questions were how the costs of the failed strike-out application should be allocated, whether reciprocal costs should be set off, and whether permission to appeal should be granted by the first-instance court.

1. The costs of the PLC Administrators’ work on Issue (1) were payable as an expense of the administration. LBHI was ordered to pay GP1’s costs of Issue (1), subject to detailed assessment on the standard basis if not agreed.

2. DB was ordered to pay LBHI’s costs of the failed Strike Out Application, subject to detailed assessment on the standard basis if not agreed. Although the strike-out arguments were heard as part of the wider submissions on the substantive issue, the application had been conceived and pursued separately, generated specific evidence and required discrete analysis. It was therefore a separate and failed procedural step.

3. The court rejected DB’s proposed percentage reduction and LBHI’s proposal for no order as to costs. A fair percentage could not be identified reliably from the material available, and the court should not guess at the division of costs. The court noted that approximately 70% of the hearing time and argumentative weight concerned the substantive issue, but did not convert that impression into a percentage order.

4. If the parties could not agree a single resultant balance, the amounts assessed as owing by one party were to be set off against the costs owing by the other. The court relied on Izzo v Philip Ross & Co [2002] B.P.I.R. 310 in support of that course.

5. The court refused to grant permission to appeal. Although the proposed appeal concerned substantial sums and issues of importance to the LBHI estate, the court considered that the Court of Appeal should determine, if the matter were pursued, whether permission should be given.

not stated in the judgment.