IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
 

Before: The Hon. Mr. Justice Hirst
 
 
 
 

Re Interest Rate Swap Litigation

 
 
 
C Dehn QC and P Robertson for the Respondent Authorities

J Swift for the Applicant Authorities; P Jones for Camden Applicant Authority

M Brindle for the Hammersmith and Fulham Applicant Authority

P Oldham for the Brent Applicant Authority

A Wilkie for the Islington Applicant Authority

M West for Sandwell and Welwyn Applicant Authorities

J Oldham for Birmingham Applicant Authority

T Keith for the Hackney Applicant Authority

C Gibson for the Greenwich and Barrow in Furness for the Applicant Authorities

J Howell for the Westminster and Southwark Applicant Authorities

D Bean for the South Tyneside, Cleveland, Tamworth and Western Isles Applicant Authorities


 
 
Hearing date: 28 November 1991
 
 

JUDGMENT
 
DATED: 28 November 1991
 

Mr. Justice Hirst:

 

INTRODUCTION

This is an application in the Interest Rate Swap Litigation, which comprises a very large number of civil actions between banks and local authorities following upon the decision in the House of Lords in Hazell v. Hammersmith and Fulham London Borough Council [1991] 2 WLR 372, that such transactions were ultra vires and unlawful.

Described very simply, under a Swap contract one party which has borrowed money at a fixed rate of interest swaps its interest obligation with another party which has borrowed at a variable rate of interest, or vice versa. Under a fixed rate of interest loan, the borrower is insulated from any increase in interest rates and has the benefit of certainty, but does not reap any advantage from a fall in interest rates. Under a variable rate of interest loan the borrower gains if interest rates fall but loses if they rise. Thus, a Council swapping from a fixed interest to a variable-interest loans gain if, following the swap, interest rates fall, but loses if they rise; and a Council swapping from a variable interest to a fixed interest loan gains if, following upon the swap, interest rates rise but loses if they fall. In all these cases the Council in question when entering into a swap was anticipating either a rise or a fall in interest rates generally, and the financial consequences, whether a profit or a loss, depended upon whether their anticipation proved to be correct.

The above description, though sufficient for present purposes, is a gross over-simplification of a very complex variety of transactions, of which a full description is given in the opening pages of Lord Templeman's speech in the Hazell case supra, and in Appendix A to the judgment of the Divisional Court [1990] 2 QB 697.

According to figures supplied to me, between 1981 and 1989 approximately 130 local authorities entered into interest rate swap contracts and similar transactions with approximately 80 banks. According to the statistics collected by the British Bankers' Association (BBA) there are around 650 relationships between banks and local authorities, many involving more than one transaction. The cost to banks in replacing their swaps from local authorities to re-balance their portfolios in the aftermath of the Hazell case has been estimated by the BBA at between £500 million and £560 million. The BBA has also estimated that complete restitution of all payments by banks to local authorities and vice versa would lead to net payments to banks of some £125 million.

As at 30th October, 1991 there were 203 extant swap actions, 18 had been settled after the issue of proceedings, 2 had been discontinued and 4 are in progress in the Chancery Division. Although in the vast majority of cases the banks are plaintiffs, there are 10 actions involving 8 local authorities in which a local authority is plaintiff because they are net losers under their swap transactions. The number of plaintiff banks in these actions totals in all 42 and the number of local authority defendants 62. These figures may need up-dating, but give a substantially accurate picture.

The general basis of all the claims in these actions is that the payment of a sum of money made by the plaintiff to the defendant was money paid for a consideration which has wholly failed, and/or money received by the defendant for the plaintiff's use, and/or money paid by the plaintiff to the defendant under a mistake. There are also in general claims to entitlement to trace the money so paid, and claims to restitution on the footing that the retention of such monies would be unconscionable and/or that the defendant would be unjustly enriched.

Common threads also run through the various defences, first in the answers to the above mentioned contentions put forward by the plaintiffs, and secondly in an allegation that the plaintiffs are precluded from recovering the sum claimed because the defendants changed their position and/or acted to their detriment. There is also an issue raised generally as to whether interest is payable if restitution is ordered.

Far and away the major issue is whether a plea of restitution is open to the plaintiffs, and this is essentially a question of law. Some of the common issues raised mixed questions of law and fact, where the facts will vary from case to case, but where it is also possible to identify a common issue of law.

As a result, it soon became clear to the Court that it was appropriate to give directions which would secure an orderly disposal of these actions, by selecting lead actions which will, it is hoped, decide the above points of common interest, and thus assist the remaining parties to resolve their differences without further litigation.

As a result, on 31st July last, Steyn J made a general order that the lead cases should comprise those listed in the schedule which was in the following terms:

"1. Barclays v. Hammersmith & Fulham (1991/318) Hammersmith & Fulham v. BZW (1991/654)

2. Chemical v. Hammersmith & Fulham (1991/205)

3. Citicorp v. Sandwell (1991/454)

4. Midland v. Birmingham (1991/440) Samuel Montagu v. Birmingham (1991/422)

5. Samuel Montagu v. Welwyn Hatfield (1991/423)

6. NCNB National Bank of North Carolina v. Hammersmith & Fulham (1991/434)".

All other interest rate swap actions, whether or not presently constituted, including any third party proceedings in such actions, whether against local authorities, brokers or otherwise were ordered to be stayed generally after the close of pleadings in each action or third party proceedings. It was also provided that parties in the non-lead actions should be at liberty to incorporate in their pleadings such part or parts of the pleadings in the lead actions as they might wish to adopt.

On 11th September last Steyn J gave further directions, and also indicated that it might well be appropriate to make a costs-sharing order. There were suggestions in the argument, particularly from Mr Gibson on behalf of Greenwich and Barrow-in-Furness, that the selection of the lead cases was not carefully undertaken, and that in effect the main players, particularly the banks, dictated the choice; having heard all the submissions, I am quite satisfied that this is wrong, that the process of selection was carefully and thoroughly undertaken, and that if there had been no agreement on 31st July Steyn J would have imposed a selection.

To bring the position fully up-to-date, and using the numbers in the schedule quoted above: (i) In action No 2, where allegations of fraud are made against Hammersmith & Fulham, Haringey and Camden are third parties in proceedings deferred until after the disposal of the lead actions, and Mayflower Brokers Ltd are also third parties who have been joined in connection with the fraud allegation, and who are not in any way involved in the present application.

(ii) In action No 3, Hackney are third parties and Brent fourth parties.

(iii) in action No 5, Hackney and Islington are third parties.

It became apparent during the closing stages of the argument before me that the selected lead cases do not include a case where a local authority is a plaintiff against a bank, and this was relied upon by Mr Dehn in opposition to the order sought, but I am satisfied that this does not invalidate the essential soundness of the selection process. I am giving this judgment in open court at the request of all the parties.


 

THE PRESENT APPLICATION

In this present application the local authority defendants in the lead cases, whom I shall call the applicants, seek a costs-sharing order against the local authority defendants in the non-lead cases, whom I shall call the respondents. This is subject to the exception of Hammersmith and Fulham, who are lead case defendants, but whose special position I shall describe separately.

The applicants also comprise local authorities involved in the capacity of an intermediary, viz a local authority which entered into a swap transaction with another local authority with reference to any other swap transaction previously or simultaneously entered into by the former local authority, leading to the third party proceedings, and in one case to the fourth party proceedings.


 

JURISDICTION TO MAKE THE ORDER

It is common ground on all sides that the Court has jurisdiction to make the order sought, pursuant to s 51(1) of the Supreme Court Act 1981, which provides as follows:

"51-(1) Subject to the provisions of this or any other Act and to the rules, the costs of and incidental to all proceedings in the civil division of the Court of Appeal and in the High Court, including the administration of estates and trusts, shall be in the discretion of the court, and the court shall have full power to determine by whom and to what extent the costs shall be paid".

S 4 of the Courts and Legal Services Act 1990, which is shortly to come into force, re-enacts s 51(1) in a somewhat different form, but without any change in substance.

In Aiden Shipping Co Ltd v. Interbulk Ltd [1986] AC 965 the House of Lords held that the discretionary power to award costs under s 51(1) was expressed in wide terms and that there was no justification for implying a limitation to the effect that costs could only be ordered to be paid by parties to a proceeding. In that case there were two sets of arbitration proceedings between respectively the owners and the charterers, and the charterers and the sub-charterers of a vessel, and there were two notices of motion before the court by the owners and the charterers respectively seeking a remission of the award. The remission was refused, and an order was made, and eventually upheld by the House of Lords, directing that an order for costs in favour of the charterers in their arbitration against the owners should include the costs which the charterers were ordered to pay to the sub-charterers. The leading judgment, with which the other four Lords of Appeal concurred, was delivered by Lord Goff of Chieveley, who stated as follows at page 980F:

"In the vast majority of cases, it would no doubt be unjust to make an award of costs against a person who is not a party to the relevant proceedings. But, as the facts of the present case show, that is not always so. In the present case, the two originating motions were heard together without any formal order being made; but in such a case, and also in a case where a formal order has been made, one reason why that course of action is taken may be to achieve a saving of costs. If two separate sets of proceedings are heard together, because they have common features, it may be a matter of pure chance whether the expense or presenting an argument or evidence relevant to the common features falls with one or other of the two sets of proceedings. Sometimes, indeed, it may be very difficult to attribute costs to one set of proceedings rather than the other. It is surely consistent with the interests of justice that, in such a case, the court's jurisdiction to make a global order for costs relating to both sets of proceedings should not be fettered by the imposition of an implied limitation upon that jurisdiction.

I do not, for my part, foresee any injustice flowing from the abandonment of that implied limitation. Courts of first instance are, I believe, well capable of exercising their discretion under the statute in accordance with reason and justice. I cannot imagine any case arising in which some order for costs is made, in the exercise of the court's discretion, against some person who has no connection with the proceedings in question. If any problem arises, the Court of Appeal can lay down principles for the guidance of judges of first instance; or the Supreme Court Rule Committee can propose amendments to the Rules of the Supreme Court for the purpose of controlling the exercise of the statutory power vested in judges subject to rules of court".

In Davies v. Eli Lilly [1987] 1 WLR 1136 (the Opren case) the Court of Appeal upheld a costs-sharing order under which the 1,500 or so plaintiffs, other than those selected in lead actions to determine the main points common to all the actions, were ordered to contribute on an equal basis to the costs of the lead-action plaintiffs.


 

THE APPLICANTS' SUBMISSIONS

The main argument on behalf of the Applicants was presented by Mrs Oldham, who appears on behalf of Birmingham. She submits that the lead actions will by their nature determine the various points of principle listed above which are common to all this litigation, and that it was indeed for this very reason that the lead actions were selected and the remainder stayed. The Court, she submits, has an unfettered discretion to make a costs-sharing order in a proper case in the exercise of its discretion, and in this particular case the logic of the situation is that the common interest already recognised in the selection of the lead cases (to which no objection has subsequently been taken) compels a costs-sharing order, so that the respondents may make fair contribution to the applicants who all bear the brunt of the determination of these common issues. It is, she submits, fundamentally fair that they should contribute, and unfair that they should not, since otherwise they will all benefit from the resolution of these issues without expense to themselves. Her proposal, as put forward initially in a draft order which she proffered as no more than a basis for discussion, was that the respondents should contribute rateably according to their "net exposure", which means the sum of all receipts from less all payments to persons, arising out of or in connection with the swap transactions as at 1st November, 1991. On this basis, she points out, any respondent such as Croydon who has no net exposure and therefore nothing to gain would not be obliged to contribute.

In her reply, Mrs Oldham espoused a much more flexible form of order put forward by Brent, Hackney and Islington, to which I refer subsequently.

Council for the intermediaries in the lead actions, namely Mr West for Welwyn and for Sandwell, and Mr Keith for Hackney, supported Mrs Oldham's submissions, and pointed out that the intermediaries' cases also raised the common issues. The former stressed that his two clients only agreed to participate provided they were permitted to bring in third parties, and the latter pointed out that his clients were not even joined until after the lead cases had been selected. Mr Peter Oldham for Brent put his argument on the same basis. Mr Wilkie on behalf of Islington, who are also intermediaries, stressed that his clients also were only brought in after the lead cases had been selected, relied on the same points as the other intermediaries, and pointed out that action No 5 is the only one to raise the important question whether there is any difference where both sides to the swap transactions are local authorities, which he submits is another point of principle affecting a large number of intermediaries' cases.


 

THE RESPONDENTS' SUBMISSIONS

The leading argument for the respondents was presented by Mr Conrad Dehn, QC, representing Croydon, Liverpool, Hounslow, Dudley, Almwick, Walsall, Ogwyr and Richmond-on-Thames. So far as the legal position is concerned, Mr Dehn submitted that on its proper interpretation, Lord Goff's speech showed that people who institute proceedings and have the carriage of them should generally have sole responsibility for costs; and that the courts in exercising this discretion should do so in accordance with reason and justice. Mr Dehn also drew particular attention to Lord Goff's two reservations, at page 980F and 981A, that in the vast majority of cases it would no doubt be unjust to make an award for costs against a person who is not a party to the relevant proceedings, and that he could not imagine a case arising in which some order for costs is made in the exercise of the Court's discretion against some person who has no connection with the proceedings in question. Mr Dehn also relied on the Master of the Rolls' statement in the Opren case that such an order had to be fair and justifiable as an exercise of judicial discretion.

Mr Dehn submitted that, in essence, the present position in these cases is no different from the situation where, fortuitously, one case out of a large number raising a similar point comes forward for trial first, and thus governs or influences the outcome of the remainder under the doctrine of stare decisis. In such a situation, he submits, the keenest plaintiff with the best solicitor will probably reach court first, so it is pure chance which of the defendants also reaches court first; all that has happened here, he says, is that the Court has stepped in to tidy up these actions, and that is no ground either in reason or justice for making an order which, he submits, would be wholly exceptional. The Aiden case, Mr Dehn submits, is no precedent for the present case, seeing that it involved two interconnected arbitrations. Opren is also no precedent, since, he submits, the problem in that case was exceptional; the costs of any one plaintiff would have far exceeded his entitlement to damages, so that there was reluctance on the part of any one plaintiff to find himself drafted as a lead case (see the Master of the Rolls' judgment at page 1139A and 1141A).

On the basis of these submissions of principle, Mr Dehn submits: (A) That an order for costs in the present case is not necessary to achieve justice for the following reasons: (i) The only situation where these criteria have been met and costs-sharing orders have been made are those where there have been a large number of individual cases with similar claims against a few defendants, with no conflict of interest between the plaintiffs, and where an Opren-type situation arises because of the disproportion between any individual plaintiff's likely award of damages and his burden of costs as a lead plaintiff. Such a situation does not apply here because there is no reason to think that if no costs-sharing order is made the lead cases will not proceed to trial, or that if they do, those who win will be at a substantial disadvantage in relation to the others; in any event, the applicants are all substantial public corporations who can well afford to finance their litigation.

(ii) In the present case the plaintiffs in the lead cases were self-selected, and the defendants went with them and have done so without any assurance that a costs-sharing order would be made.

(iii) The position of defendants is fundamentally different from that of plaintiffs, since a plaintiff can choose whether and when to sue, whom to sue, and whom to pursue to judgment; and, save in contribution cases under the Civil Liability (Contribution) Act 1978, a particular defendant who has been sued by a particular plaintiff ahead of others has never been able to require the others to contribute to his costs. To permit this would be a major change of policy in our legal system, and one for which there is no call or justification either generally or in this case.

(B) That an order in the present case will not achieve justice for the following reasons:

(i) Many of the respondents had no say in the selection of the lead cases as they should have if they were to contribute; "no taxation without representation". Nor did they have any say in the selection of the legal teams to conduct the lead cases, or of the issues raised in them, and they have no control over or connection with them.

(ii) Many of the respondents had no knowledge of any suggestion that there would be a costs-sharing order until they were told of the discussion at the September hearing.

(iii) The lead cases already duplicate many issues and are likely to involve costs being incurred unnecessarily; some of the issues there raised are of no interest to any of the respondents (eg, the allegations of fraud against Hammersmith and Fulham); the lead cases do not resolve all the issues facing the respondents'; in particular Liverpool is a special case.

(iv) The respondents' interests differ in that some may be out of pocket vis-à-vis all banks, some vis-à-vis some banks but in-pocket vis-à-vis others, so they are possible plaintiffs as well as defendants.

(v) Several respondents are keen to resolve their problems without incurring legal costs, while others may want to go to trial, and others again may desire to avoid making any payments for as long as possible.

(vi) In any event, the respondents should not be liable for Hammersmith and Fulham's costs, as (a) their case is particularly weak; (b) it involves allegations of fraud; and (c) Croydon, Dudley and Richmond have substantial claims against Hammersmith and Fulham.

(vii) Some of the lead case defendants are heavily involved in large rate swaps, may well have cash flow and budgetary problems and so may not want quick settlements; a costs-sharing order may thus involve the respondents, some of whom are dealing effectively with the problem without incurring these costs, in underwriting unnecessary litigation.

(C) That an order in the present case is not otherwise in accordance with reason or justice for the following reasons:

(i) If a costs-sharing order is made the solicitors acting for the applicants would not be under the usual costs restraints to act economically, and their clients would be under less pressure to settle.

(ii) Since the respondents' cases are only stayed after the close of pleadings, they will in any event incur considerable costs which will not be shared with anyone else.

(iii) A costs-sharing order is bound to be unfair because of the problems which would result to which there is no satisfactory solution viz:

(a) It would be unfair that, if an order is made, it should not apply to parties to all or all unresolved interest rate swap cases, even if they are not presently the subject of litigation; on the other hand, it would also be unfair if the order applies to parties who do not know of it and have no opportunity to challenge it. Similar problems arise in relation to the few cases which are not in the Commercial Court.

(b) If the order is confined to parties involved in litigation, banks will be able to use the costs-sharing order as a lever in negotiation with local authorities against whom no action has yet been brought, with the threat that if they do not settle they would bear the additional burden of the costs-sharing order.

(c) If any lead cases did settle, the costs incurred thereon by the non-lead authorities would have been thrown away because no issue would have been decided by the Court. This could be avoided by providing that the order ceased to apply to a lead case if it settled, but it could then be said it would contrary to public policy for the parties in a lead case to be deprived of the benefit of the order if they settled their action.

(d) Numerous problems were cited in the calculation of net exposure, which I do not need to go through in detail, save to say that Mr Dehn went so far as to suggest the recalculation of net exposure after a settlement, resulting in a change both in the numerator and the denominator, will necessitate the re-calculation of the costs in the lead cases from day-to-day if a costs-sharing order on that basis is made.

Finally, a number of detailed points were canvassed, in particular the proper manner of allocating costs between particular issues, the treatment of the costs of the solicitors' and clients' management time, whether a starting date should be imposed from which costs would be shared, whether the order should apply if a claimant in a lead case is awarded costs, on what basis shared costs should be taxed, whether net exposure is the correct basis for calculation, whether a respondent's liability should be re-calculated when it settles a claim against it, and the proper treatment of intermediary third parties and of fourth parties.

Finally, Mr Dehn submitted that if a costs-sharing order was to be made, all these manifold points of detail should be resolved at the present juncture, since he submits, they will be no easier way to deal with at the end of the trial of the lead cases than they are now.

If, contrary to his submissions, there is to be a costs-sharing order, Mr Dehn submitted that all local authorities should be put in a position to control the conduct of the lead actions, and should be entitled vis-à-vis each action to send a representative to a committee with power by majority to change and select solicitors and counsel if so advised, to see all documents disclosed on discovery, witness statements, etc, and generally to supervise the case.

Mr Howell on behalf of Westminster and of Southwark submitted that if the Court was disposed to make an order, it should be detailed, since only then could the potential beneficiaries and contributors know where they stand; it is only an order of that kind which can be readily appealed against, and the difficulties would be no easier to solve at the end of the case. It was particularly important for the local authorities, he submitted, having regard to their obligation to produce budgets and precepts before the beginning of the financial year, that they should have as much certainty as possible.

Supporting Mr Dehn's argument by analogy with a case which resolves subsequent cases by virtue of the doctrine of stare decisis, Mr Howell submitted that if the applicants are right here, parties could expect to be assisted with their costs in any case which might operate as a precedent, especially in Judicial Review cases.

Analysing the common issues, he submitted that the mere fact that the main issue, namely restitution, involves question of law of some importance, should not in itself be sufficient to justify an order, and he pointed out that in the specific case of Westminster, they had decided on legal advice not to dispute the banks' case in principle on restitution, thus rendering any decision on this issue in the lead cases of no interest to them. The remaining common issues, he submitted, turned so much on issues of fact that any decision on them in the lead cases was of minimal value to the remainder. Mr Howell further argued that there is no reasonably fair way of determining the contributions of those who may be interested in any issue, even if they could be identified, and pointed out that potential exposure does not measure the amount of costs saved to any non-party by a lead action, since the costs burden was not proportional to net exposure. He also submitted that there was no conceivable reason why the respondents should be potentially liable for the costs of four legal teams employed by the banks and two legal teams employed by the local authorities to argue the common issues.

Summarising his argument on the main point of principle, Mr Howell submitted that if, as the applicants' arguments suggested, costs-sharing was to become the norm, only Parliament should decide.

I have already referred to Mr Gibson's first argument for Greenwich and Barrow-in-Furness as to the validity of the selection process in the lead cases. He then proceeded to argue that a flexible order would brush under the carpet problems which in reality rendered such an order intrinsically unfair. He further submitted that the contrast between group actions such as Opren, and individual actions such as Aiden, was being blurred in the applicants' arguments; and he relied on the recently published Guide for use in Group Actions, recently produced by a Working Party under Judge Bowsher, QC, on behalf of the Supreme Court Procedure Committee, which on page 26 stresses the need in group cases for a court order as to the sharing of costs at the outset, and the specification in the Court's order of the precise terms on which new litigants may join an existing group.

Mr Jones on behalf of Camden cited as an additional difficulty the position if a payment into court was made.

Mr Swift on behalf of Redbridge, North Tyneside, Horsham, and Crawley, submitted that the only two choices in the proper exercise of the Court's discretion were either to make a detailed order now, or to postpone the whole matter until after the end of the trial. He also drew attention to the particular problem of North Tyneside, which is also shared by South Tyneside, for whom Mr Bean appeared, arising out of a change of local government structure following the abolition of the Tyne and Wear County Council. Both sought liberty to apply to deal with this problem.

Mr Bean, who also appeared for Cleveland, Tamworth, and the Western Isles, submitted that at the very minimum an order should be restricted to costs reasonably incurred on common issues, with contribution proportionate to net exposure and not per capita, with a provision that the obligation to contribute should cease from the settlement of non-lead cases; and that the respondents should have the right to full information at all stages from the applicants, including copies of documents, affidavits and witness statements.

I have already noted that Hammersmith and Fulham, who are defendants in three of the lead cases, have adopted a position apart from the applicants, in that, as Mr Brindle explained, they are neutral as to where or not a costs-sharing order should be made. Mr Brindle's main point was that, if such an order is to be made, Hammersmith and Fulham should not be excluded, at least at the present stage, for a number of reasons presented in a detailed skeleton argument. Mr Dehn in reply rebutted these points, but for reasons which will appear below there is no need for me to recite the rival arguments in detail.


 

ANALYSIS AND CONCLUSIONS

Dealing first with the legal position, it goes without saying that the Court should and would only make a costs-sharing order where such a course is in its view in accordance with reason and justice, and fair and justifiable as an exercise of judicial discretion. Thus far I unhesitatingly accept the respondents' submissions, which on this point do not conflict with the applicants'.

However, I do not think that, when Lord Goff said in the Aiden case that in the vast majority of cases it would no doubt be unjust to make an award of costs against a person who is not party to the relevant proceedings, he had in mind a group of case such as the present; or, to put it another way, I think he would have recognised that a group of cases such as the present might be one of the exceptional cases within the minority where such an order might well be just.

Nor do I think much assistance is to be gained by contrasting the facts or the financial strength of the relevant parties in the present group of cases with those in the Opren case, since each group of cases must be judged on its own special facts, and I do not regard wealth or poverty as significant factors.

Nor do I think it valid to contrast the situation of defendants with the situation of plaintiffs in the manner suggested by Mr Dehn; in fact, though the circumstances are very different, the charterers were respondent defendants in the Aiden case, and in any event in my judgment the appropriateness or otherwise of a costs-sharing order depends on the individual circumstances as a whole, irrespective of which side in the action the proposed contributors occupy.

In my judgment, the principle to be distilled from the speech of Lord Goff in the Aiden case, and from the judgment of the Master of the Rolls in the Opren case, is that, as Mrs Oldham submits, the Court has a completely unfettered discretion to make a costs-sharing order where the considerations of reason, fairness and justice warrant it.

The answer to Mr Howell's argument that "Parliament should decide" is that Parliament has already decided by re-enacting the substance of s 51(1) of the 1981 Act four years after the decision in the Aiden case.

I now turn to the question whether this is a case where is principle a costs-sharing order is appropriate.

Unquestionably, the non-lead cases have a very close connection with the lead cases, in view of the common threads running through them all. The whole purpose of Steyn J's order identifying the lead cases and staying the remainder was to ensure an economical disposal of the actions as a whole, by segregating a small group of lead cases in which the important common questions could be settled to the advantage of the body of litigants taken as a whole, the respondents gaining the benefit that they are freed from all expenditure in their cases, once the pleadings are closed, until the lead cases are disposed of; moreover the pleadings in the non-lead cases can be comparatively brief and formal, since the pleader is free to adopt contentions from the pleadings in the lead cases (compare the very economical pleading scheme laid down in Opren).

Having regard to the terms of that order, I find artificial the respondents' attempt to compare the present situation with one where a case raising a point of general interest (eg, in a Judicial Review) comes by chance to the fore first, and therefore governs other cases under the doctrine of stare decisis. The whole point of the present order is to avoid a fortuitous, and probably very inefficient, process where cases reach the top of the list in a disorderly fashion, with perhaps several full trials taking place before the main common issues have been resolved; and to impose instead an efficient regime where the lead cases are carefully chosen and combined in one single trial, to dispose of the common issues.

I therefore accept Mrs Oldham's argument that the logic of the present situation is that the common interest is already recognised in the selection of the lead cases and the stay of the remainder, and that therefore prima facie this is a case where in principle a costs-sharing order is appropriate, as indeed Steyn J clearly thought, though of course he did not have before him all the arguments which I am considering.

I now proceed to consider Mr Dehn's general objections related to the circumstances of the present case under his headings (A), (B) and (C) insofar as I have not referred to them already, together with, where convenient, the associated arguments of other counsel.

Even though the respondents had no say in the selection of the lead cases, which were self-selected at Steyn J's pressing request, the respondents have at no time since objected either to the principle of the selection of lead cases, nor to the choice made, nor to the stay of their own cases.

The fact that the respondents had no say in the selection of the legal teams, and have no control over the cases, is I think beside the point since it is obvious that any costs-sharing order should be limited to reasonable costs incurred in deciding the common issues. This will resolve Westminster's special problem, raised by Mr Howell, since in their case restitution will not be a common issue. That also disposes of the objection, which seems rather far-fetched anyway, that the teams handling the lead cases may be extravagant and over-manned.

Equally, the objections that many issues are duplicated, and that some of the issues are of no interest to any of the other respondents, will also be met by an order limiting the costs-sharing to costs reasonably incurred in fighting common issues, since any unnecessary duplication and any individual issues not common to the respondents' cases will be hived off; eg, the costs of the fraud issue raised against Hammersmith and Fulham, and the costs of resolution of major factual disputes falling within the ambit of the common issues, such as change of position.

The suggestion that a costs-sharing order will deter settlements, or give banks a lever against local authorities who are not yet involved in litigation, is speculative, not supported by any evidence, and in my judgment unconvincing.

The objection that all the respondents will have themselves incurred costs up to the close of pleading can easily be met by excluding the costs of pleadings in the lead cases from any costs-sharing order.

The position of local authorities with unresolved rate swap issues which are not the subject of litigation is I think purely theoretical, since there is no evidence of how many (if any) there are in this category, or of their scale. Mr Howell submitted that the statistical discrepancy between 130 rate swapping authorities and 62 local authority defendants demonstrated that there are a large number of such cases, but I do not think that by any means follows, since some of the remainder may either have settled without the issue of proceedings or be so small as to be not worth pursuing; in any event, the position is likely to be much clearer in this respect at the end of the trial than it is now. The very few instances of cases not in the Commercial Court are de minimis.

Thus, none of the objections I have considered so far in any way shakes my prima facie view that this is a case where a costs-sharing order is fair and just in principle.

Many of the remaining objections relate to the question of how to cope with changes that may arise between now and the end of the lead cases trial, eg, if one or more of the lead cases settles or if one or more of the non-lead cases settles, particularly having regard to the effect that would have on the total of net exposure, and the proportion which any given authority's net exposure bears to that total.

These and other difficulties are strongly relied upon by all the respondents' counsel in support of the argument that the choice is between a detailed order now and no order, and that the latter is the only proper answer since the difficulties affecting the former are so monumental that no just order could be made, even at the end of the trial.

In my judgment, the position is precisely the contrary. I am quite satisfied the difficulties on which so much stress is laid will be much more readily soluble after the trial is complete.

Let me consider first the basis of calculation. I am not persuaded that exact calculations of net exposure, and the application of strict mathematical proportions, would be an appropriate method of approach. A much better solution might perhaps be to lay down a series of bands related to net exposure, or perhaps even, as one respondent suggested, to order flat-rate contributions according to the number of cases in which each respondent is involved. The correct approach will be much easier to decide when the total amount of the lead cases' reasonable costs attributable to common issues are is known, together with the number of potential contributors and the extent of the common issues, so that the Court can work on actual figures.

It will then be for each of the applicants to identify the nature of the common issues in each of their cases, the costs attributable thereto, and the extent to which each such common issue is paralleled in one or more of the respondent's cases. It would also be incumbent on the applicants to justify the reasonableness of the amount of costs so attributed.

I consider that the same applies mutatis mutandis to many other of the general problems raised (eg, payments in) and also to individual problems special to Liverpool, Croydon, Dudley and Richmond, and North and South Tyneside.

By adopting this procedure the Court will not, as Mr Gibson suggests, be brushing the problems under the carpet, but rather deferring their solution until the position relative to them is much clearer. In reaching this view I bear fully in mind the recommendations referred to above from the Guide for Use in Group Actions, but I do not think the present case falls within the category they had in mind in laying down these recommendations.

The appropriate treatment to be accorded to Hammersmith and Fulham will also be much easier to judge in the light of the ultimate findings of fact in their cases, and I think it would be premature at the present stage either to rule them in, as Mr Brindle invites me to do, or to rule them out, as Mr Dehn proposes. Should Hammersmith be convicted of fraud, they would, I have no doubt, have a very uphill task indeed in establishing a right to share any of their costs with the respondents, as Mr Brindle tended to accept.

I appreciate that some of the applicants would prefer more detailed formulae to be laid down, so that they can better assess their probable liability in costs. But I am not persuaded, for the reasons already given, that this would be appropriate in the present case, and I would add that however detailed my order, no Borough Treasurer could at present calculate his likely exposure, since no-one knows the total quantum of costs which will need to be shared out.

So far as intermediaries and third and fourth parties are concerned, it seems to me that in principle they should be in the same position as the other applicants, if and insofar as their cases raise common issues with the respondents' cases.

As a result, in the exercise of my discretion I propose to make a costs-sharing order to cover reasonable costs incurred by the applicants, including the third and fourth parties, relating solely to common issues which also arise in the respondents' respective cases. The costs of lead-case pleadings will be excluded. Provision will be made that liability to contribute shall cease upon settlement of a non-lead case, so as not to discourage settlements. The position of authorities such as Croydon who are in effect plaintiffs rather than defendants, having regard to their overall financial position under the swaps, will be safeguarded by an appropriate reservation. There will also be suitable provision to ensure that it will be open to the respondents to contend that in the interests of justice any given local authority (eg, Hammersmith and Fulham) is excluded from the right to partake of the order, and also to enable any individual respondents (eg, North and South Tyneside) to raise their individual problems. I also accept Mrs Oldham's submission that a central register should be established, and all parties required to notify thereto at a suitable date their net exposure, so that the data for a net exposure calculation will be available. Finally, there should be liberty to apply, to cover any problems which may arise between now and the end of the trial, for example if one of the lead cases should settle.

Brent, Hackney and Islington have prepared a draft order which has been submitted to the Court and circulated to the parties, and this could well form the basis of a final order. It will no doubt be convenient to adjourn at the conclusion of this judgment for a few days to enable counsel to discuss the terms of the final order.

I should add for completeness that I reject Mr Dehn's suggestion for the appointment of a supervisory committee, since I am satisfied that the respondents can rely on the distinguished teams of lawyers retained by the applicants to present their cases on the common issues fully and efficiently. Nor do I think it necessary to require the applicants to supply to the respondents discovery documents, witness statements, etc, which would in any event lead to potentially difficult problems of confidentiality vis-à-vis the lead-case banks.