The importance of valuing your case within' the bounds of permissible optimism'

A recent judgment in the Commercial Court provides a salutary reminder for litigation practitioners on the importance of a proper valuation of the quantum of claimants' claims and the overall coherence and consistency between claimants' factual and expert evidence.  

In a consequentials judgment in Lonestar Communications Corporation v Kaye & Ors [2023] EWHC 732 (Comm), Foxton J ruled on the question of the costs to be awarded to the successful claimant, Lonestar, a Liberian teleco that had been subject to a series of cyber-attacks known as "Distributed Denial of Service" or "DDOS" between 2015 and 2017. 

The DDOS cyber-attacks were carried out by an infamous UK-based "hacker for hire", Daniel Kaye, who was subsequently sentenced to 32 months in jail in 2019 for his involvement in this attack. It was established in those criminal proceedings that Mr Kaye was hired by Lonestar's competitor, Cellcom Liberia (which, following the Orange Group's acquisition, is now Orange Liberia).

In the civil proceedings, Lonestar sought damages from the defendants, including Orange Liberia. Orange Liberia successfully demonstrated to the Court that Lonestar's $50m claim was very significantly overstated. Lonestar was ultimately awarded less than 10 per cent of this amount, namely $3.6m in lost profits and $0.7m in wasted expenditure. As a result, Lonestar failed to beat an early settlement offer made by Orange Liberia and had to pay Orange Liberia's costs after the date of the offer.

Foxton J noted that Lonestar's $50m valuation "proved a significant engine in the case, driving the dispute forward, and leading to it being litigated by both parties on a grand scale, with total costs of $23m. That level of costs might, possibly, be proportionate to a US$50m claim, but it is wholly disproportionate to a $5m claim".

Noting that this was an instance of "the bounds of permissible optimism" being "particularly elastic", the judge cautioned that "it is all too easy for parties to persuade themselves that, but for some intervening event, their business would have reached the sunlit uplands" and that, in this case, this dynamic was "fuelled by a sense of righteous indignation" given the event in question was a targeted criminal cyber-attack.

Foxton J found that "it should have been obvious to Lonestar that there was a huge disconnect between the case it was advancing through expert evidence as to the start date, duration and effect of the DDOS Attacks, and its contemporary documentation and assessment". The judge further found that it should also have been obvious that Lonestar was not able to call any witness capable of giving factual evidence which supported its expert case.

These findings on the factual witnesses were consistent with findings made in an earlier judgment handed down in February (Lonestar Communications Corporation v Kaye & Ors [2023] EWHC 421 (Comm)), in what was the first ever judgment in the English courts dealing with a civil claim arising out of a cyber-attack.  The trial judgment dealt largely with matters concerning liability arising under Liberian law, but again provided a useful reminder on the need to ensure the right factual witnesses are called to provide support for the expert case. Foxton J stated that the sole Lonestar witness called to give evidence on the DDOS attacks and their commercial consequences received only three emails on the attacks in the main period when the worst effects of the attacks were experienced.  

This resulted in the judge "approaching his evidence with caution" and instead finding that the contemporaneous assessments within Lonestar provided a much more reliable basis for assessing the duration and effect of the DDOS attacks.  Given that Lonestar's expert's analysis was largely based on the Lonestar fact witness' evidence, this caused Lonestar difficulties and was a factor in the Court not accepting the valuation of its damages case. 

On the costs issue, the lack of coherency between Lonestar's factual and expert case, together with the "speculative" overstatement of its damages case, were significant factors in Foxton J's decision to deprive Lonestar of the majority of its costs prior to Orange Liberia's settlement offer.  

The judgment provides a helpful reminder for practitioners to ensure that parties have the right factual witness evidence before the court, that that evidence is rigorously tested against the contemporaneous record, and that there is an overall coherence with any expert evidence adduced.

Authors: Tim West (Partner) and India Case (Associate)