WHEN YOU SETTLE THE APPLICATION BUT LEAVE IT TO THE JUDGE TO DETERMINE THE ISSUE OF COSTS: THE APPROPRIATE APPROACH

In Conversant Wireless Licensing SARL v Huawei Technologies Co. Ltd & Ors [2018] EWHC 2549 (Ch) Mr Justice Henry Carr had to consider the appropriate order to make when the parties had agreed the terms of an application but could not agree on liability for costs.

“…where litigation had been settled save as to costs there was no convention that there should be no order as to costs … the court’s overriding object was to do justice between the parties without incurring unnecessary court time and additional costs”

THE CASE

Part way through an application for an anti-suit injunction the third defendant offered a series of undertakings and the application was compromised. The parties could not agree liability for costs and this was left to the judge to determine.

THE JUDGMENT AS TO COSTS

The judge set out the history of the application and then considered the authorities on how the court exercises its discretion in these circumstances.

Discussion

1. 1. Determination of costs where a claim has been compromised can be difficult because it requires the court to consider what it would have decided had a compromise not been reached. Two cases deal with this. In Brawley v. Marczynski (No 1) [2003] 1 WLR 813, the Court of Appeal considered the situation where an action had been compromised but, nonetheless, the court was asked to determine costs. It held that:

“…where litigation had been settled save as to costs there was no convention that there should be no order as to costs … the court’s overriding object was to do justice between the parties without incurring unnecessary court time and additional cost; that where it was obvious which party would have won had the substantive issues been fought to a conclusion it would be appropriate to award costs to that party; that where that was not obvious, the extent to which the court would be prepared to look into the previously unresolved substantive issues in order to determine the issue of costs would depend on the circumstances of the case, including the amount of costs at stake and the conduct of the parties; that in the absence of a good reason to make a specific order the court would make no order as to costs …”

1. 1. The issue was also considered in BCT Software Solutions Ltd v. C Brewer & Sons Limited [2004] C.P. Rep. 2 where Mummery LJ held that even where the parties asked the court to determine costs, everything else in the litigation having been agreed, a judge would be entitled to say to the parties, “If you have not reached an agreement on costs, you have not settled your dispute. The action must go on, unless your compromise covers costs as well“.

   2. In the present application, the position is somewhat different from in those two cases. I am not concerned with the compromise of a trial where, potentially, witnesses have not been heard and cross-examined. Rather, I am concerned with an interim application, with no cross-examination, where it is somewhat easier to decide what the outcome would have been if the issues had been fought out. Also, I heard full argument from the parties before the application was compromised.

   3. I intend to apply the principles set out in Brawley v. Marczynski. I consider that it is obvious that Conversant would have succeeded on this application, had the parties not reached an agreement. The issues were fought to a conclusion; this is a case where very substantial amounts of costs are at stake; and I have been able to form a view as to the conduct of both parties.

   4. Specifically, I would have required ZTE China to amend its Complaint in the Shenzhen Proceedings to remove those parts of the Targeted Claims which have now been deleted, failing which I would have granted an anti-suit injunction, in accordance with the principles set out in the judgments of Lord Goff in Aerospatiale v Lee Kui Jak [1987] AC 871 at 892 – 897 and Airbus v Patel [1999] 1 AC 119 at 133 – 140 as summarised by Toulson LJ in Deutsche Bank AG v Highland Crusade Offshore Partners LP [2010] 1 WLR 1023 at [50]. I consider that those aspects of the Targeted Claims which have now been agreed to be deleted or amended were vexatious, in that they sought to obstruct, or could have had the effect of obstructing, pending proceedings before the English court; or of undermining or frustrating the performance of a judgment given by the English court. It was not necessary for ZTE China to advance these Targeted Claims in the Shenzhen Proceedings, since Mr Bloch QC explained that ZTE China wishes to make the amendments that it has now agreed to as it considers that they represent an improvement to the Shenzhen Complaint.

   5. I conclude that Conversant has in substance succeeded on this application. Nonetheless, ZTE China resists an order for costs. First, Mr Bloch submitted that costs should be reserved pending the determination of the Jurisdiction Appeal. It was suggested that the court cannot determine the extent to which ZTE’s conduct was vexatious without regard to whether the court’s seizure of jurisdiction was appropriate. It was argued that in granting permission, I recognised that the appeal had a realistic prospect of success and therefore that it might not have been appropriate to exercise jurisdiction.

   6. I do not accept this submission. The purported service of the Shenzhen Proceedings, including the Targeted Claims, in July 2018, precipitated this application. The Shenzhen court set a tight timetable, with a possible trial date in January 2019. It was apparent that the hearing of the application could not be delayed, and the parties agreed that it was sufficiently urgent to be heard as vacation business. Since the application was fully argued, and I have been able to reach a conclusion as to its merits, it is appropriate to deal with the costs at this stage.

   7. Secondly, ZTE China argued that enforcement of the costs order should be stayed pending judgment on the Jurisdiction Appeal and provision should be made for reconsideration should the appeal be successful (in whole or in part). There is some force in this point. I express no view at this stage upon whether the result of the appeal would cause me to vary the costs order, but I can see that each side might have further arguments to advance. If Conversant is willing to undertake to repay the costs awarded to it in the event that the court considers that it is appropriate to do so, following the result of the Jurisdiction Appeal, then there is no need for a stay of enforcement, and I shall give the parties permission to apply following judgment on the appeal. If the undertaking is not offered, then I shall stay enforcement of the costs order pending judgment on the appeal.

   8. Thirdly, whilst Mr Bloch acknowledged that it can reasonably be said that the agreed Order is a substantial part of what Conversant sought, he argued the Order could not have been agreed without substantial concessions made by Conversant, and a substantial discount is therefore appropriate. This, it is said, should either result in no order as to costs or a deduction of 65% of Conversant’s costs. In particular, Mr Bloch relied on the fact that Conversant agreed in the Order to accept service of the amended Complaint in the Shenzhen Proceedings; and to offer an undertaking to deal with the potential impact of proceedings which it has commenced in Germany on the English Proceedings.

   9. I do not accept this submission. The issue of possible delay as a result of re-service of the amended Shenzhen Complaint was first raised shortly before the hearing of the application on 1 August 2018 and was quickly resolved by Conversant’s evidence in response (Moss 8). After Conversant agreed to accept service of the amended Shenzhen Complaint, ZTE China did not make an adequate offer and continued to contest the application. Similarly, Conversant’s undertaking concerning the German proceedings was offered two days before the hearing, but nonetheless ZTE China continued to contest the application.

   10. Fourthly, ZTE China points out that the application was dismissed as against ZTE UK, which was not a party to the Chinese Proceedings, and did not participate in those proceedings. I agree that this merits some discount, but as Mr Bloch fairly acknowledged, the extent to which the overall costs were increased by the joinder in the application of ZTE UK is likely to have been modest. No evidence was directed to the position of ZTE UK, and the argument concerning it was brief. I shall deduct 5% from Conversant’s costs.

Quantum

1. As to quantum, Conversant seeks £284,000 which it contends is proportionate given the complexity and significance of the issues. It points out that the figure as sought in Conversant’s original schedule was £207,000, which was similar to that in ZTE’s costs schedule (£190,000) and since then substantial work has been required to agree and draft an appropriate order following ZTE’s offer on the final morning of the hearing.

2. As against this, ZTE points out that it had not (at least at the time of service of its submission on costs) been served with Conversant’s revised schedule. Furthermore, five counsel have been included in Conversant’s costs schedule, which appears excessive.

3. I accept Conversant’s submission that this application raised complex issues which were very significant, in the context of a dispute of great commercial importance. In the light of ZTE’s submissions, I shall not make a summary assessment of the costs. However, I shall order a payment on account by ZTE China of 65% of 95% of Conversant’s costs, to be paid within 28 days, which, by my calculation, amounts to £175,370.