COST BITES 125:JOCKEYING FOR POSITION: ALLEGATIONS OF CONDUCT INCREASING COSTS – BUT THERE WAS NO DEDUCTION FROM SUCCESSFUL PARTY’S COSTS:

In Lifestyle Equities CV & Anor v Royal County of Berkshire Polo Club Limited & Ors [2023] EWHC 2923 (Ch) Mr Justice Mellor considered whether certain issues relating to the action meant that there should be a reduction of the successful litigants’ costs.  He held that there were issues on both sides in relation to success and unnecessary costs.  However, carrying out a balancing exercise it was not appropriate to make any reduction of the costs payable.  The judgment also emphasises the importance of producing evidence to support submissions in relation to costs.

In the exercise of my overall discretion, taking due account of (a) the issues on which the Claimants rely: joint liability, abuse and threats, Señor Garcia’s evidence and (b) the matters of conduct which I have mentioned, I have come to the conclusion that, in all the circumstances, I should make no deduction from the Defendants’ costs. Therefore, the order for costs will be that the Claimants pay the Defendants’ costs of these proceedings.

THE CASE

(In broad terms) the claimant had failed in an action for breach of a trade mark relating to polo, the defendant succeeded in relation to various counterclaims and certain of the claimant’s registrations were revoked.  This judgment dealt with the issue of costs and other incidentals.  In broad terms the claimants sought a deduction of costs because certain issues had been raised by defendants upon which the defendants had not been successful.

LATE (OR NO) EVIDENCE FROM THE CLAIMANT

The judgment is important because it illustrates the importance of placing evidence before the court in relation to costs submissions. The (successful) defendants had put in evidence in good time.  The claimants did not adduce any evidence, but relied on letters from their solicitors and documents (introduced late).

 

3.             The Defendants served evidence in the form of the Third Witness Statement of Ms Virgin, a partner in the solicitors acting for the Defendants, Maitland Walker LLP (‘MW’). Her witness statement was dated, filed and served on 19th October 2023 in good time before this hearing.  It covers various aspects of the costs position of the Defendants in some detail. The response from the Claimants side was contained in a letter from Brandsmiths, the solicitors for the Claimants, dated 31st October 2023, and apparently received by the Defendants at 7.30pm.  MW responded to the points made the following day.  I will address all these points below.  The MW letter concluded with an inquiry as to when they might expect to receive the Claimants’ evidence on costs.  This was not immediately responded to.  Instead, Brandsmiths emailed at 6.30pm on 1st November, proposing that the following documents would be added to the bundle for this hearing, namely:
i)                   D1’s Accounts that were last published at the time of issue (those to 31/12/2016), and at the time of the trial (those to 31/12/2021).
ii)                 Land Registry Title Documents dated 15 June 2018 and 1 November 2023.
4.             Early the next morning, MW emailed objecting to the inclusion of these documents.  The email noted that Brandsmiths had initially indicated they would put in evidence for this hearing and then indicated they would not.
5.             None of these documents were in the trial bundles nor, as far as I am aware, in the case at all.  It is unclear why they were not put in evidence by way of exhibits to a witness statement. Although these documents were included in the bundle by Brandsmiths and addressed in the Claimants skeleton, the Defendants asked me not to read them or the paragraphs in the Claimants skeleton discussing them.
6.             In fact I did briefly review these documents in advance of the hearing, de bene esse, on the basis that I am quite capable of leaving them out of account if I need to do that.  These documents were put in the bundle for the purpose of a point which arises on the costs of the joint liability allegations.
7.             There are a few points to note from the absence of any evidence from the Claimants:
i)                   First, the documents which the Claimants have added to the bundle are not in evidence.
ii)                 Second, the Claimants do not have evidence to support the various % estimates which they say, by way of submission, should be ascribed to various issues – the support is by way of submission in their Skeleton Argument.
iii)               Third, precisely because the Claimants’ estimates were not the subject of evidence from, for example, the Claimants solicitor, the Defendants have had no opportuni
ty to put in reply evidence.
iv)               However, fourth, I was not really disadvantaged by the absence of evidence from the Claimants, particularly in relation to the costs issues, where, for example, detailed page counts of various documents in the case can give an impression of precision yet provide an unreliable guide.

THE PRINCIPLES AND THE ORDER IN THIS CASE

The judge considered the relevant principles in detail. He concluded that the factors in this case led to the conclusion that there should be no reduction of the costs payable.

  1. The Claimants realistically accept that the Defendants are the winners, but they contend that I should reduce the Defendants’ costs recovery by 20%. The Claimants have put forward two different routes to reaching that 20% figure, albeit both rely on the same four issues, as follows:
  2. i)The Defendants’ claims in abuse and threats which were dropped in the course of the trial.  The  Brandsmiths letter asserts that these issues accounted for the majority of the Claimants costs in preparing reply pleadings to the Defendants counterclaims, plus further costs on disclosure, the witness evidence of Mr Haddad and preparation for the trial of these issues.
  3. ii)A complaint that the Defendants refused to engage appropriately with agreeing the characteristics of the average consumer, necessitating the service of a Notice to Admit Facts by the Claimants and numerous rounds of correspondence.
iii)               The denials of joint liability by D2, D3 and D4 in respect of the liability of D1.  On these issues I found in the Claimants favour.  The Claimants contend that a substantial proportion of pleadings, disclosure, the witness evidence of Mr Haddad, preparing these issues for trial, including the cross-examination of various witnesses, with submissions both in opening and closing.
  1. iv)The evidence of Señor Garcia, in respect of which the Claimants appear to claim the whole of the costs incurred in preparing and conducting the cross-examination of Señor Garcia at trial, which, it is said, took the most time of any of the witnesses.
  2. So far as quantification is concerned, in the Brandsmiths letter of 31st October, the explanation was as follows:
‘6. The costs incurred by our clients in respect of those issues, we estimate, amount overall to 20% of our clients’ total budget (being approximately 20% of pleadings, 10% of disclosure, 20% of witness evidence, 20% of trial preparation and 15% of trial. Our clients’ overall budget was £1,366,979.02). Additionally, our clients incurred unbudgeted costs in preparing the Notice to Admit Facts and the associated correspondence.
  1. Taking into account a costs order in our clients’ favour in respect of those issues and setting off that amount against a costs order in your clients’ favour for the remaining aspects of the case, we consider an order that our clients pay your clients 80% of their costs of the proceedings is the correct one.’
  2. This reasoning would appear to justify a reduction of 40% not 20%, but it was overtaken by the submissions set out in the Claimants’ Skeleton Argument which identifies the same four issues as in the letter, but adds further detail of, for example, the relevant paragraphs in the Opening and Closing Submissions
  3. When it comes to quantification, the submission was as follows.  The Claimants consider that these 4 issues were responsible for at least 10% of each party’s costs:
  4. i)The Claimants consider that the joint tortfeasance issue is of greatest significance and is likely to have accounted for around 7.5% of each side’s total costs of the proceedings. If Claimants are correct that Defendants should pay their costs of that issue (as well as not recovering their own), then that should be set off against Defendants’ recovery. The net effect (assuming broadly the same overall costs) would be to reduce Defendants’ recovery by around 15%.
  5. ii)The other issues are each smaller, likely amounting together to 5% of the total costs of each side (the Claimants’ estimate that threats and abuse of process are likely to have accounted for around 3% of the Claimants’ costs but a lower amount – the Claimants estimate 2% – of Defendants’ costs; Señor Garcia’s witness statement expressing his opinions is likely to have amounted to 2% of each side; the costs of the characteristics of the average consumer are perhaps 1% on each side.)
  6. The Claimants therefore proposed that the correct order is for Defendants to recover 80% of their costs, to be assessed.
  7. The final part of the background concerns the total costs incurred by each side.
  8. i)The Claimants total budget was £1,366,979.
  9. ii)The Defendants total budget was £953,051.  This figure was offered by the Claimants in their Precedent R.  The total figure was made up of incurred costs of £445,706 and budgeted costs of £507,345 (the claimed budgeted costs were only some 2,500 higher)
  10. In her evidence, Ms Virgin sets out an analysis of the Defendants’ costs expenditure in different phases of the action.  Some phases came in under budget, but only by small amounts, generally less than £3k.  On disclosure the Defendants overspent by £16,390 and the Defendants trial costs were £13,807 over budget, and Ms Virgin explains how those overspends occurred.  Having reviewed her explanations, two points arise:
  11. i)Her explanations appear entirely reasonable, such that the additional costs appear to have been reasonably incurred.
  12. ii)No attempt was made to secure agreement from the Claimants to revise the Defendants’ budget upwards to account for those overspends, albeit I can well understand why the Defendants’ solicitors may have had other priorities.
  13. Ms Virgin also explains the net result.  The Defendants Total Actual costs to trial were £966,431 against Total Budgeted Costs to trial of £957,951, an overspend of £8,479 or less than 1% of the Total Budgeted Costs. She comments that managing to estimate the costs to within a margin of less than 1% of the actual costs is a particularly good achievement.  I agree.
  14. I will address the Claimants’ arguments for the reduction in more detail later, but the arguments require me to remind myself of the relevant legal principles.
Applicable legal principles
  1. The principles for an award of costs are well-known.  Rule 44.2(1) gives the Court a discretion as to what order to make in relation to costs.  The general rule is that the unsuccessful party should be ordered to pay the costs of the successful party (CPR 44.2(2)).
  2. Rule 44.2(4) says in deciding what order to make the Court will have regard to all the circumstances, including the parties’ conduct, whether a party succeeded on part of its case, even if not wholly successful, and whether it was reasonable for that party to contest a particular allegation or issue, and (not raised here) any admissible offer to settle.
  3. In IP cases, it is increasingly the standard practice to also consider an issue-based approach following on from this starting position, from Specsavers v Asda [2012] EWCA Civ 494 and Hospira v Novartis [2013] EWHC 886. This approach involves asking three questions:
(a)          Who is the overall winner? There is then the assumption that the overall costs should be awarded to the winner.
(b)          Are there any suitably circumscribed issues which it is appropriate in the circumstances for the winner to be deprived of their costs of?
(c)          Is it appropriate to go further and award the losing party their costs of that issue from the winning party?
  1. The use of these questions and their application to costs in that sequence has now been applied over and again in case law (see e.g. Monsanto v Cargill [2007] EWHC 3113, [2008] FSR 16, Hospira v Cubist [2016] EWHC 2661 (Pat)Chugai v UCB Pharma [2018] EWHC 2705 (Pat), TQ Delta v ZyXEL [2019] EWHC 745 (Pat)Sky v Skykick [2020] EWHC 1735 (Ch)
  2. Further guidance on the application of the three stage test, and what amounts to a “suitably circumscribed issue” is found in Unwired Planet v Huawei [2016] EWHC 410 (Pat) at [5] – in patent cases (of which that was one) the appropriate granularity is often at the level of individual items of cited prior art, but it may be possible for a sub-issue to be suitably circumscribed in a particular case.
  3. In general, where there is a suitably circumscribed issue on which the overall winner has lost, the Court will be more ready to make a “no order as to costs” type order (Unwired Planet v Huawei at [9]) in relation to that issue.
  4. Further, the approach to issue-based costs in general was set out helpfully in Pigot v Environment Agency [2020] Costs LR 825 at [6]:
“6. … (1)  The mere fact that the successful party was not successful on every issue does not, of itself, justify an issue-based cost order…
(2)  Such an order may be appropriate if there is a discrete or distinct issue, the raising of which caused additional costs to be incurred. Such an order may also be appropriate if the overall costs were materially increased by the unreasonable raising of one or more issues on which the successful party failed.
(3)  Where there is a discrete issue which caused additional costs to be incurred, if the issue was raised reasonably, the successful party is likely to be deprived of its costs of the issue. If the issue was raised unreasonably, the successful party is likely also to be ordered to pay the costs of the issue incurred by the unsuccessful party…
(4)  Where an issue based costs order is appropriate, the court should attempt to reflect it by ordering payment of a proportion of the receiving party’s costs if that is practicable.
(5)  An issue based costs order should reflect the extent to which the costs were increased by the raising of the issue; costs which would have been incurred even if the issue had not been raised should be paid by the unsuccessful party.
(6)  Before making an issue-based costs order, it is important to stand back and ask whether, applying the principles set out in CPR r.44.2, it is in all the circumstances of the case the right result. The aim must always be to make an order that reflects the overall justice of the case.”
  1. In some of the earlier cases, the third question was phrased differently, and it is helpful to note how the phrasing of that question has changed as a result of further analysis in intervening casesIn Hospira UK Ltd v Novartis AG [2013] EWHC 886 (Pat) at [2]-[4], Arnold J (as he then was) set out the earlier version of the third question in this passage, along with some additional explanation, as follows:
‘2. The principles to be applied in these circumstances are familiar subject to one small qualification. The Court generally approaches the matter by asking itself three questions: first, who has won; secondly, has the winning party lost on an issue which is suitably circumscribed so as to deprive that party of the costs of that issue; and thirdly, are the circumstances (as it is sometimes put) suitably exceptional to justify the making of a costs order on that issue against the party that has won overall.
  1. The origin of the phrase ‘suitably exceptional’ is the judgment of Longmore J inSummit Property v Pitmans (a Firm)[2001] EWCA Civ 2020 … Longmore LJ was not intending when using the words ‘suitably exceptional’ in the particular circumstances in which he did to impose a specific requirement of exceptionality. The question rather is one of whether it is appropriate in all the circumstances of the individual case not merely to deprive the winning party of its costs on an issue in relation to which it has lost, but also to require it to pay the other side’s costs.’
  1. To similar effect, in Hospira UK Limited -v- Cubist Pharmaceuticals LLC [2016] EWHC 2661 (Pat), Henry Carr J noted that there was a tension between the requirement, expressed in some judgments, for a “suitably exceptional” case before costs are ordered against a successful party, and the express rejection of such a requirement for issue-based costs orders generally in F&C Alternative Investment (Holdings) Ltd v Barthelmy [2012] EWCA Civ 843.  Henry Carr J said,
‘In my view, this apparent dichotomy may be resolved by a proper understanding of the phrase “suitably exceptional”. It is intended to indicate that if the unsuccessful party succeeds on a particular issue, that is not, on its own, sufficient to award costs against the successful party. There must be something which makes it appropriate and just to order not only that the successful party does not recover his costs, but also that it should pay the costs of the relevant issue. On the other hand, it is not intended to imply that such awards of costs will be extremely rare. Where there is a discrete issue, which required substantial expenditure of costs, it may be just in all the circumstances to order payment of costs.’
Application to the facts.
  1. I turn to consider each of the four issues relied upon by the Claimants. Of the four issues relied upon by the Claimants, only three of the four are capable, in my view, of amounting to suitably circumscribed issues. The complaint about the average consumer issue is, in my view, relatively trivial in the overall scheme of things and does not constitute a ‘suitably circumscribed issue’. In addition, the Claimants’ criticism of the Defendants’ conduct was exaggerated.
  2. As for the remaining three, the Claimants contend they account for the following percentages of the overall costs:
  3. i)The Claimants say 7.5% for the joint liability issues.
  4. ii)Threats and abuse of process around 3%.
iii)          The complaint about Señor Garcia’s evidence is said to have accounted for 2% of the Claimants costs: i.e. around £27k
  1. As I understand the Claimants reasoning, the 7.5% is doubled to 15% (on the basis that the Defendants should pay the Claimants costs of the joint liability issues), then the additional 5% deduction is applied (without the Defendants paying the Claimants costs in relation to that).
Joint liability issues
  1. In the course of his submissions on this point, Mr Silverleaf invited me to review the pleadings on joint liability.  His point was that all the primary facts were admitted in the Defence.  What was put in issue by way of non-admission or denial were the inferences which the Claimants sought to draw from the primary facts.  The consequences were, he submitted, that (a) there was no need for the extensive and expensive disclosure which was sought and obtained and (b) there was no need for all the cross-examination on these issues because the answers obtained were entirely in line with the admissions already made.  Overall, he submitted, that the Defendants dealt with the joint liability allegations in a sensible and proportionate way such that the notion that the Defendants should pay the Claimants’ costs of these issues was clearly not justified. He also submitted that if any deduction was appropriate, it would not be more than 1 or 2% of the overall costs at the most.
  2. In reply, Mr St Quintin submitted that the disclosure was sought and given precisely because of the denial of joint liability.  The disclosure was used in cross-examination, leading to extensive submissions being made in closing. He defended the 7.5% estimate by reference to the closing submissions.
  3. A side issue arose due to my comment at [332] in the Main Judgment that it was hardly likely that D1 would disappear by way of the response to this action. Mr St Quintin suggested that the Claimants had a realistic fear that D1 would be allowed to go under due to what he claimed to be D1’s precarious financial position, justifying the joint liability claims.  It is true that D1’s survival was dependent on the support from the late Mrs Morrison.  However, my point was not so much financial but emotional.  D1 was established and built up by the late Mr Morrison, so it was hardly likely that his widow and son (D2 & D3) would allow the club to go under.
  4. Whilst Mr Silverleaf’s point was not entirely correct, it is true that the joint liability issues I had to decide were relatively straightforward, and they were founded on inferences drawn from the primary facts.
  5. Overall, I formed the view that Counsel’s estimate that joint liability accounted for 7.5% of the costs was somewhat exaggerated – I doubt that the Claimants really spent over £100k just on joint liability issues.  Even if the 7.5% proportion of the Defendants’ costs was accurate, I do not think an order requiring the Defendants to pay the Claimants’ costs of the joint liability issues would have been justified.
Threats and abuse of process
  1. Although pleaded and responded to, these points occupied very little time. In the overall expenditure on costs, these costs must have been minimal.  I therefore decline to make any deduction from the Defendants’ costs on this ground.
Señor Garcia’s evidence
  1. The Claimants’ submission was that the evidence of Señor Garcia was ‘largely rejected’, that I relied on documents that he referred to but had not collated such that his evidence caused costs to be incurred needlessly.  I do not think this reflects accurately the findings I made in the Main Judgment at [201]-[202], where I relied on his ‘evidence, but largely the documents he exhibited’.  Whilst the cross-examination exposed certain mistakes, the documents he exhibited provided important information as to the position in the LatAm markets addressed in his evidence.
  2. To the extent that any costs were wasted due to the time spent in cross-examining Señor Garcia, these were offset by the occasional speeches made by Mr Haddad in his cross-examination, but also would have been offset by the time required to examine the content of his exhibit in submissions.
  3. Overall, I see no reason to make any deduction from the Defendants’ costs due to Señor Garcia’s evidence.
Other factors
  1. There are some other factors to take into account:
  2. i)First and foremost, the fact that, as I held in the Main Judgment, Mr Haddad’s evidence was misleading in important respects.
  3. ii)Second, there is the presentation of the material in Bundle F.  This was not properly put in evidence, the documents were not explained and there was much repetition.  All in all, Bundle F, whether intentionally or not, was presented in such a manner as to bolster the misleading nature of Mr Haddad’s evidence. On this point, I include the unjustified marginal annotations which were added to Mr Haddad’s witness statement.
iii)               Third, the Particulars of Claim contained a number of paragraphs pleading the relevant provisions of foreign law and their application in the territory concerned, from Panama, Chile, Peru, Mexico and the UAE. Although the relevant provisions of foreign law were largely admitted, these pleas no doubt required the Defendants to investigate the relevant foreign laws.  All this was rendered irrelevant by the eventual but sensible agreement that UK/EU law should be applied to the infringements of registered trade marks in the foreign territories.
  1. These, in my view, are matters of conduct which should sound in costs.  The first two are sufficiently out of the norm such as to justify a proportion of costs being awarded on the indemnity basis.  However, I am not asked to do that, and, in any event, it would be difficult to assess the relevant proportion.  Those points do not mean I should ignore these matters of conduct.
  2. In the exercise of my overall discretion, taking due account of (a) the issues on which the Claimants rely: joint liability, abuse and threats, Señor Garcia’s evidence and (b) the matters of conduct which I have mentioned, I have come to the conclusion that, in all the circumstances, I should make no deduction from the Defendants’ costs. Therefore, the order for costs will be that the Claimants pay the Defendants’ costs of these proceedings.