Summary

The court determined a number of costs issues in a case where the costs of the successful claimant were likely to exceed the damages awarded.

Facts

The court was required to determine a number of issues concerning costs.

The claimant (S) had brought proceedings against the defendants (B and D) for misrepresentation and breach of warranty regarding its purchase of shares in a company. S's misrepresentation claim failed, but the breach of warranty claim succeeded, and S was awarded £5.25 million in damages plus interest of approximately £1 million (see Sycamore Bidco Ltd v Breslin [2012] EWHC 3443 (Ch)). S had made two part 36 offers to settle the claim: one for £5.5 million including interest, and one for £4 million including interest. B and D rejected both offers. S beat the offers at trial. S had entered into a conditional fee agreement and its base costs were £3.9 million. Once the uplift was applied, S's costs were likely to exceed the damages. The court was required to determine: (i) whether some of S's costs should be disallowed to reflect the issues on which it failed; (ii) whether the normal consequences of beating a part 36 offer should apply; (iii) whether the start date for interest on costs should be postponed; (iv) whether there should be a stay of enforcement pending any appeal.

Held

(1) The matters on which S fought and lost were significant and costly enough to take the case out of the class of normal cases in which some issues were lost without reflecting that in costs, Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC), 122 Con. L.R. 88 applied. It was appropriate to make a cost deduction from the totality of S's costs to which it would otherwise be entitled. The biggest point on which S failed was the misrepresentation claim. S had sought damages under that head of £17 million. A significant part of the expert evidence was given over to the damages that would have been payable had the misrepresentation been established. A large amount of evidence was prepared and given, many hundreds of documents had to be disclosed and studied. The loss of that claim was significant enough to justify it being treated as a separate issue to be reflected in an issue-based costs order. The failure of the commission and rebate-related claims should also be treated as the source of an adjustment of the costs to which S would otherwise be entitled. The court was minded to make an issue-based costs order but was required by the CPR Pt 44 to consider making a proportionate order instead. Accordingly, applying a broad brush, the court ordered that S should receive 60 per cent of its costs (see paras 13-16, 19-22, 28 of judgment). (2) S had recovered more than its part 36 offer at trial. The offer was made to D and B to settle at £5.5 million. It was not apportioned between the defendants. D's liability in the action was only £330,000. The consequences of part 36 should therefore not apply to him. The extra burdens imposed upon B in the form of the CFA uplift and interest on the judgment debt were not relevant to the question of the justice of applying the part 36 consequences. Both factors flowed from the normal costs and interest principles. The part 36 consequences were deliberately harsh in order to provide an incentive to reasonable behaviour. The cumulative burden was heavy, but since it was provided by the rules it could not be said to be unjust (paras 44-51, 64). (3) Interest on costs was to be paid at the same rate as that on the damages claim, subject to the higher rate of interest which flowed from the part 36 offer for the relevant period, F&C Alternative Investments (Holdings) Ltd v Barthelemy (Costs) [2012] EWCA Civ 843, [2013] 1 W.L.R. 548 followed. The court also exercised its discretion to postpone the interest at the Judgements Act rate for a period of four months (paras 70-72, 75-77). (4) S's financial state was such that there was a real risk that it would not be able to repay any substantial sums paid to it if B and D's appeal was successful. B and D had offered adequate and fair protection to S in the form of undertakings to deposit cash in an escrow account, and undertakings to prevent dissipation. The court therefore ordered a stay of enforcement pending appeal (paras 82-84). (5) Although D was only liable for £330,000, he had conducted himself as a joint defendant with B. They were both equally responsible for the costs having been incurred and the court declined to apportion costs between them (paras 38-41).

Costs issues determined