British Sky Broadcasting Plc v Sky Home Services Ltd

The Crane defendants, who are the appellants on this application for permission to appeal, seek to appeal against the order of Briggs J in this action, which has been called “the passing-off action”, in respect of costs.

The judge described the claims in the action in paragraphs 17 to 20 of his judgment:

“17.

The claimants' case is that collectively they enjoy substantial goodwill associated in particular with the word SKY both on its own and as part of words and phrases such as SKYCARE, SKY PLAN and SKY REPAIR PROTECTION PLAN, and that the defendants both singly and collectively have been passing off their extended warranty and repair services as if the defendants and their businesses were either part of the Sky Group and its businesses, or authorised, endorsed or approved by the Sky Group as extended warranty providers.
18. The defendants are alleged to have achieved this objective in three main ways, first, by the use of corporate names which either include SKY or the related phrases which include SKY, or by the use of a name (that of D3) confusingly similar to SSS, albeit without the use of the word SKY. A similar complaint is made of the use of "Subscriber Services" as a trading name by a number of the corporate defendants. Secondly the claimants complain of the misleading form and content of written marketing material designed, produced and published by various defendants. Thirdly, complaint is made of the misleading conduct of the large telephone sales force employed by DD8 and 9.

19.

Although the defendants may be divided into the two distinct groups which I have described, the claimants seek to characterise the matters of which they complain as the outward and visible sign and product of a common tortious design by all of them. They assert a joint and several liability against each defendant in respect of every act of passing off relied upon.

20.

The claimants seek comprehensive injunctive relief to prevent future passing off, and claim compensation in respect of past passing off. They have yet to elect between an account and damages, and disclosure designed to facilitate that election has yet to be ordered or given. Although this is a liability only trial, consequential damage is an essential part of the cause of action, so some must be proved. Furthermore, consideration of the question whether an injunction should be granted, (rather than, for example, a declaration with liberty to apply for an injunction), and the precise terms of any injunction, requires a detailed analysis of the nature and extent of any proven passing off and (if joint liability is not established) an identification of the defendants liable for it.”

In the event, as a result of the judgment the Crane defendants failed on a number of points. They failed in respect of the corporate names which they used, which were held to be used by way of passing off. They failed in respect of certain written material with respect to the claimants’ claim for passing off and they failed on issues such as whether goodwill had been established by the claimants.

There was, however, a substantial claim in respect of oral marketing, which was said to constitute passing off in respect of the claimants’ business. This was a claim which had been pleaded against both the Crane defendants and the other defendants (whom I will call “the Reynolds defendants”), making no distinction between them, and we can see that from the Amended Particulars of Claim:

“87A Further, the Defendants and each of them have procured the making of oral misrepresentations as to a connection in the course of trade between the Defendants and the Claimants.

Defendants’ Oral Misrepresentations.

88.

Since at least 2004 the Defendants and/or their employees or agents have orally been using the Sky Marks and/or have made certain other oral statements in relation to the Defendants’ extended service plans, in conjunction with the Marketing Materials A to H referred to above, in a manner that constitutes a misrepresentation to the customer that the service plan is offered by and/or on behalf of the Claimants and/or are connected or related to the Claimants and/or are authorised, endorsed and/or approved by the Claimants.

89.

Further since at least 2001, the Defendants, and in particular the Eighth and Ninth Defendants, have contacted Sky Subscribers directly by telephone to offer them an extended service plan for their  Reception Equipment, and have used Sky Marks, and/or made certain other statements, in a manner that constitutes a misrepresentation to the customer contacted that the service plan is offered by and/or on behalf of the Claimants and/or are connected or related to the Claimants and/or are authorised, endorsed and/or approved by the Claimants.”

In addition to that claim there was a claim that the Crane defendants and the Reynolds defendants had acted in a common design. That can be seen at paragraph 92 which states as follows:

“To the best of the Claimants’ knowledge and belief, the Defendants are continuing to engage in telephone calls and utilise recorded messages that amount to misrepresentations in the manner set out in paragraph 90 above.”

In respect of these claims it emerged in the opening that of the many witnesses who would be called to give evidence of what has become known as the “telemarketing” -- the marketing orally over the telephone of the services offered by the Reynolds defendants -- only one witness would be giving evidence which would implicate the Crane defendants in that activity. That was a Mr Baxter. The judge referred to Mr Baxter at paragraph 150 of his judgment. In that paragraph he held that Mr Baxter was mistaken:

“The oral evidence on this issue tended to confirm the defendants' pleaded denial of any such common enterprise, subject to two potential exceptions. The first is that one of the claimants' subscriber witnesses, Ricky Baxter, said that he had been sent a copy of MM H (for which the Crane defendants alone accept responsibility) in response to his request for documents in a call initiated by a D9 sales agent. In cross examination, however, Mr Baxter accepted that he might have been wrong to make the assumption that the trigger for the sending of the material was his request. In my judgment he was wrong.”

As a result of that, the claim in respect of oral telemarketing against the Crane defendants failed. As regards the claim in respect of joint enterprise, this also failed. The judge was not satisfied that there had been some overarching design between the various defendants whereby the Crane defendants controlled the activities of passing off, even though they were not themselves responsible for them. This can be seen from paragraphs 224 of the judgment and 233. The last sentence of paragraph 233 reads as follows:

“There was no overarching common design at any stage, for the reasons already given, despite the close cooperation between the two groups of defendants from time to time.”

After the judge handed down judgment there was a hearing at which submissions were made on costs. In preparation for that hearing, written submissions were filed. On this appeal Mr Duncan Macpherson appears for the Crane defendants; he did not appear below. Written submissions were therefore filed on behalf of counsel who then appeared for the Crane defendants.

He made a number of points. Among them he pointed out that there had been five issues before the court: namely, the issue of passing off in relation to the marketing materials; the issue of passing off in relation to corporate names; the issue of passing off in relation to telephone sales; whether there had been a common design; and, fifthly, whether Sky had goodwill. Counsel submitted in his written submission that most of the evidence was taken up with evidence that had nothing to do with the Crane defendants. He submitted that the Crane defendants had been subjected to twelve-and-a-half days in court when they did not need to be there. At paragraph 22 of his submission, he asked who brought the Crane defendants to court and kept them there. He submitted that it was a mixture of the Reynolds defendants and the claimants. He contended that a distinction had to be drawn between the trial and the cost of preparation to be attributed to the claimants. He submitted that if the Crane defendants and the claimants had been left to fight the trial on their own, much less time would have been spent in court.

The solicitor acting for the Crane defendants filed a number of witness statements, the solicitor being Miss Katherine Louise Sillett. Her first witness statement starts at page 175 of the bundle. At paragraph 32 of that witness statement she submitted as follows:

“The whole of my clients’ costs should be paid by the claimants. That suggestion is based on the simple fact that the claimants could have had what they have got now long ago. The crux of the matter is that the alleged association or conspiracy with the Reynolds Defendants -- that is what took up a significant amount of Court time. The claimants have failed to prove that such a connection exists or existed. The only other issue of significance was the liability of the Reynolds defendants which was not an issue which the Crane defendants were, as it turned out, anything to do with.”

So Miss Sillett there, as I read her witness statement, is saying that the common design claim took up a significant amount of court time and that there was the additional claim -- the telemarketing claim -- in which it had turned out the Crane defendants were not involved, and she sought an order that the costs of the Crane defendants should be paid by the claimants.

She filed a second and third witness statement. The second witness statement starts at page 400 of the appeal bundle. She stated at paragraph 10 of this witness statement that:

“The trial lasted 15 days (excluding post-judgment hearings) of which my client’s defence occupied the court (at most) for half a day. This represents less than 3.5% of the time in court. This is also reflected in the proportion of time spent in pre-trial preparation. I would therefore suggest that the percentage of the Claimants’ costs payable by my clients’ be in the region of 4% of their overall costs of this action.

In my clients view any such award should be set off against my clients costs. Those costs being the cost of defending the Claimants’ failed allegation of joint tortfeasorship with the 8^th to 10^th Defendants and their complete failure to establish any claim against the Sixth defendant, Mr Peter Crane.”

So at that stage she is submitting to the court that the responsibility of the Crane defendants for costs was very small -- she puts it at 4% -- and that there ought to be a claim; there ought to be an order for the costs of the Crane defendants against the claimants; and that the two orders should be set against each other.

In her third statement, starting at page 409 of my bundle, she makes the point at paragraph 6 that if there had been no allegation of joint responsibility with the Reynolds defendants, there would not have been any insurmountable issues between the claimants and the Crane defendants, though that is not enlarged.

At paragraph 10 to 13, she deals with a point on which some emphasis has been placed: that because the Crane defendants were sued jointly in respect of the telemarketing, they had to be involved in reading the documents provided on disclosure, a vast quantity of which was provided late by the Reynolds defendants. In addition, of course, they had to be involved in the evidence that was taken which might have implicated them:

“10.

The financial impact of the alleged link with the Reynolds Defendants is, to some extent, obvious. I believe however that a specific illustration of its effect on time and costs incurred by the Crane Defendants should be given. The most striking example of the wasted time and costs incurred that was taken up by my firm, Counsel and my clients was in relation [to] the recording, transcription, re-transcription and analysis of the Reynolds’ telephone marketing procedures. That investigation not only involved a vast amount of time in considering documents leading up to and during the trial but it also took up a large proportion of the time in court listening to oral evidence.

11.

It is very difficult for me to be totally accurate about the dates upon which much of this documentation was received because boxes often arrived by courier or out of hours when I was not in the office. I can however confirm that between the 19^th October 2006 and 6^th November 2006 I received and copied to Counsel and my client 18 lever arch files of documents from the Reynolds’ solicitors. Those files were transcripts and other documents relating to telephone marketing. We were obliged to read them because the Claimants accused my clients of being responsible for that activity.

12.

The situation worsened as the trial progressed. During the course of the hearing we received a further 12 lever arch files relating to telesales. Again all that had to be read. None of the “customer” witnesses were relevant to the Crane Defendants apart from Mr Baxter who failed to prove the (tenuous as it was) link with the Reynolds Defendants which the Claimants claimed.

13.

I have already referred to the pre-action correspondence. The Claimants were left in no doubt that the link between the two sets of defendants was denied and they were put to proof. With a certain degree of arrogance the Claimants refused to address that essential requirement. They didn’t mind if they dragged a small business and two individuals in to a major action which had only a tiny amount of relevance to them. This is something which the Claimants can of course afford to do.”

The judge, therefore, had a complex matter to deal with in respect of costs. The transcript of the hearing which took place to deal with costs is in the bundle. The judge dealt with the matter by hearing submissions on specific points and giving rulings, so for the purposes of this appeal we have been referred to three of his rulings. But before he began giving rulings he clarified the basis on which he was proceeding. Thus at the top of page 22 of the bundle, taking the manuscript numbers, (page 85 of the transcript) the judge said this:

“So the total costs, if you like, are Z. X, Reynolds defendants. Y, the Crane defendants and you think you say any arguments on losing on issues and so forth should be reflected in a percentage of, if any, X and a percentage off Y.”

That was summarising the submission of Mr Moody-Stuart for the claimants. Then, again, at page 34 the judge made it clear that he was approaching questions of costs “on the assumptions that each group of defendants, that is the Reynolds and Crane defendants will pay separate proportions adding in the aggregate to a 100 per cent of the claimants’ costs subject to deductions attributable to the merits and other aspects of the matter”.

As I have said, the judge gave three relevant rulings on costs. At the first stage he held that the plaintiffs were the winners and entitled to their costs subject to any appropriate reductions. He then made a reduction of 10% for the fact that the claimants had failed as against both defendants on the issue of joint enterprise. The judge said that it:

“…was a significant issue…it may have real consequences in terms of financial liability and it is one which ought to be reflected in a modest discount and I propose to discount 10 per cent of the attributable costs on account of the claimants’ failure on the common design issue.”

That appears at page 35 to 36 of the transcript.

The judge made no other reduction in the course of this ruling. He rejected an argument on behalf of the Reynolds defendants that they had been obliged to sit through the agency case when they were not a party to it. The judge ruled that that was an inevitable consequence of the fact that an order had been made for both this action and another action brought by Mr Crane against related companies of the claimant in respect of alleged liability under the Commercial Agents Regulations. An order had been made for those matters to be heard either together or simultaneously and the judge held that it was inevitable that the Reynolds defendants would have to be present throughout the hearings. He held that it was a matter of choice for the Reynolds’ legal team whether they attended the hearing during that part which was actually attributable to the agency claim, in which the Reynolds defendants were not involved.

At the second stage, the judge heard argument as to the appropriate apportionment between the two defendants. The judge took into account that the issues between the claimants and the Crane defendants were very short and he took that into account in affixing the apportionment between the two groups of defendants. He apportioned the costs as between the two groups of defendants 30-70 in favour of the Crane defendants.

In the submissions which took place prior to that ruling, counsel for the Crane defendants submitted that there was one issue in relation to one witness only, and here I read from the top of page 47 of the bundle, page 110 using the printed numbers of the transcript:

“The second point is in relation to the customer evidence, the members of the public. My Lord, there was one issue in relation to one witness, who was Mr Baxter, your Lordship recalls [that] he… received two sets of documents and the assertion was that it was a Crane document being sent to a Reynolds customer and that assertion was not made good, so we succeeded as against that witness in being able to prove that that did not establish [and then there appears a full stop and the end of quotation]”

It is clear that counsel was referring to the fact that the claimants had failed to establish direct liability for passing off in relation to telemarketing, as against the Crane defendants. He did not, as I say, need to elaborate that point further as the judge would have been well aware from his judgment what evidence was being referred to. The judge, however, concluded that the correct proportion between the two defendants was 30% to 70%.

The third ruling dealt with the position as to costs as between the claimants and the Crane defendants. The judge dealt with an issue concerning Mr Peter Crane with which we are not concerned. He then reiterated his ruling on the apportionment between the Crane defendants and the claimants’ costs. He expressly rejected an argument on the part of counsel for the Crane defendants that the Crane defendants had found themselves having to endure a substantial trial, whereas if the case had proceeded against them alone then it would only have taken a day and a half. The judge expressly held that this matter was reflected in the apportionment he had already made. He said, and I now read from page 65, in the course of his third ruling the judge said :

“Apart from that Mr Roughton submitted that the effect of pursuing a case jointly against both groups of defendants was that his clients, the Crane defendants, found themselves having to endure a substantial trial running into some weeks, whereas if they had proceeded against [the Crane defendants alone] it would have taken a day to a day and a half and he submitted this should be reflected in costs.

In my judgment that is sufficiently reflected in the 70 per cent/30 per cent apportion, which I have already made. It seems to me to be no fault of the claimants that the claim against the two groups of defendants was heard together.”

So the judge was simply there dealing with the argument that the Crane defendants had had to be there during the trial of the allegations made more particularly against the Reynolds defendants in respect of telemarketing. The judge held that that matter had been taken into account in his apportionment.

In the course of his rulings, the judge dealt with another matter and that was a claim made on behalf of the Reynolds defendants as against the claimants, that Mr Reynolds, who had only been responsible for a part of the period in which it was alleged there was passing off, should only be responsible for a part of the costs for which the Reynolds defendants were globally responsible. The judge accepted that argument and held that Mr Reynolds should only be responsible for 75% of the costs which the Reynolds defendants were ordered to pay. I mention that, not because we are concerned with the Reynolds defendants -- we are not concerned with their position -- but that demonstrates that the apportioned shares of costs allocated to each group of defendants were themselves not fixed and that they were, in principle, capable of adjustment as the circumstances required. I do not accept that that point was simply a point which arose out of timing; it is a general point that the shares allocated to each group of defendants could have been subject to any further appropriate reduction.

So at the end of the day, as between the two groups of defendants, the judge settled on his apportionment of 30% and 70% in favour of the Crane defendants. The figure of 30% was reduced to 27% in the judge’s order to take account of the 10% reduction allowed for on the joint enterprise point.

On this appeal Mr Duncan Macpherson appears for the Crane defendants. He referred to the Amended Particulars of Claim. He also referred to correspondence between his solicitors and Herbert Smith. These letters pointed out that the Crane defendants were not responsible for the telemarketing, that the claimants on whose behalf Herbert Smith wrote continued to carry on. There was a persistent request for telephone records, even though the particulars given in the pleading did not relate to the Crane defendants. Mr Macpherson submits that the vast preponderance of time at trial was devoted to the telemarketing issue and that it was necessary for counsel and solicitors for the Crane defendants to go through the transcripts and recordings in case there was any allegations against the Crane defendants. There was also, he says, a vast amount of disclosure partway through the trial provided by the Reynolds defendants and I have already referred to that.

I accept the submission that it was right and proper for the Crane defendants, who were being sued jointly with the Reynolds defendants in respect of the telemarketing to have regard to the evidence that was being mounted in support of the claim and the disclosure made by the Reynolds defendants.

Mr Macpherson submits that the court can interfere in the decision of the judge on costs, notwithstanding that it was a discretionary decision, because the judge failed to take into account properly or at all the fact that the claimants had failed as against the Crane defendants in respect of the telemarketing issue; alternatively he submits that they should bear costs consequences because they made an unreasonable decision to pursue the direct marketing claims against the Crane defendants and failed on that issue also. In the further alternative, he submits that the decision of the judge to allocate 30% to the Crane defendants was perverse. Mr Macpherson submits that the correct order, if the telemarketing claims were unreasonably brought against the Crane defendants, would be an order that the Crane defendants should have the costs in respect of those issues on which they were successful. That would mean an order whereby the claimants paid the Crane defendants some percentage of their costs up to 90%; otherwise, in his submission, the appropriate order was no order to costs. He points out that the Crane defendants had admitted responsibility for the written materials.

Mr Moody-Stuart appears for the respondents: that is, the claimants in the action. He submits that the Crane defendants do not challenge the fact that the successful parties were the claimants. He submits that an application for permission to appeal -- and we are at this point dealing with an application for permission -- is bound to fail. The grounds relied on were, in his submission, internally inconsistent and the case now sought to be brought was being put in a different way from that in which it was put to the judge and would therefore fail on that ground at the outset. Mr Moody-Stuart relies on paragraph 34 of Mr Macpherson’s skeleton where Mr Macpherson submits that the Crane defendants had not been compensated for the fact that issues against them had been lost. He submits that the Crane defendants were present throughout the trial because of the order for consolidation.

Mr Moody-Stuart submits that the 10% discount was not challenged; therefore the only matter which could be challenged was the apportionment 30% to 70%. While the judge did not make any express finding or reference to indirect marketing he must have taken that into account in coming to his apportionment. The argument being run before the judge on apportionment was that the Crane defendants did not have to be present and that argument was clearly wrong. Mr Moody-Stuart, however, has to accept that his solicitors never informed the Crane defendants before the opening of the trial that they were proceeding against those defendants in respect of telemarketing only in relation to the evidence of Mr Baxter.

I now turn to my conclusions, and I intend to deal with this matter at this stage by turning straight away to what seems to me to be the essential point. I have, of course, already made observations on some of the submissions in the course of setting out the background but I now turn to what seems to me to be the essential point.

In my judgment the appeal turns on the deductions which the judge made from the total of 100% of the costs to be paid to the claimants. He took a deduction of 10% for the common design claim, which failed, and he said that had to be deducted; but, in assessing that at 10%, in my judgment he must have had regard to what was the very core of the allegation in that claim, namely that the Crane defendants, while not involved in individual marketing exercises, were controlling what the Reynolds defendants were doing and were therefore in a common design. He did not, as it seems to me, and could not, have had regard to the consequences of that claim. The consequences were, of course, much wider because they related to the individual acts of marketing which took up so much time at the trial. Those individual acts of marketing, the judge found, were done by the Reynolds defendants.

When the judge came to make his apportionment of 30% to 70%, he dealt with this on the basis of the argument immediately put to him, but he omitted to take into account the consequences of the failure of the common design claim, whose very core he had already taken into account. That claim may, as I see it, properly be described as a claim which alleged that the Crane defendants were at the centre of the web and that was the claim for which the judge made a deduction of 10%, but it was also submitted to him by counsel that the consequences of that claim were very considerable: it had meant that the Crane defendants had had to attend the entire hearing and go through all the disclosure made by the Reynolds defendants, which was very substantial, and through the transcripts and recordings of conversations to see what was being alleged in respect of the telemarketing which would be a consequence of the common design. As I see it, the judge failed to take into account those consequences when he made his apportionment of 30% to 70%. The consequences were considerable in costs terms because, as the evidence of Miss Sillett indicates, if that common design claim had not been made, then there would have been no necessity to go through that additional disclosure and all the transcripts made by the Reynolds defendants.

In those circumstances, in my judgment the court has to make its own assessment of the proportion of the 30% which the Crane defendants should bear. As I have said, there was nothing to prevent the judge from making a further discount from the 30%. There has been no challenge to the allocation as between the Crane defendants and the Reynolds defendants, nothing therefore to upset the relationship of 30% to 70% as between them in relation to the claimants’ costs but that, as I say, does not prevent any further deduction from 30% being made.

Mr Macpherson and, before him, Miss Sillett in the witness statements suggested that the right order was an order for costs in favour of the Crane defendants. In my judgment that does not give weight to the fact, which is not challenged, that the claimants won this action, and that is an important factor. The Crane defendants’ success was on comparatively minor issues and in those circumstances I do not think it is appropriate to start considering orders for costs in favour of the defendants. The right way of dealing with it, given that the only error suggested on the part of the judge is in relation to the 30%, is to consider whether a deduction should be made from that apportioned share in respect of the success which the Crane defendants had had, which had not been taken into account on the apportionment exercise. As I have said, the judge, in my judgment, took into account the very core of the common design allegation but not its consequences and, as I have explained, those consequences were very considerable. In my judgment there has to be a broad-brush assessment of the implications of those consequences.

In my judgment an appropriate figure would be 15%, from which would fall to be deducted 10% of that amount, ie 1.5%, in respect of the failure of the core element of the common design claim. I am not intending to make any adjustment to the judge’s assessment of 10% in respect of that matter. In all, therefore, I would substitute for the judge’s order that 27% of the claimant’s costs be paid by the Crane defendants and order that they pay 13.5%.

There were some submissions made by Mr Moody-Stuart which I would like to deal with briefly. Firstly, he submits that the point that a further deduction should be made in respect of the failed telemarketing allegations was never put to the judge. As I have endeavoured to explain it was put, albeit briefly, at page 47 of the transcript. Next, Mr Moody-Stuart submitted that there was no evidence before the judge which could form a basis for the judge making any deduction in respect of these matters. I have set out in some detail Miss Sillett’s witness statement, which does give him some basis, and a sufficient basis, for proceeding. Miss Sillett, of course, made no distinction between the responsibility for the common design and the responsibility for the telemarketing alleged against her clients but at that stage, as Mr Macpherson has submitted, there was no need for that distinction to be made. If Mr Moody-Stuart had been correct in his submission that the point was never made to the judge that some allowance should be made in respect of the failed telemarketing allegations which had caused time to be spent by the Crane defendants, then, as it seems to me, the appellants would still have been able to make their submissions because the essential question for the court is whether the judge’s order is correct. As I see it, the appellants are correct in submitting that the judge was proposing to make an order on an issues basis and, having started down that road, in my submission that exercise had to be done consistently in relation to each of the issues on which the claimants failed.

Mr Moody-Stuart rejected the submission that the judge’s finding was perverse. I do not consider it is necessary to decide this point as I have proceeded on the basis that the judge’s error was in failing to take into account a point about the consequences of the failure of the common design claim.

In summary, therefore, I would give permission to appeal and I would allow the appeal and make the order which I already indicated, namely that for the 27% to be paid by the Crane defendants for the claimants’ costs I would substitute 13.5%.

I agree.

I also agree. The consequence is we give permission to appeal. We allow the appeal and will substitute for a figure of 27% in paragraph 1 of the judge’s order on page 13 a figure of 13.5%. I am not sure whether the interim payment was made but if it was, and my mathematics is right, the liability for costs has been satisfied.