Forstater & Anor v Python (Monty) Pictures Ltd & Anor

I must now address the issues arising in relation to costs in this case. I suspect that these are every bit as important as the underlying issues in the case itself.

The familiar starting point is the provisions of CPR 44.2. I have reminded myself of their terms. In the present case important factors will be:-

The need to have regard to all the circumstances:

The conduct of all of the parties before as well as during the proceedings (and in particular the extent to which they followed any relevant pre-action protocol):

The extent of any success:

Whether it was reasonable to pursue a particular issue:

If an order is to be made which takes into account a degree of success on an issue or the manner in which that issue was pursued, then whether it is possible to avoid making orders as to costs in relation to a distinct part of the proceedings by instead making an order in relation only to a portion of a party’s costs or in relation to costs for a particular period.

In approaching this task I adopt as my own the views expressed by Mr Justice Sales in F & C Alternative Investments (Holdings) Limited v Barthelemy (Costs)[2011] EWHC 2807 (Ch) at paragraph 5, expressed in these terms:-

I approach the exercise of that discretion bearing in mind the summary of the relevant principles given by Mr Justice Jackson in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd (No.7)[2008] EWHC 2280 (TCC) at paragraph 72. These principles fall to be applied in the present case in the context of a multi-party action pursuing multiple causes of action.

The first step is to endeavour to identify the overall winner. For this purpose it is necessary to separate out what were in effect two combined cases. The first was the case about what was due under the MF Agreement. That was fought between Mr Forstater and MFPL on the one side and PMP on the other. There the overall winner was MFPL. Mr Forstater was unsuccessful. PMP was unsuccessful. The second case concerned what deductions would properly be made by NFTC (the description I used for the Second Defendant Freeway Cam (UK) Ltd) from gross receipts before distribution. This was fought out between Mr Forstater and MFPL on the one hand and PMP (accused of breach of contract) and NFTC (accused of breach of trust) on the other. In this claim PMP and NFTC were the overall winners. I will treat these combined cases separately.

I deal first with the case centred upon the MF Agreement. I take as my starting point that as the overall winner MFPL is entitled to an order for costs. But I must consider whether there should be a departure from that starting point.

PMP submits that there is an aspect of conduct that bears on the exercise of discretion. At the start of the trial Mr Forstater/MFPL made an application to amend the Particulars of Claim to bring the pleaded case into line with that recounted in the evidence of Mr Forstater. It did not add any new cause of action. It provided different particulars of general events already pleaded. This enabled him to avoid criticism that the case verified in the Particulars did not accord with the case verified in the witness statement. But it exposed him to the criticism that the demonstrable change in story undermined his credibility. The amendment took time to argue and allow. It affected the trial in providing additional material for cross-examination. Had the correct case been pleaded from the outset it would not have had any impact upon whether the case proceeded to trial or not. In these circumstances the late amendment is a matter to put into the scale when all the circumstances have to be weighed: but it is not a factor that of itself calls for specific adjustment of the costs order (as was done in Gold v Mincoff Science & Gold [2004] EWHC 2036 (Ch)).

MFPL was not an original party to the action. It was joined as an additional Claimant by order dated 23 April 2012 which contained an undertaking by MFPL:-

In dealing with this issue one must remember that dealing with costs is a two stage process. There is the order directing what costs are recoverable: and there is the order which assesses the amount of those costs. Care must be taken in considering the terms of the costs order itself not to seek to make provision for matters that will in due course be considered by the costs judge in the course of assessment. The fundamental order (subject to further adjustment) will be that MFPL shall have its costs of the action on and from 23 April 2012 on the standard basis: but I direct the costs judge that in assessing those costs the judge shall include in the assessment all such costs (being reasonable in amount) as it was reasonable for MFPL to assume liability for on 23 April 2012. The relevant question is whether it was reasonable for MFPL to incur liability for those costs on 23 April 2012: that is different from the question whether it was reasonable for Mr Forstater to have incurred those costs in the first place. For example, the question will be particularly relevant to the “brand recognition” issue (to which I will turn) which was to be discontinued so soon after joinder of MFPL. I do invite the costs judge to subject any claimed pre-joinder costs to particular scrutiny. This seems to me to strike a fair balance between (a) the fact that until MFPL joined the action PMP had a complete answer to Mr Forstater’s claim; and (b) the need to avoid PMP escaping responsibility for costs actually needed to bring home MFPL’s successful amended claim simply because they were incurred before MFPL was joined.

The next question is whether MFPL should recover all of its costs for that period. MFPL’s claim as to what was due under the MF Agreement has three branches. There was the construction argument. There was the rectification argument (with a variation on that theme based upon estoppel by convention). There was a claim that either Mr Forstater or MFPL was entitled to money under an agreement that had been entered into between PMP and Ostar Enterprises Inc relating to “Spamalot” (“the Ostar Agreement”).

MFPL lost on the construction argument. It did not in the end run at trial the “estoppel by convention” argument. MFPL succeeded on the rectification claim. Although CPR 44.2(4)(b) directs me to consider the fact that MFPL has not been wholly successful, I do not consider it just to treat these three issues separately. Construction and rectification are almost invariably alternatives: and in the instant case the rectification claim relied upon subsequent conduct (which was the conduct that would have been relevant to an argument based on estoppel by convention). These three issues were so closely intertwined that it would not be fair (or, I suspect, practicable for the costs judge) to make an issues based assessment. I agree with the observations made in paragraph 44.3.1.7 of the White Book (dealing with failure within a group of issues which were reasonably pursued):-

The claim for sums due under the Ostar Agreement was discontinued on the 22 June 2012: and it was provided that the liability for the costs relating to the part of the claim to which the notice of discontinuance related should be reserved to the trial judge. I must therefore determine them.

Counsel for MFPL accepts that under CPR 38.6:-

Counsel for Mr Forstater and MFPL submits that this is a case where the Court ought to “order otherwise”. In a nutshell the argument is that PMP behaved in such a fashion as reasonably to excite the suspicion of Mr Forstater, acted unreasonably in refusing to answer his questions, and as soon as they did answer his questions (which they did in their Defence) he and MFPL rapidly discontinued. It is submitted on behalf of Mr Forstater and MFPL that the court should order PMP to pay their costs of this issue down to the date when the Defence was served as was done in Nelsons Yard Management Co v Eziefula[2013] EWCA Civ 235.

It is necessary to flesh out this argument. Under the Ostar Agreement, some income deriving from “Spamalot” was paid to PMP. Mr Forstater had a contractual right to audit these payments. He exercised that right (although it took from 27 January 2010 to the 8 July 2010 to organise it, and there had been some earlier skirmishing). This provoked Mr Forstater to be suspicious. The audit (if properly conducted) must have shown that whatever PMP actually received was actually accounted for (albeit using the wrong percentage). The auditor did not understand the Ostar Agreement and thought that perhaps some extra payments (relating to “brand recognition”) were being diverted away i.e. not received by PMP but by someone else. Mr Forstater’s solicitors wrote on 23 September 2010:-

Attorneys for Ostar said that this assertion was “demonstrably wrong” and was a “monstrous assertion”. Terry Jones immediately responded that he had “received no payments for “Spamalot” from Ostar”. Michael Palin wrote “categorically [to] state that no Spamalot payments had been received by myself…from… Ostar”. PMP’s solicitor wrote:-

Paragraph 50 of PMP’s Defence (filed in July 2011) denied these claims and asserted:

In my judgment the advancing and the refutation of the claim that additional payments for brand recognition or intellectual property rights were being made does not warrant a departure from the general rule that a discontinuing claimant should pay a defendant’s costs. Mr Forstater’s accountant could see on the audit that payments actually made by Ostar were being accounted for to Mr Forstater/MFPL. The question was whether there were any other payments being made for “brand recognition” or other intellectual property rights. This was speculation. Crystal clear statements were made by Ostar and both by PMP’s solicitors and by key individual Pythons that no such payments were being made. Mr Forstater commenced his action on the back of his suspicions and in the teeth of clear statements in correspondence and in evidence, and continued them. His suspicions were unfounded and he had to withdraw. He took the risk of litigating a hunch and must take the consequences.

Mr Forstater then says that in May 2012 individual Pythons gave warranties that they had not received any additional income from “Spamalot”, and that the provision of warranties gave Mr Forstater “the desired re-assurance” that proper accounting was taking place. Since he got what he was asking for he did not really lose. In my judgment the warranties only confirmed what had been stated in open correspondence and in evidence: and if they provided “the desired re-assurance” then they did so only because Mr Forstater was unreasonably unable to accept the truth of earlier statements. This is not a case in which on any objective assessment Mr Forstater’s discontinued claim produced anything of worth.

Counsel then submit that in October 2008 Mr Forstater had offered to compromise the claim but his offer had not been taken up. It is, however, important to see exactly what Mr Forstater was seeking by way of compromise. It was that PMP should pay to him “such sums as are required so as to ensure that he receives the same share of income from “Spamalot” as all other former members of Monty Python with the exception of Eric Idle”, and as to that “income from Spamalot” Mr Forstater’s solicitor said that:-

Discontinuance for practical or pragmatic reasons will not of itself justify a departure from the presumptive position. What is required is some change of circumstance to which Mr Forstater himself did not contribute, which change was brought about some unreasonable conduct on the part of PMP which in all the circumstances provides a good reason for departing from the general rule: see Teasdale v HSBC [2010] EWHC 612 (QB). There is no such conduct here. All that happened was that Mr Forstater’s speculation became increasingly untenable.

In the result, PMP is entitled to its costs of the “brand recognition” and “intellectual property” claims to be paid by Mr Forstater (for which costs MFPL agreed to be jointly and severally liable): and the order for costs in MFPL’s favour must be adjusted to reflect that. But since this is an order of the type described in CPR 44.2(6)(f) I shall have to consider whether an alternative form of order can meet the justice of the case.

PMP submits that the “brand recognition claim” was so speculative that it is sufficiently outside the norm to justify an order that the costs be assessed on the indemnity basis. I have given that submission serious thought because the claim was rooted in Mr Forstater’s suspicion and was long continued. But I have concluded that the conduct of this claim is not so far outside the norm as to warrant a different basis of assessment. The policy of encouraging the abandonment of unsustainable claims should not be undermined by awarding indemnity costs, save where there is a really strong case for doing so.

Then Mr Forstater submits that in connection with this part of the case I should modify an Order made by the Chief Master on 25 January 2011 for pre-action disclosure of the Ostar Agreement (and of another on which nothing turns) and all other agreements to which PMP was party and which included “arrangements for the disposition or distribution of income from the theatrical production and other commercial exploitation of Spamalot”. Mr Forstater was ordered to pay the costs of that application (and on joinder MFPL assumed joint and several liability for them). It is however clear (see the White Book at paragraph 44.3.1.4) that costs so ordered may be claimed by the paying party as costs of the proceedings to which the applications were incidental. This Mr Forstater seeks to do and says that either an order for repayment should be made (or the costs otherwise taken into account).

I reject this application. The pre-action disclosure order related to material which Mr Forstater needed to plead the “brand recognition” and “intellectual property” claims, which he then discontinued. I do not consider that it would be fair to order PMP to pay the costs of an application which facilitated the pleading of a claim which Mr Forstater simply abandoned. The Order outlined in paragraph 22 does not require adjustment on this account.

I can turn to the second claim within the action (relating to expenses properly deductible, and which I will call the “FSM commission issue”). I deal first with PMP’s position. It was the successful party on this claim and is presumptively entitled to an order that its costs be paid by Mr Forstater (who continued to assert the claim) and MFPL (which joined in the claim and on joinder assumed joint and several liability for all costs).

Mr Forstater/MFPL do not really urge that I should depart from the application of the general rule as regards this claim. The issue is how to give effect to a costs order in favour of PMP. Counsel for Mr Forstater/MFPL urges that I should make an order under CPR 44.2(6)(a), and that the appropriate order is that I should direct PMP to pay 80% of MFPL’s costs. Counsel for PMP submits that having regard to the form in which MFPL’s costs schedule has been prepared it is impossible to ascertain the proportion of costs spent on the various issues, so that it is not possible to found a correct exercise of discretion and that the inevitable (if regrettable) consequence is that I should direct that MFPL should have its costs of the rectification issue against PMP, and that PMP should have its costs of the “brand recognition” and FSM commission issues as against Mr Forstater and MFPL. Counsel submits that sometimes there simply is no just alternative.

This involves three separate assessments, and the determination of what are truly the costs of the issue and what are costs common to all issues (and which ought to be payable to the successful party). My instinctive response is that this is likely to be unnecessarily expensive and prolonged: and that I ought (as directed by CPR 44.2(7)) to consider whether it is “practicable” to make a different order. I think that “practicable” means no more than achieving broadly (if not precisely) the same outcome by a different means.

The material available to me is the trial bundle and the conduct of the trial itself, together with general experience of this type of litigation to assist in the assessment of that material. I am mindful that what appears in the trial bundle and what is argued at trial may not represent what work has gone into an issue (but rather represents the product of that work); that time taken at trial may not be a sure guide to the significance of an issue; and that the economic value of an issue is not directly related to the costs of addressing it. But recognising those limitations I consider that I can make a fair assessment of the costs relative to each issue, both for the purpose of disallowing costs incurred by Mr Forstater/MFPL on failed claims and for the purpose of compensating PMP for the costs incurred by them in defeating those claims.

The rectification claim was undoubtedly the main issue in terms of the material deployed, the arguments advanced and the amount in issue. Success on this issue would carry with it “common costs”. The “brand recognition” issue fell within a narrow compass, required consideration of more limited material, but was in contention for an unduly long period. The FSM commission claim required the examination of material relating to the genesis of the contract (to see whether a term as to “reasonable deductions” should be implied): this material was in any event relevant to the rectification claim and may be left out of account. But in addition the claim required consideration of a further area relating to the FSM commission agreement (to assess whether its terms were unreasonable and so in breach of any implied term that expenses could only be reasonable in amount). Overall it took up about 20% of PMP’s written closing and about the same in terms of evidence in chief; but much less in terms of putting the case to Mr Forstater. The cross examination by Counsel for Mr Forstater of witnesses relevant to the FSM commission issue also occupied roughly 20% of the evidence (though of course this cross-examination was directed at the case against NFTC as well as that against PMP). This is to focus on the trial. Looking at the volume and ease of assembly of the trial bundle the proportion of 20% strikes me as slightly generous in relation to the FSM commission issue but about right if one includes the “brand recognition” documents. There will have been some costs in prosecuting and defending the “brand recognition” issue that were not reflected in the conduct of the trial and the contents of the trial bundle. If I had been directing a separate assessment of PMP’s costs of the FSM commission issue I would have made the same order in relation to them as I hereafter make in relation to Freeway’s costs of that issue: but I have been able to take that into account in formulating the costs order summarised in paragraph 34.

As a rough working tool I would give 20% weight to the issues on which the Claimants lost and PMP succeeded, by which I mean both the FSM agreement and the “brand recognition” claim (pleaded and discontinued).

Mr Forstater/MFPL have not broken down their costs by reference to issue or period. But 20% of their combined pre-uplift costs since the start of the action (including pre-action costs) would be roughly £120,000. (I have not forgotten that MFPL is only getting its costs from the date of joinder: but I am assuming for the purpose of this exercise that it is right in its assertion that it will recover most pre-joinder costs as reasonably incurred. Nor have I forgotten that there is an issue about up-lifts.)

PMP have broken down their costs so as to relate them to issues. But these breakdowns include pre-action costs which are not at first sight recoverable, and the allocation of costs common to more than one issue appears very unsatisfactory. So their claim for costs on the “brand recognition” and “FSM commission” issues of £587,000 seems hugely optimistic and (given that for PMP the sum in issue on the “FSM commission” claim would have been £10,000 or so) disproportionate. If presented in this form it would be heavily reduced on assessment. PMP’s general level of costs is about 50% higher than those incurred by Mr Forstater/MFPL pre-uplift. This is accounted for in part by the involvement of Leading Counsel, but principally by the need to proof all of the remaining Pythons and some of those who dealt with PMP’s affairs, and by the need to discharge much heavier disclosure obligations. So it would not be fair to assume that the costs on each side would be assessed in the same sum. PMP’s recoverable costs of defending the issues on which it won are almost certainly bound to be higher than Mr Forstater/MFPL’s of prosecuting those issues. This is not therefore a question of saying that MFPL shall only recover 80% of its costs and that it must pay 20% of PMP’s costs and that that can be achieved by ordering PMP to pay 60% of MFPL’s costs.

Weighing all the competing considerations together and bearing in mind the uplift issue and the matters likely to be addressed on assessment, in my judgment the fair order is that PMP shall pay 52.5% of MFPL’s costs incurred on and from 23 April 2012, those costs to be assessed on the standard basis: and in assessing those costs the judge shall include in the assessment all such costs (being reasonable in amount) as it was reasonable for MFPL to assume liability for on 23 April 2012. I recognise that this order has the effect of exempting Mr Forstater personally from some liability to which he would be exposed if separate costs orders had been made in favour of PMP (with set off after detailed assessment). But this does not seem to me to cause real injustice (having regard to what is known of Mr Forstater’s means and to other orders to be made in these proceedings).

This award of costs will bear interest at judgment debt rate from 5 July 2013.

MFPL applies for an interim payment on account of costs. Under CPR 44.2(8) I must order a reasonable sum on account unless there is good reason not to do so. I see no substantial reason not to make an interim order. For the purpose of making an interim order I shall remove all uplifts (since these will be scrutinised on assessment, and I cannot make any properly founded decision about them). This gives a rounded figure for the amount claimed in Mr Forstater’s/MFPL’s costs schedule of £600,000. The Schedule runs from an unstated date prior to June 2010. But the costs order covers costs only from April 2012. Earlier costs will only be recovered in the limited circumstances indicated. So in making a cautious assessment of an interim payment I must make a full allowance for that, particularly since if I make what turns out to be an over-generous assessment MFPL’s financial condition means that it is unlikely to be able to repay any excess. I will make a discount of 35% (recognising that the bulk of the costs will have been incurred in preparing for and conducting the trial). This gives a working figure of £390,000. Allowing for scrutiny on assessment on the standard basis I will reduce that by 35%, giving a working figure of £253,500. MFPL recovers 52.5% of that sum: the amount of the interim award of costs to MFPL is rounded to £133,000. That sum will be payable on 20 December 2013.

The next issue to arise is whether MFPL can recover a success fee as an “additional liability”. Solicitors and Counsel have been acting upon a conditional fee agreement entered into with Mr Forstater. This is a “pre-commencement funding arrangement” within the meaning of the new CPR 48.2(1)(a)(i). When MFPL was joined as a party that agreement was varied on 24 May 2012 so as to make MFPL a party to it.

Under CPR 44.3B a party may not recover any “additional liability” in respect of any period during which that party failed to provide information about his or its funding arrangement. The information is to be given on form N251. The contents of that form disclose the existence and date of the relevant agreement and the claims to which it relates, but no information is required to be given as to the terms of the agreement itself (and in particular the level of any success fee). Although Mr Forstater provided information about the funding arrangement into which he entered, MFPL never completed and served an N251. MFPL is therefore unable to recover any part of its success fee “unless the court otherwise orders”.

MFPL therefore applies for relief from sanction under the current CPR 3.9. Although the application is by MFPL in truth the application is made for the benefit of its lawyers. If (a) relief from sanction is refused and MFPL is unable to recover a success fee from PMP, but (b) MFPL remains bound in contract to pay a success fee to its lawyers, then (c) the only reason for that is the negligence of the lawyers in failing to give notice in form N251 (for which damages equal to the difference between what is due and what is recoverable should be awarded).

Once again, this requires me to consider all the circumstances of the case so as to enable me to deal justly with the application having regard to the need for the litigation to be conducted at proportionate cost, and to the need to enforce compliance with the rules.

The sanction presumptively imposed shows the importance that the rulemakers attached to the giving of notice about the existence of a funding arrangement of this sort. The form of the notice demonstrates what they thought the key information to be.

There is no good explanation for the failure to give notice of MFPL’s funding arrangement. It was simple oversight. But MFPL submit that it does not really matter because PMP knew all along that Mr Forstater was conducting the case on the basis of a conditional fee arrangement, and they may be taken to have known that his company would have made the same arrangement.

On the evidence those acting for PMP “wondered” but did not know: and I do not think that they should be fixed with some sort of constructive knowledge, since the circumstances of Mr Forstater (sometime bankrupt and in an IVA) were different from those of MFPL (entitled to a share of the income from “Spamalot” and other exploitations of “The Grail”). This is therefore not a case like that of Scott v Duncan [2012] 4 Costs LR 787 where (a) the defendant knew that there was a CFA and (b) the party with the benefit of the CFA failed to serve notice of a second CFA, so that “the defendant knew from the outset that he was in litigation with a claimant …. whose solicitors were acting under a Conditional Fee Agreement with a success fee….”. This was regarded as “the overwhelmingly crucial matter in the exercise of the discretion”. Nor is it a case like Haydon v Strudwick[2010] EWHC 90164 (Costs) where before the commencement of proceedings notice was given that the proceedings would be funded by a conditional fee agreement, but no form N251 was thereafter served; so that the information to assist in the disposal of the case in an efficient way had been provided in a way that left no doubt.

However that initial position altered on 19 July 2012. MFPL’s solicitors then stated in correspondence “without prejudice save as to costs” with NFTC (which PMP accepts it knew about) that they acted for MFPL under a conditional fee agreement. From that date PMP was in possession of the requisite information to assist in the disposal of the case in an efficient way. PMP does not suggest that it would have acted in any different way had form N251 been served instead of the information being communicated by letter, or that it has otherwise suffered any prejudice.

PMP argued in its skeleton argument that this makes no difference, relying on observations of Floyd J in Supperstone v Hurst [2008] EWHC 735:-

In considering whether to grant relief from sanction I must have regard to the need, so far as is practicable to enforce “rules, practice directions and orders”. This does not mean that each of them must in all circumstances be regarded in exactly the same way, and that the enforcement of each will require exactly the same measures to be taken. This was a failure (through human error) to comply with a rule of general application: it may be contrasted with a conscious failure to comply with a specific order made in the action itself. The policy embodied in CPR 44.3B had at 19 July 2012 been fulfilled (albeit not in a technically correct way) and the substance of the rule was then complied with. The conveying of the requisite information in a letter instead of on form N251 had no discernible impact on the conduct of the action. The failure to convey the information until 19 July 2012 probably had an impact on the conduct of the action (because until then PMP was not in possession of all of the information relevant to a disposal of the claim) and MFPL has not demonstrated that it did not. The consequence of refusing relief may be that MFPL is contractually liable to pay a success fee but would not recover it from PMP: as against that it would appear to have a strong defence to a claim for a success fee from its solicitors, and a claim over against its solicitors in respect of any claim by Counsel. Granting relief would deprive PMP of what may properly be regarded as a windfall (in that it received the relevant information on the wrong piece of paper).

In all the circumstances I would grant relief from sanctions to this extent: MFPL shall be entitled to recover such additional liability as would have been recoverable if form N251 had been served on 19 July 2012. This leaves open all of the issues normally considered in relation to CFAs (especially the appropriate level of success fee). I consider that a grant of such relief is not inconsistent with the objectives embodied in the current CPR 1.1(2). I have borne in mind this conclusion when making the costs order summarised in paragraph 34.

I turn to the costs orders as between MFPL and NFTC. NFTC was a successful party in this litigation and it is not in doubt that it should receive its costs from Mr Forstater and MFPL jointly and severally. The question is upon what basis. NFTC says that (in the light of the principles applied in Reid Minty[2002] 1 WLR 2800 and Kiam[2002] EWCA Civ 66) it is entitled to have its costs assessed on the indemnity basis because (a) proceedings were commenced without any pre-action protocol being observed (b) the cost of the proceedings was wholly disproportionate to the maximum amount Mr Forstater could recover even if wholly successful (c) NFTC was dragged into proceedings which had an entirely different focus and (d) NFTC had made a sensible offer that was rejected (and which MFPL failed to beat).

I find that neither Mr Forstater nor MFPL sent any letter before action relating to the claim advanced against NFTC in the Particulars of Claim. Mr Forstater’s solicitors first wrote to Freeway (which was the successor to NFTC in respect of the administration of the collection accounts) on 22 March 2011 asserting that NFTC had acted in breach of trust by permitting PMP to enter into the Ostar Agreement. This was the “brand recognition” and “intellectual property” claim asserted against Freeway. That was not a claim eventually advanced in the action. On 19 April 2011 Mr Forstater’s solicitors sent an e-mail attaching a draft of the Particulars of Claim: this was the first notification of the claim to be pursued relating to the FSM Agreement, and it was not accompanied by any relevant material. It required Freeway “to demonstrate within seven days … any reason why they should not be [served]”. Freeway’s representative responded by saying that unfortunately the imminent Easter weekend meant that he may not be able to respond within the deadline set. The proceedings were served on 26 April 2011, before the deadline expired. Whilst the nature of the claim against PMP meant that there was some urgency to commence proceedings against that defendant, there was absolutely no need to rush headlong into proceedings against Freeway. In particular there was no need to enmesh Freeway in a trial which had a rectification claim against another party as its principal focus.

Mr. Forstater’s claim against Freeway was not subject to any specific pre-action protocol. Accordingly the Practice Direction on Pre-action Conduct required the parties to exchange sufficient information about the matter to allow them to understand each other’s position and make informed decisions about settlement and about how to proceed. In a straightforward matter an intended defendant is normally given 14 days to respond; but in complex cases 30 days or longer is usual. Paragraph 4.6 of the Practice Direction says that if there has been non-compliance then the Court can order that the party at fault pays costs on an indemnity basis.

One of the items to be addressed in any pre-action exchange of correspondence is the amount of any financial loss and an explanation of how that amount has been calculated. This exercise was not undertaken. Had it been undertaken (and he had all the relevant royalty statements) Mr. Forstater would have realised that what was recoverable from Freeway would be very modest: he could work out the range if not the precise figure. It would be £5000-£15000 in all probability. On the other hand, the opportunity would have been taken by Freeway to demonstrate that the impact upon it was much greater: for them it was not simply about those sums, because if Mr Forstater was right in relation to his/MFPL’s 2.5% then the holders of the other 97.5% participation might mount similar claims (gearing the exposure 40-fold). They could properly deploy resources proportionate to that exposure (and any reputational risk).

In the light of this Freeway did the right thing by seeking to explore resolution of the dispute by means alternative to litigation. When that failed Freeway made an offer “without prejudice save as to costs” on 19 July 2012 to pay £20,000 in full and final settlement (inclusive of costs) and to bear their own costs. Mr Forstater’s solicitors rejected this saying that at any stage Freeway could have made a Part 36 offer and that

MFPL submit that the only reason an order for indemnity costs is being sought is to avoid scrutiny of the level of costs incurred by Freeway (said to be of the order of £290,000) against the measure of proportionality. MFPL emphasises that the claim was only ever a small one. It is precisely because it was a small claim relating to deductions from income being received by MFPL in response to invoices submitted by MFPL that one wonders why it was commenced by Mr Forstater at the time and in the manner that he did. In my judgment the overall conduct of this litigation has been sufficiently outside the norm for an order for indemnity costs to be warranted. The difficult question is whether assessment on that basis should commence with the action itself, or whether the accumulation of factors and the increasing departure from normal standards points to an initial assessment on the standard basis, and assessment on the indemnity basis from a specified date.

I do not think I would have ordered indemnity costs simply because the pre-action protocol had been ignored. But by the time that Freeway’s offers were rejected the case for indemnity costs is compelling. A claim (a) started without real warning (b) by someone not entitled to do so (c) in pursuit of a recovery which it rapidly became apparent was so small as not to be worth the candle (d) was being pursued to trial for the sake of guaranteeing recovery of his costs (e) in the face of an offer to let a costs judge adjudicate on that question. I will order Mr Forstater and MFPL jointly to pay the Second Defendant’s costs, those costs to be assessed on the standard basis down to and including 5 September 2012, and thereafter to be assessed on the indemnity basis.

The next question is whether I should award interest on those costs before judgment. MFPL submit that no award of interest is warranted because Freeway has retained certain income undistributed pending the resolution of the dispute. This consideration (if accurate) is irrelevant. Freeway has paid legal bills. The fact that other beneficiaries have been deprived of the immediate receipt of distributions to which they are entitled because the trustee created a reserve does not seem to me to have any bearing on the question whether Mr Forstater should pay interest on those legal bills. Why should the other beneficiaries suffer and Mr Forstater benefit because the trustee has so acted? In fact the premise is wrong. Freeway did not create the reserve: the current trustee did. Freeway has had no advantage. I award interest at a commercial rate of 3% over base rate on the allowed part of each paid bill from the time of payment of that bill pursuant to CPR 44.2(6)(g). The award is made jointly and severally against Mr Forstater and MFPL.

I must now decide whether to award Freeway an interim payment on account of these costs. I have already referred to CPR 44.2(8). In the present case Counsel for MFPL submits that there is a good reason not to make an interim award because MFPL has no liquid assets, is in dire need of cash to meet liabilities to its bankers and to take advice about its future, and that I ought to bear in mind the relationship between receipt by MFPL of the fruits of the judgment in its favour against PMP and the satisfaction of the liability in costs to Freeway.

I agree that this is a factor: but it is certainly not determinative. MFPL has resources other than its judgment against PMP. It has the share of the Top Half that everyone agrees it should have: and it has its profit distribution from the scheme trustee (Freeway’s successor). It has chosen to distribute those by way of director’s emoluments to Mr Forstater. Now it faces a different choice. But the submission does raise the question whether I should make an interim award in MFPL’s favour in respect of the account which I directed.

MFPL has obtained an order for an account and for the payment of the sum found due on the taking of the account. This engages CPR 25.7 (see paragraph 25.7.1 of the White Book). If I decide to make an order I must not order more than a reasonable proportion of the likely amount of the final judgment.

MFPL seeks £300,000 (based on a principal sum of £232,000 plus compound interest at 3% over base rate, which claim I rejected at the post judgement hearing). PMP says that the maximum amount due is £212,000, and that that will be reduced when statute-barred claims are excluded. The figures are within a narrow compass and are well grounded in that (a) the receipts are known, (b) the only questions are as to proper deductions and the recoverability of early invoices, and (c) I have decided the interest question. I assess the amount of the interim payment in the sum of £192,000. This represents 80% (which given the issues I consider to be a reasonable proportion) of £240.00 (which I consider to be a safe estimate of the sum due plus interest). That sum is payable on 20 December 2013.

In the light of MFPL’s revenue stream and in the light of its likely receipt of a substantial part of the fruits of its judgment the question of an interim payment of Freeway’s costs can now be considered. I see no good reason not to make an order for an interim award of costs. Freeway’s costs schedule totals £290,000. Some of this is to be assessed on the indemnity basis. If I reduce the sum claimed by 25% to reflect the risks on assessment that gives a working figure of £217,500. I assess the sum payable at £190,000. This will be payable on 20 December 2013.

The last question is whether Freeway should be entitled to an order that it be indemnified out of the trust fund.

By paragraph 18 of the Conditions attached to the Trust Deed dated 13 September 1974 and made between PMP and NFTC, Freeway is entitled to be indemnified out of the property it administered “against all actions [and] proceedings …in respect of any matter or thing done or omitted”, and so indemnified “in priority to any payment to Mark Forstater and the Pythons”; the trustee is entitled “to retain and pay out of any monies….all sums necessary to effect any such indemnity”. The current trustee has made a retention. Freeway seeks an order that it is entitled to be paid its costs (insofar as they are not recovered from Mr Forstater or MFPL) out of the assets subject to the Trust Deed, such costs to be recoverable on the indemnity basis. The current trustee does not oppose that relief. There was no real opposition to the order from PMP or MFPL. I shall so order.

After I circulated this judgment in draft the Court of Appeal handed down its judgment in Mitchell v News Group[2013] EWCA Civ 1537. I have considered its terms but do not wish to revise my judgment which I consider proceeds upon correct principles.