Magical Marking Ltd & Anor v Ware & Kay LLP & Anor

On 29 January 2013 I handed down judgment in this matter to an empty court, adjourning matters arising to a further hearing, which occupied a full day in Leeds on 14 March.

I found that a modest proportion of Mrs Phillis’s many allegations of negligence against Ware & Kay had been proved and that, taken together, they caused her and her company a loss which I valued at £28,000. This was small recompense indeed for hard fought High Court litigation in which damages had been claimed exceeding £10 million, at the end of a three week trial, the preparation of which included the amassing of a trial bundle exceeding 50 lever arch files and the preparation of detailed expert evidence.

I must now deal with Mrs Phillis’s claim to interest on her damages, with costs, and with applications made by both parties for permission to appeal.

It would ordinarily be convenient to deal with interest before costs but, since one aspect of the argument about interest turns on an issue ventilated at much greater length during submissions on costs, I will deal with costs first.

Consistent with CPR 44.3(2)(a), the first stage is to decide who is the successful party. In Procter & Gamble Co. v Svenska CellulosaAktiebolaget SCA [2012] EWHC 2839 (Ch) Hildyard J said, at paragraphs 6-7 that in a money claim a simple mechanical test of identifying which of the parties is compelled at the end of the day to pay money to the other has much to commend it. Nonetheless, as he acknowledged, a more nuanced approach to the process of identifying the successful party has emerged from a series of Court of Appeal authorities, beginning with Roache v Newsgroup Newspapers Limited [1998] EMLR 161 in which, at page 168-9, Sir Thomas Bingham MR said:

“The Judge must look closely at the facts of the particular case before him and ask: who, as a matter of substance and reality, has won? Has the plaintiff won anything of value which he could not have won without fighting the action through to a finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?”

Roache was a defamation case in which the plaintiff was awarded damages by the jury exactly equivalent to the aggregate of two payments into court by the defendant. The question was who had been successful thereafter. The plaintiff also obtained an injunction prohibiting a repetition of the statement complained of. The Court of Appeal held nonetheless that, since an undertaking in those terms would have been offered if sought, the defendant had been the successful party following the making of the second payment into court.

Sir Thomas Bingham’s dictum in Roache has since been applied in a series of cases under the CPR in which the paying, rather than receiving, party has been identified as the successful party. Thus in Painting v University of Oxford [2005] EWCA Civ 161, in which a claimant for £400,000 odd obtained judgment for £25,000 odd where the defendant had (after a larger payment and re-payment) left only £10,000 in court, the Court of Appeal concluded that the defendant had nonetheless been the real winner, since the proceedings had been mainly concerned with the dis-proof of what turned out to be a dishonestly exaggerated claim for personal injuries.

In Islam v Ali [2003] EWCA Civ 612 the claimant obtained judgment in the Central London County Court for £12,700 odd for accountancy services. The trial judge ordered the defendant to pay the costs. Allowing the appeal, the Court of Appeal concluded that, although the paying party, the defendant was the real winner. At paragraph 23 Auld LJ said:

“The disparity between what Mr Islam sought including what he put Mrs Ali through to get it, and what he received was so large as to put the relatively small amount finally awarded in the balance between the two rival contentions into relevant insignificance.”

In Fulham Leisure Holdings Ltd v Nicholson Graham & Jones [2006] EWHC 2428 (Ch) the claimant sought £7.75 million for losses incurred through alleged professional negligence, together with £100,000 in respect of professional fees incurred in sorting out the consequential problems. Mann J found that the defendants were negligent, but that this did not cause the business losses. He awarded £6,750 out of the £100,000 in respect of the claimant’s professional costs, after a 25 day trial. He concluded that the claimant’s success was “utterly insignificant” in the context of its claim, and that the defendant had been the real winner. In his view, no claim would have been brought for the sum actually awarded.

Counsel made extended submissions about the combined effect of two almost simultaneous decisions of the Court of Appeal, namely Medway Primary Care Trust v Marcus [2011] EWCA Civ 750, in which judgment was given on 29 June 2011, and Fox v Foundation Piling Ltd [2011] EWCA Civ 790, heard on 9 June 2011, in which judgment was handed down on 7 July 2011. In the Medway case, the claimant sued two doctors for professional negligence in failing to treat or diagnose a condition which led to the amputation of his leg. Quantum was agreed at £525,000 shortly before a liability trial in which the claimant failed, save for an alternative claim for £2,000 introduced as an afterthought for pain and suffering arising from a failure to prescribe appropriate painkillers. In a split decision the majority, May and Tomlinson LJJ, concluded that the defendants had been the real winners, relying upon Sir Thomas Bingham’s dictum in the Roache case. In his dissenting judgment, Jackson LJ concluded (like the trial judge) that the defendants should have paid the claimant’s costs, since they had failed to protect themselves by a modest Part 36 offer. On that point, the majority view was that, at the earliest time when the defendants could have done so, they would have risked automatically incurring a disproportionate costs burden of some £100,000, so that they could not be criticised for having decided not to make a Part 36 offer.

In the Fox case, the Court of Appeal (Ward, Moore-Bick and Jackson LJJ) were faced with an outcome where a claimant for personal injuries in the sum of some £280,000 obtained judgment for a net £31,700 odd, beating a Part 36 offer by the defendant of £23,500 odd. It became common ground during the appeal that the claimant ought to be regarded as the successful party. In giving the leading judgment, Jackson LJ included among the principles which he derived from a lengthy summary of the authorities, the following, at paragraph 48:

“In a personal injury action the fact that the claimant has won on some issues and lost on other issues along the way is not normally a reason for depriving the claimant of part of his costs: see Goodwin v Bennett UK Limited [2008] EWCA Civ 1658. For example, the claimant may succeed on some of the pleaded particulars of negligence, but not on others.”

At paragraph 63 he concluded:

“In the context of personal injury litigation where the claimant has a strong case on liability but quantum is inflated, the defendant’s remedy is to make a modest Part 36 offer. If the defendant fails to make a sufficient Part 36 offer at the first opportunity, it cannot expect to secure cost protection. Different considerations may arise in cases where the claimant is proved to have been dishonest, but (on the Judge’s findings) that is not this case.”

Thus the proposition that a defendant who is the paying party at the end of a trial cannot complain if he does not protect himself with a Part 36 offer did not prevail in the Medway case, but did in the almost contemporaneous Fox case, in both of which the sum awarded represented a small proportion of the overall claim, which was otherwise successfully resisted.

Mr Fernando for Mrs Phillis submitted that the present case was a fortiorithe Fox case. Although she had recovered only a tiny fraction of the £10 million odd claimed, £28,000 plus interest was by no means a nominal sum, and the defendants had made no Part 36 offer at all. All they had done, at a time when the claimant’s costs exceeded £70,000, was to make an offer, inclusive of costs, of £25,000 in August 2010, after mediation. It was in substance (and on this Mr Douglas QC for the defendants did not demur) no more than an offer to make a modest contribution towards the claimant’s costs to date, rather than a payment on account of the claim.

In my judgment the critical distinction between the Medway and Fox cases is that the former was, but the latter was not, about the question who ought to be regarded in the substance as the successful party. In deciding that question in the Medway case, the Court of Appeal followed the Roache case, as well as the closely analogous decision of the Court of Appeal in Oksuzoglu v Kay [1998] 2 All ER 63l, in which Brooke LJ said, on analogous facts to the present:

“In this line of cases, where the plaintiff only recovers between 1% and 3% of his original claim (sometimes, but not always, after a late amendment) the Court is entitled to ask itself: ‘who was essentially the winning party?’ It will not be distracted from making a just order as to costs by the absence of a payment into court which the plaintiff obviously would not have accepted.”

Since in the Fox case the question who was the successful party became common ground, and did not have to be decided by the Court of Appeal, it cannot be taken as detracting from the consistent line of Court of Appeal authority on the correct approach to that question, beginning with the Roache case and ending with the Medway case. Jackson LJ could not have been unaware of that line of authority when giving judgment in the Fox case, and yet none of them were mentioned in his judgment, save only the Painting case, which was about a dishonest exaggeration of the claim.

Directing myself therefore in accordance with the principles in the Roache line of authorities, I have reached the clear conclusion that Ware & Kay ought to be regarded, in substance, as the successful party. My reasons follow.

First, overwhelmingly the main thrust of Mrs Phillis’s case was that Ware & Kay’s fault lay in failing to recommend the pursuit of a vigorous claim arising from Mr Holly’s conduct of the Raid, with the consequence that his subsequent unlawful competition, with the benefit of MML’s intellectual property taken during the Raid, caused millions of pounds worth of damage to MML. That claim entirely failed, both because I decided that it was not negligent for Ware & Kay not to have made any such recommendation by way of advice and because, even if (as I concluded they should have done) they had included such a course among a menu of alternative options following the Raid, neither Mrs Phillis nor MML would have chosen that option in preference to the one which the defendants perfectly properly recommended.

Secondly, while it is true that I upheld the claim that the defendants were negligent in advising MML and Mrs Phillis as to the requisite steps by which to achieve the removal of Mr Holly at the EGM on 13 February 2003, that claim was advanced unequivocally for the first time only in the claimants’ reply in January 2012, and then only for the purpose of founding an allegation that, but for the negligence, the Raid would never have occurred. I rejected that alleged consequence.

Thirdly, although it was alleged from an early stage that the defendants’ negligence had caused Mrs Phillis to have to make payment in settlement of Mr Holly’s section 459 claim, the only basis for this allegation, until the very end of the trial in closing submissions, was that the defendants’ failure to recommend a counter-attack against Mr Holly arising from his conduct of the Raid, as a defence to the section 459 petition, exposed Mrs Phillis to the need to make a substantial payment in settlement, for the purchase of his shares and costs. Again, I rejected that analysis.

Fourthly, the negligence of the defendants which I concluded had caused Mrs Phillis to be vulnerable to payment of Mr Holly’s costs by way of settlement of the section 459 claim was not their failure to give correct advice about the EGM, but rather their failure to advise Mrs Phillis to make a fair offer for his shares before, or at the time of, removing him. This negligence was only alleged, by way of amendment, on the very last day of the trial. Although I noted in my judgment that the mishandling of the EGM had been regarded by Mrs Phillis’s counsel Hugo Groves as a contributory factor to her vulnerability on costs, my own view was that this was a surprising conclusion, and that it was the failure to recommend a fair offer for his shares which was the real cause of her vulnerability.

Fifthly, on any view Mrs Phillis’s recovery of £28,000 represented a tiny fraction (less than 1%) of her claim. It was introduced as an afterthought, formed no part of the matters arising from the Raid, and had nothing to do with her main grievance, namely the damage caused to her business by Mr Holly’s unlawful competition. £28,000 was, although more than nominal, such a small sum as would not have justified High Court proceedings for its recovery. Even if not nominal, it was trivial, when viewed against the claim advanced.

Finally, the reasons given by the majority of the Court of Appeal in the Medway case for not criticising the defendant for making no Part 36 offer are fully applicable in the present case. By the time when an unequivocal complaint that the defendants had mishandled the EGM was first made in January 2012, the claimant had obtained funding by means of a CFA together with an ATE policy which, when aggregated with their expenditure to date, would have exposed the defendants to a costs liability of hundreds of thousands of pounds had they made a Part 36 offer of, say, £30,000. It is true that, as Mr Fernando submitted, a Part 36 offer could have been made solely on account of that specific claim but, even then, the ordinary consequence of its acceptance would have been liability for the whole of the claimant’s costs to date, subject to a discretion in the Court to order otherwise: see CPR 36.2(2)(d), 36.10(2) and Note 36.10.1 in the White Book.

Quite separately from the analysis of the question who was the successful party, it is well settled that where a late amendment is made which proves to be the sine qua non for the claimant’s eventual success, the defendant is generally entitled to its costs incurred up until the making of that amendment see: Beoco Limited v Alfa Laval Co. Ltd. [1995] QB 137, per Stuart-Smith LJ at 154 and 156. Beoco was, incidentally, another example of the conclusion that the recovery of a trivial sum on account of a much larger claim did not make the claimant the successful party: see page 156.

The result of that analysis is that, as the successful party, Ware & Kay ought in accordance with the general rule to be paid their costs by Mrs Phillis. The next question is whether any of the considerations referred to in CPR 44.3, or any other relevant considerations, make it just for some different order to be made, for example by disallowance of part of Ware & Kay’s costs, or some wholly different costs order in respect of a distinct part of the claim.

As to those matters, there is some force in the submission that Ware & Kay should have conceded the limited negligence which I found to have been proved, particularly in relation to the mishandling of the EGM, although in the end I concluded that this was not the real cause of the modest loss suffered, or any other loss. Furthermore, the ambit of disclosure may have been pursued beyond a sensible extent in the context of a claim essentially based upon the loss of a chance. By contrast, by the time the Court came to decide whether there should be a split trial, it was Ware & Kay who submitted that there should, while Mrs Phillis resisted such an order, the parties having shortly beforehand reversed their positions on the matter. Apart from that, Ware & Kay are not to be criticised for having vigorously, and successfully, defended the whole of the claim pursued until the last minute amendment, and they cannot be criticised for having made no Part 36 offer.

Taking all those matters together, I consider that they warrant only a modest discount against the costs which would otherwise be payable pursuant to the general rule. The fact that Mrs Phillis made a very small recovery on account of her last minute amendment cannot, in accordance with settled principle, be a significant factor in her favour. By contrast the refusal by the defendants to admit any negligence justifies, in my view, a 15% reduction in the costs payable.

I have therefore concluded, for the reasons given, that Mrs Phillis should pay 85% of the costs of Ware & Kay, to be the subject of a detailed assessment on the standard basis, if not agreed.

The parties were agreed that an appropriate rate of interest would be £1.5% over base. The disagreement was whether any interest should be payable, and if so from what date.

My conclusion that the £28,000 which Mrs Phillis recovered depended upon her last minute amendment to plead a failure by Ware & Kay to advise that a fair offer be made for Mr Holly’s shares before or at the time of his removal means that, although technically treated as backdated to the date of the issue of this claim, in substance the claim on which she succeeded was only introduced on the last day of the trial. The consequences of the making of a belated claim upon the recovery of interest are summarised in Claymore Services Ltd v Nautilus Properties Ltd [2007] EWHC 805 (TCC) by Jackson J as follows, at page 55:

“From this review of the authority, I derive three propositions:

(1)

Where a claimant has delayed unreasonably in commencing or prosecuting proceedings, the court may exercise its discretion either to disallow interest for a period or to reduce the rate of interest.

(2)

In exercising that discretion the court must take a realistic view of delay. In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business. It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else. Delay should only be characterised as unreasonable for present purposes when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue his claim for a significant period.

(3)

When determining what disallowance or reduction of interest should be made to mark a period of unreasonable delay, the court should bear in mind that the defendant has had the use of the money during that period of delay.”

Applying those principles, I have concluded that Mrs Phillis ought to obtain interest on her £28,000 damages commencing at the midpoint in time between the date when payment became due pursuant to her settlement with Mr Holly, namely April 2004, and the date upon which her amendment was allowed, namely the last day of the trial. My reasons follow.

This was, on any view, a very long delayed claim. It might even have been statute barred if a claim for that relief had been issued on its own on the date when the amendment was allowed, although this point was not taken as a reason for refusing permission to amend.

Nonetheless its relative unimportance, in the context of her much larger grievance about the loss of her business due to Mr Holly’s unlawful competition, may go some way to explain, if not justify, its being left in abeyance for so long. Finally, it cannot be ignored that Ware & Kay had the benefit of the £28,000 by which, due to their negligence, Mrs Phillis had to overpay Mr Holly by way of settlement and that, until she instructed new solicitors after the termination of their retainer, she had no way of knowing that this payment of hers was attributable to her own advisers’ breach of duty. This is not, on any view, a claim which Mrs Phillis can be considered likely to have known about, yet kept up her sleeve.

Mrs Phillis put forward detailed draft grounds of appeal which, although in part described as based upon errors of law, amount mainly to a challenge to findings of complex fact and mainly factual analysis with which I consider that the Court of Appeal would find it difficult to interfere, to the extent necessary to give rise to a significantly different outcome. Accordingly, I decline to grant permission to Mrs Phillis to appeal, on the grounds that I do not regard her proposed appeal as having a real prospect of success.

Ware & Kay sought limited permission to appeal, directed to my findings of breach of duty, and to my grant of permission to Mrs Phillis to make her late amendment.

As to the former, I consider those breaches to have been clearly established, hence my modest disallowance of the defendants’ costs for having made no concessions at all in relation to them.

As to permission to amend, that was, as it seems to me, a matter within my discretion, and dealt with on a conventional basis, not least because Mr Fernando very sensibly accepted that an amendment which would have necessitated an adjournment could not, at that late stage, be pursued.

The result is that I refuse permission to either party to appeal.