Andrew Hicks Engineering Limited v Jenk Associates Limited & Anor

This is my judgment on applications the subject of two notices, one by the claimant, dated 12 April 2023, and the other by the defendants, dated 4 July 2023. Both concern the appropriate costs orders to be made in proceedings which both sides agree are now unnecessary and can be brought to an end. Happily, the parties agree that the claimant should serve a notice of discontinuance under CPR rule 38.3, but that the court should order (under rule 38.6(1)) that, subject to the other points discussed in this judgment, the claimant should not be liable to the defendants for the costs of the claim. At the hearing, I indicated that the court would make that order. Unhappily, they disagree about two other aspects of the costs of the proceedings. One of them was in fact dealt with at the hearing. This was whether the defendants should pay the claimant’s costs of an application dated 10 January 2023 for an extension of time in which to serve its particulars of claim. For reasons given shortly at the hearing I dismissed that application.

The other aspect of the costs liability was however more substantial, at least in terms of the time taken at the hearing to argue it. It concerns the costs of an application for an interim injunction sought by the claimant by notice dated 28 September 2022, which went to a hearing before me on 5 October 2022. This hearing resulted in no injunction being granted, as the defendants gave certain undertakings, and the application was adjourned generally with liberty to restore. However, time for the service of the claimant’s particulars of claim was extended to 20 January 2023, and the costs of the injunction application were reserved to me at a future hearing to be listed if necessary. The parties thereafter managed to negotiate a solution to their dispute, which covered almost everything. The only matters remaining unagreed were those dealt with at the hearing before me on 10 July 2023.

Before I can deal properly with the costs issue remaining, I must set out some of the background to the dispute between the parties. It concerns a small industrial estate called the Western Barn Industrial Estate, in Hatherleigh Road, Winkleigh, in Devon. An aerial photograph appears below.

It will be seen that a U-shaped (private) access road dropped down from two points on the public highway, and surrounded three industrial units, numbered 1, 2 and 3, from top to bottom, so that 1 (the largest) was nearest the highway, and 2 and 3 (which were contiguous) were furthest from the highway. Unit 4 was to the east of unit 1, but on the other side of the access road. Between unit 1 and the access road to the east, there was space for large vehicles to turn. This was convenient for vehicles for both unit 1 and unit 4, and was referred to as the “turning circle”. South of unit 4 was a triangular area used as a car park. On both sides of the access road at the bottom of the loop were areas which could be used for storage. To the north-east of unit 4 was a further building referred to as “the Office”.

In 2002 the then freeholder of the estate granted a lease of unit 1 to the second defendant. In 2005 the freeholder granted a five-year lease of unit 4 to Mr and Mrs Hicks, the shareholders in and directors of the claimant, a company specialising in steel fabrication. On 19 June 2008, the freeholder sold the freehold of unit 4 to Mr and Mrs Hicks. The transfer to the Hicks contained express provisions as follows:

In September 2008, the Hicks granted a 20-year lease of unit 4 to the claimant. In 2013 the freeholder sold the remainder of the freehold of the estate to the first defendant, whose sole shareholder and director is a Mr Down. Some time thereafter there were discussions between Mr Down and Mr and Mrs Hicks as to terms on which the Hicks and the claimant might relocate and the whole estate be redeveloped as residential property. However, negotiations and indeed relations between the parties broke down, and no agreement was reached.

On 25 June 2021, Mr and Mrs Hicks and the claimant issued proceedings against the defendants in the County Court at Exeter. I will call these the “first proceedings” or the “first claim”. These proceedings were later transferred to the County Court at Bristol, and, on 19 January 2022, from the County Court to the High Court, Bristol District Registry. Those proceedings made a number of claims on behalf of all three claimants against the present defendants. I will set these out in a moment. On 24 March 2023 the claimants’ solicitors made a Part 36 offer to settle the first proceedings. I will come back to the terms of this offer. On 16 June 2022, the defendants accepted the offer, and, on 9 August 2022, the court in its order recorded that acceptance, but also dealt with certain costs matters which had arisen.

The claim form stated that the claim was “for injunctive and other relief in respect of wrongful interference with the Claimants’ property rights”. The particulars of claim, dated 21 June 2021, asserted (at [2]) that the first and second claimants were the owners of the freehold of unit 4, (at [12]) by virtue of a transfer dated 19 June 2008, and (at [7]) that the third claimant was the occupier of the unit, initially under the lease granted in 2005, and (at [17]) latterly under the lease granted in September 2008.

The particulars of claim further alleged (at [8]) that under the 2005 lease the third claimant was granted certain rights in relation to parts of the industrial estate other than unit 4, namely rights of way over the access road, and (at [9]) rights to use the electricity cables, electricity substation, the water pipes, sewage drains and the sewerage pump of the industrial estate. In addition, it was alleged (at [13]) that the 2008 transfer included an express grant of a right of way over the entire access road, main gate and back gate, and (at [15]) an express grant for the benefit of unit 4 of a right to use the electricity cables, the electricity substation, water pipes, the sewage drains and the sewerage pump of the industrial estate. It was also alleged (at [16]) that the 2008 transfer did not exclude the operation of section 62 of the Law of Property Act 1925, and that accordingly “all the uses and/or liberties, privileges, easements, rights and advantages appertaining to or reputed to entertain to Unit 4 and enjoyed through the occupation of Unit 4 by the First and Second Claimants through their agents the Third Claimant under the 2005 lease” were included in the 2008 transfer.

The particulars of claim went on to allege (at [18]) that the first and second claimants in January 2015 acquired the Office from the first defendant’s predecessor in title, and that the transfer granted rights for the transferee in connection with the use and enjoyment of the Office to the free and uninterrupted passage and running of water soil gas electricity and other services to and from the Office through installations now or later laid over under or through the rest of the industrial estate (now owned by the first defendant).

It was then further alleged (at [22]) that there was an agreement reached between the claimants and the first defendant whereby the claimants would support the first defendant and the first defendant would provide alternative premises for the third claimant nearby. This was referred to as the “Informal Agreement”. It was then alleged (at [23]) that the first defendant had reneged on the Informal Agreement, and was wrongly interfering with the claimants’ rights in relation to unit 4.

The particulars of claim then went on to set out a number of actions attributed to the defendants between June 2020 and May 2021 which were alleged (at [24]) to amount to

The defence of the defendants and counterclaim of the first defendant were dated 30 July 2021. Paragraphs 2 and 12 of the particulars of claim were admitted (at [2] and [11]). As to paragraph 7, the third claimant’s occupation of unit 4 was admitted, but the formal grant of the 2005 lease was denied (at [6]). Paragraph 17 was admitted (at [16]). Paragraph 8 was largely denied, except for a right of access from the main gate over the access road to unit 4, and a limited permission (not amounting to a property right) to use the remainder of the access road and car park area (at [7]). Paragraph 9 was partly admitted, but the formal grant of the 2005 lease was denied, and it was also denied that the 2005 lease referred to either the electricity substation or the sewerage pump (at [8]). Paragraph 13 was admitted as to the terms of the 2008 transfer, but denied as to its effect over the main part of the access road (at [12]). Paragraph 15 was admitted as to the terms of the 2008 transfer, but denied as to the references to the electricity substation and the sewerage pump (at [14]). Paragraph 16 of the particulars was largely denied, although it was admitted that the 2008 transfer did not expressly exclude the operation of section 62 (at [15]). Paragraph 18 was not admitted, and denied to the extent that it alleged that the Office had any right to the supply of electricity or water (at [17]). As to paragraph 24, it was denied (at [27]) that the matters complained of amounted to an actionable nuisance as alleged or at all.

Whilst dealing with the defence, I need to add this. The final two sentences of paragraph 23 of the defence stated as follows:

The claimants’ Reply and Defence to Counterclaim was dated 27 August 2021. Paragraph 6 of the Defence was denied. Paragraph 7 was mostly denied. Paragraphs 8, 12, 14, 17 and 27 appeared not to be pleaded to. Some parts of paragraph 15 were denied. Paragraph 23 (referring to the valuation report) was denied.

As a result of the statements of case, it appears that the main issues between the parties were:

As I have said, the first proceedings were settled by the defendants’ acceptance of a Part 36 offer made by the claimants. The terms of this offer were set out in a letter sent by the claimants’ solicitors to the defendants’ solicitors dated 24 March 2022, headed as follows:

The relevant terms were as follows:

The letter refers to “our client” and “your client”, although in fact there were three claimants and two defendants. In addition, the rights claimed by the three claimants were not exactly the same. The rights claimed by the first and second claimants were said to arise under the 2008 transfer of the freehold. So they would be freehold rights. On the other hand, the rights claimed by the third claimant were said to arise under the 2008 lease. So they would be leasehold rights, albeit granted out of the freehold taken by the first and second claimants under the 2008 transfer.

The third witness statement (dated 10 January 2023) of Jill Headford, the claimant’s solicitor, made in the present claim, said (at [10]) that the first claim was one “in trespass/nuisance for damages for interference with freehold rights … ” whereas “in the present action, the Claimant as Tenant of Unit 4 seeks relief against the defendants … in relation to its leasehold rights … ” (emphasis supplied). This is not correct, as the defendants’ counsel pointed out in her skeleton argument (at [43]-[44]). The present claimant was also a claimant in the first claim, and claimed by virtue of its leasehold rights. Moreover, the section 62 “enhancement” to the freehold claimed in the first action, and denied by the defendants, was also in issue. In any event, even if the leasehold rights claimed in the second claim had not been in issue in the first one, they could not be greater than the freehold rights under the transfer, which the claimant accepts were the subject of the settlement.

Nevertheless, the terms of the offer included (i) the payment of £500,000 by the first defendant to the Hicks, (ii) the transfer by the Hicks to the first defendant of the freehold interest in unit 4, as well as (iii) the settlement of “the entire proceedings”. The immediate focus of the parties thereafter was very much on the payment of the money and the transfer of unit 4, and much less (if anything at all) on what settlement of “the entire proceedings” involved. The transfer was duly completed on 5 August 2022, so that the first defendant became the freeholder of the whole estate, but with the present claimant as its tenant of unit 4, under a lease which still had about six years to run.

It appears that at that stage the defendants considered that the whole estate other than unit 4 could be sold to a developer, but that the claimant was seeking to persuade the defendants to accept a surrender of the lease so that the entire estate could be redeveloped. There then followed a lengthy correspondence, usually between the parties’ solicitors, sometimes involving several communications a day, dealing with various subjects, and often expressed (on the claimant’s side) in unfortunately bellicose terms. It is not necessary for me to deal with the whole correspondence. For present purposes, the following summary will suffice.

The defendants complained in a letter of 31 August 2022 of conduct by the claimant which they said were causing difficulties for their potential purchaser. The letter referred to the first proceedings and the settlement of those proceedings, and then said:

The claimant by email of 12 September 2022 in turn complained of conduct by the defendants which it said infringed the claimant’s rights under the lease “including those over the wider area of Western Barn”, in particular by padlocking the gate at the rear entrance to the estate. As to the defendants’ case that the rights were given up by the settlement, the claimant said:

By letter of 13 September 2022 the defendants again said that that the rights now claimed by the claimant had been given up by the settlement of the first proceedings, and threatened further injunctive proceedings. On 15 September 2022 the claimant wrote again to seek written undertakings that the defendants would not “obstruct, impede or interfere with the rights of our client’s access, storage and parking at Western Barn as rightfully enjoyed under the 2008 Lease”, failing which injunction proceedings would be issued. On 21 September 2022 the claimant wrote again to inform the defendants that proceedings were being prepared by counsel, but “in a last effort to reach agreement and avoid further costs” the request for written undertakings was repeated, and draft undertakings were enclosed.

On 22 September 2022 the defendants replied, enclosing a copy of the claimant’s Part 36 offer, and drawing the claimant’s attention to the terms of the offer, including the words “our client is willing to settle the entire proceedings…” It went on to say once more that the claimant had “in consideration for the payment of £500,000, given up the ‘claimed rights’.” The letter concluded by making clear that the defendants had “no intention to offer the undertakings that are sought”. On the same day, the claimant wrote again, to complain about further alleged obstruction of the claimant’s rights under the lease. It concluded with the words “if injunction proceedings are to be avoided we do need to hear from you urgently please”. A postscript to this letter stated that “This has crossed with your own letter of today but there is still time for your clients to reconsider their actions”. It is therefore clear that the defendants’ letter arrived before this one was sent.

On 27 September 2022 the claimant wrote again referring to the earlier letters of 15, 21 and 22 September 2022. This letter attached a draft claim form and an application for interim injunction which it was said would be issued if the written undertakings sought were not received by 4 PM on that day. On the same day the defendants responded by email, again saying that the rights claimed by the claimant were part of the claimant’s pleaded case in the earlier claim, which was settled on the terms of the Part 36 offer.

The tone of the whole correspondence on each side is very different. On the defendants’ side, the solicitors’ letters and emails are generally short, straightforward, and polite. On the claimant’s side, the correspondence is lengthy, complex and tendentious, indeed sometimes aggressive. Everything is argued out at length. Of course, solicitors must defend their clients’ interests, but litigation by correspondence is to be avoided. It is both time-consuming and expensive, it unnecessarily raises the temperature (which makes settlement more difficult to achieve), and it does not decide anything.

On 28 September 2022 the claimant both issued the present (second) proceedings and also applied for an interim injunction. As to the former, the endorsement on the claim form stated that:

The claim form stated that the particulars of claim were “to follow”. In fact, they never did, because the immediate problem was dealt with by undertakings, as set out below, and thereafter the parties negotiated for the surrender of the lease of unit 4. This means that the only formal statement of the terms of the second claim is the general endorsement on the claim form itself. It also follows that no defence has ever been filed in the second proceedings. Nevertheless, details of the claims which may have been intended to be made can be seen from other materials before me.

These materials include the first witness statement (dated 26 September 2023) of Jill Headford, the claimant’s solicitor, in which she said (at [40]) that, since the settlement of the first claim, the defendants

The materials before me also include the earlier correspondence between the parties, in particular the letter of 21 September 2023 from the claimant’s solicitors to the defendants’ solicitors, enclosing draft undertakings with a plan attached. These (in summary form) appear to have been intended to protect the following claimed rights:

As I have said, the application for an interim injunction was issued on 28 September 2022. It was listed for a hearing before me to take place on the morning of 5 October 2022. (In the event it was heard at 2 pm, and because of a transport strike, it took place remotely.) On 26 September 2022 Jill Headford, the claimant’s solicitor, made her first witness statement in these proceedings. In that witness statement she explained that the claimant “was willing and able to give a cross undertaking in damages”. She said that it owned an office building worth between £160,000 and £170,000, and that it had a current bank balance in excess of £450,000, but had no long-term liabilities other than a “bounceback” loan of £43,000.

On 27 September 2022 the defendants sent an email to the claimant, reiterating their position. This included a statement that

On 3 October 2022 the defendants responded that they would agree to give most of the undertakings sought “to protect the position pending compromise of the disputes between the parties or pending further reference to the court”, to be terminable on 14 days’ notice. Further negotiations on the terms of the undertakings were carried out between the parties in correspondence on 3 and 4 October 2022. In particular, a letter from the defendants’ solicitors to the claimant solicitors sent on 4 October 2022 raised the question of the ability of the claimants to support the cross undertaking in damages which would be required for an interim injunction. On the same day, Jill Headford made her second witness statement, in which she expanded upon the financial position of the claimant, exhibiting bank statements evidencing the claimant’s bank balances.

The existence of the further negotiations between the parties was specifically adverted to in the claimant’s then counsel’s skeleton argument sent to the court on 4 October 2022. (Their existence may well also explain why the defendants did not file any evidence.) The claimant’s skeleton argument also submitted (at [57[(1)) that there was a serious issue to be tried, and (at [64]) that “the balance of convenience militates in favour of the grant of the injunctive relief the Claimant seeks”. These are part of the well-known American Cyanamid Co v Ethicon Ltd [1975] AC 396 criteria for the grant of an interim injunction. Agreement between the parties on all of the undertakings sought led to the application being dealt with by consent, on the basis of those undertakings being given by the defendants to the court and to the claimant, terminable on the basis of 14 (not 21) days’ notice.

The substance of the order made by the court on 5 October (which was expressed to be made by consent) was summarised in paragraph 2 above. The terms of the important paragraphs were as follows:

The parties continued thereafter to negotiate on the terms of a surrender of the lease. This was finally agreed in writing on 8 November 2022, but was not due to be implemented by January 2023 (when time for service of the particulars of claim would expire). On 3 January 2023 the claimant sought a further agreed extension of time to 14 April 2023. The defendants replied substantively on 9 January 2023 that they could not consent to an extension longer than 28 days. There was further correspondence, but the claimant issued an application on 10 January 2023, and on 19 January 2023 DJ Markland made an order extending time until 14 April 2023.

The completion of the surrender of the lease of unit 4 by the claimant took place on 31 March 2023. The form TR1 employed states that the “transfer” (ie the surrender) was “not for money or anything that has a monetary value”, although the claimant was released from all the tenant covenants of the lease and any subsisting liabilities for breach of them. The claimant subsequently vacated the unit and moved away.

On 12 April 2023 (two days before the deadline for filing particulars of claim) the claimant issued the present application. It seeks “Disposal of the Claim and summary assessment of the Claimant’s costs – see draft order”. The substance of the draft order is as follows:

As I have already said, at the hearing on 10 July, the costs order at paragraph 2 was refused, and the substance of that at paragraph 4 was granted by consent. (For clarity, I add that the court does not order a discontinuance. The claimant must discontinue by notice filed and served, under rule 38.3, but the court orders, under rule 38.6(1), that the normal order that the claimant pay the defendants’ costs does not apply.) I made no order on paragraph 1, because in light of the intended discontinuance there was no point in it. That left the application for costs of the interim injunction application dated 28 September 2022.

I referred above (at [14]) to paragraph 23 of the defence and counterclaim. On 12 January 2022 the claimants applied by notice to strike out the final sentence of this paragraph, on the basis that it referred to a valuation report which was subject to “without prejudice” privilege. On 19 January 2022 DJ Taylor gave directions to trial in this claim, and also ordered that the application to strike out be listed before him on the first available date after 14 days. However, on 17 March 2022 the same judge ordered that this application, together with another dated 18 February 2022 be listed together in a half day hearing, but with the strike out application heard first. In fact they were not listed before the judge until 9 August 2022, when no substantive order was made on the application, but the defendants were ordered to pay the claimants’ costs of it. I do not have the benefit of any judgment or other reasons why the judge so decided. But nothing appears to turn on this.

At the hearing before me, counsel for the claimant submitted that I should not look at the report, on the basis that it was subject to “without prejudice” privilege, having been prepared for the purposes of negotiations between the parties. The evidence filed on behalf of the claimant does not, so far as I can see, support that submission. I have looked through all five of the witness statements made by Jill Headford, the claimant’s solicitor, in these proceedings, and I cannot find any reference at all to the circumstances in which this report came into existence. Counsel for the claimant certainly did not refer me to any. The terms of the report itself do not disclose circumstances appropriate to attract “without prejudice” privilege. They say only that the makers “have been asked to provide a valuation of the property in consideration of a possible disposal to a developer”. They also say that the report “is confidential to the Client and Client’s representatives”. At the time the report was prepared, in January 2021, the parties were in dispute, and indeed proceedings were issued in June 2021. But there is no suggestion, and it was not submitted to me, that any kind of privilege other than “without prejudice” privilege could be claimed.

The original report, from the surveyors to the claimants in the first proceedings, was not a “without prejudice” communication. There was no dispute between them. On the contrary, it was professional advice which the claimant sought for their own purposes and to inform their own decision-making. That report was copied to the defendants on 18 February 2021. However, as I say, there is no evidence that this was part of a without prejudice negotiation between the parties. Nor is there any evidence of any other express or implied agreement between them that the contents of this report should be inadmissible in any subsequent legal proceedings between them. In these circumstances, in the absence of such evidence, I cannot see how the claim for “without prejudice” privilege can be maintained. But, even if I were wrong about that, and the privilege would otherwise be available, in my judgment “without prejudice” privilege does not apply to this report for another reason.

Counsel for the defendants referred me to Passmore, Privilege, 4^th ed 2020 at [10.154], and to Oceanbulk Shipping v TMT Asia [2011] 1 AC 662, SC. In Oceanbulk, the Supreme Court, in a chamber of seven judges, unanimously decided that there was a further exception to “without prejudice” privilege, namely, to enable otherwise privileged material to be taken into account in construing a contract which could have been taken into account if it were not subject to such privilege. In my judgment, that is this case. In considering what was being acquired by the defendants in the contract formed by the acceptance of the Part 36 offer, the expert opinion of the valuation surveyors as to what the freehold of Unit 4 was worth, (i) simply as a building, and (ii) with the benefit of the rights to prevent the redevelopment of the whole estate, is clearly relevant, given the amount actually demanded and paid. Counsel for the claimant submitted that the Oceanbulk exception applied only in relation to a subsequent contract. I do not accept that submission. In my judgment, even if this report were prepared in such circumstances as to attract “without prejudice” privilege, it is nevertheless admissible in these proceedings under the Oceanbulk exception.

The valuation report referred to in paragraph 23 of the Defence is dated 28 January 2021, and was prepared by Underwood Wright, chartered surveyors. At paragraph 6.8, headed “VALUATION”, they say this:

The argument for the claimant that it should have its costs of the injunction application was that this was a clear case for an interim injunction to be granted, and, if the defendants had not given undertakings, the court would have granted one. So, the defendants should have offered the undertakings as soon as they were sought, and thus saved the costs of the actual court hearing and its preparation. All that would have been needed was the drafting and submission to the court of a consent order. In the claimant’s skeleton argument for the present application, the matter is put in this way:

In support of the final point, that the court would have made an order, the claimant urges the following points (in my summary):

The claimant relies on passages from Bean, Harry and Burns, Injunctions, 14^th ed 2022, at paragraphs 5-38 to 5-42. I will not set out these paragraphs in extenso, but I will reproduce here two short but useful passages, in paragraphs 5-40 and 5-41, the second of which was particularly relied on:

The defendants argue three main points:

For the law on the question whether there was a serious issue to be tried, I need refer only to the recent decision of the Court of Appeal in Boydell v NZP Ltd [2023] EWCA Civ 373, where earlier decisions such as Arbuthnot Fund Managers Lyd v Rawlings  [2003] EWCA Civ 518 and Planon Ltd v Gilligan [2022] IRLR 684, CA, are discussed. I am plainly bound by that decision. In that case an employee resigned from his employment with a ‘niche’ pharmaceutical company to work for a competitor. His employer sought to enforce restrictive covenants in his employment contract against him. At first instance the judge granted an injunction in relation to one covenant but refused it in relation to the other. The employee (but not the employer) appealed. The appeal failed.

Bean LJ (with whom Macur and Coulson LJJ agreed) referred to the earlier cases I have mentioned, and said this:

In Fleming Fabrications Ltd v Albion Cylinders Ltd [1989] RPC 47, CA, the plaintiffs sought an interlocutory injunction in a patent action. It was conceded by the defendant that there was an arguable case for patent infringement, and an injunction was granted. On appeal, it was held that the judge was in error in holding that the plaintiffs would be able to pay any damages under the cross undertaking given by them. The court accordingly exercised its discretion afresh.

May LJ, with whom Dillon LJ agreed, said (at 57):

Accordingly, even if it were the case that the claimants would not be able to pay the full amount of any damages due on the cross undertaking, that is not the end of the matter. The court must still consider where the balance of convenience lies.

The general rules on costs are not controversial. Under the general law, costs are in the discretion of the court: Senior Courts Act 1981, section 51(1); CPR rule 44.2(1). However, if the court decides to make an order about costs, the general rule is that the unsuccessful party in the proceedings pays the costs of the successful party: CPR rule 44.2(2)(a). However, the court may make a different order: CPR rule 44.2(2)(b). In deciding whether to make an order and if so what, the court will have regard to all the circumstances, including conduct of all the parties and any admissible offer to settle the case (not falling under CPR Part 36) which is drawn to the court’s attention: CPR rule 44.2(4). If the general rule applies, it requires the court to ascertain which is the “successful party”. In Kastor Navigation Co Ltd v Axa Global Risks (UK) Ltd  [2004] 2 Lloyd's Rep 119, Rix LJ (giving the judgment of the Court of Appeal) said (at [143]) that the words "successful party" mean "successful party in the litigation", not "successful party on any particular issue".

In BCT Software Solutions Ltd v C Brewer & Sons Ltd [2003] EWCA Civ 939, a claim for copyright infringement went to trial, but settled after the first day of the hearing, except for the question of costs. There was then an argument about costs, which resulted in the trial judge making a complex order. The claimant was aggrieved by the costs order and appealed. The Court of Appeal dismissed the appeal. A general theme in the two judgments which were given, by Mummery and Chadwick LJJ respectively) was that the appellate court should not interfere in a costs order save in cases of manifest injustice, which this was not.

In his judgment, however, Chadwick LJ also made a number of important comments on the basic rules concerning costs, with which Brooke LJ expressly agreed, and there is nothing inconsistent with them in the judgment of Mummery LJ. Chadwick LJ said this:

In M v Croydon London Borough Council [2012] EWCA Civ 595, the Court of Appeal gave guidance on costs orders in judicial review claims where the claim is compromised without a final hearing, and an order is made by consent (though with judicial approval). Lord Neuberger MR (with whom Hallett and Stanley Burnton LJJ agreed) referred, at [48]-[49], to the judgment of Chadwick LJ in BCT Software. He referred with approval to the second sentence of paragraph 25. Then he went on to say this:

Of course, the relevant facts in judicial review cases, turning as they do on known administrative decisions and actions, are usually not (or not seriously) disputed. And the Croydon case itself was settled (as were many others) after a decision by the Supreme Court reversed the Court of Appeal on a point relevant to that case, so causing the relevant respondents to reconsider their positions. Essentially it was a point of law.

I note that in Shahi v Home Secretary [2021] EWCA Civ 1676, another case about costs after settlement of a judicial review claim, the Croydon decision was extensively discussed, and the majority of the court (Newey and Elisabeth Laing LJJ) held that the fact that the claimant achieved all he wanted by the interim order made at first instance did not make him the successful party for costs purposes. Dingemans LJ agreed that a successful order for interim relief in an action would not, without more, justify an order for costs where the parties had not agreed the issue of costs and had left it to be determined by the court. 

Turning then to cases of interim inunction applications, in Desquenne et Giral UK Ltd v Richardson [2001] FSR 1, an employer obtained an interim injunction to restrain alleged breaches by an employee of restrictive covenants in his employment contract. This was granted by the judge on the balance of convenience. However, the judge also ordered the defendant to pay the costs of the interim injunction application. The defendant appealed, and the Court of Appeal reversed the decision on costs.

Morritt LJ (with whom Morrison J agreed) said:

That decision was followed by Neuberger J in Picnic at Ascot Inc v Kalus Derigs [2001] FSR 2. Here the claimant sought an interim injunction against the defendants in relation to infringement of design right and breach of fiduciary duty. Initially the defendants opposed the application, but eventually gave undertakings over to trial, and suggested that the costs be reserved to the trial judge. The claimant however sought to make the defendants pay the costs of the interim application. Neuberger J held that the costs should be reserved.

He said:

In Albon v Naza Trading SDN BHD [2007] EWCA Civ 1124, the claimant obtained an interim anti-suit injunction against the defendant pending the resolution of a question as to the genuineness of a joint venture agreement, which was alleged to be a forgery. The judge awarded the claimant his costs of the application. The defendant appealed both decisions. The Court of Appeal upheld the grant of interim relief. On the question of costs, Longmore LJ (with whom Waller LJ and Sir Peter Gibson agreed) said:

In Fox Gregory Ltd v Spinks [2006] EWCA Civ 1544, the employee of an estate agent left, and went to work for a direct competitor nearby. The former employer sought an interim injunction to restrain the ex-employee from disclosing its confidential information to the new employer, who was also joined to the proceedings. Some undertakings (but not all those requested) were given by the new employer, and confirmation was given that all material handed over to it by the first defendant had been delivered up to the claimant. Before the return date on the application, the claimant intimated that it would not be proceeding any further with the application. Indeed, as between the claimant and the second defendant, the claim was dismissed. Both of these parties claimed that the other should pay the costs of their dispute. The judge held that as between them the second defendant was the successful party, and ordered the claimant to pay its costs.

Arden LJ (with whom Tuckey agreed) gave a lengthy extempore judgment, in the course of which she said:

It is to be noted that the BCT Software decision was referred to by Arden LJ, but neither of Desquenne and Picnic at Ascot was. I assume that they were not cited to the court by counsel. However, what is also to be noted is that the interim injunction sought, and the undertakings actually given, were not simply ‘holding the ring’ in the meantime, but also requiring the positive action of handing back confidential information. So it was not an ordinary “balance of convenience” case.

A subsequent decision of the Court of Appeal that makes this distinction clear is that in Koza Ltd v Koza Altin Isletmeleri AS [2020] EWCA Civ 1263. The defendant obtained an interim injunction against the claimants, a company and its sole director, restraining the first claimant’s use of certain of its assets for a particular purpose. The claimants appealed, but the injunction was upheld on appeal. The defendant sought its costs of the appeal. Popplewell LJ (with whom Moylan and Asplin LJJ agreed) said:

In Digby v Melford Capital Partners (Holdings) LLP [2020] EWCA Civ 1647, the appellant and two other individuals had created a group of limited partnerships and companies (the respondents) to invest in English land. The appellant and the other individuals had fallen out, and the respondents (controlled in practice by the other individuals) had purported to expel the appellant from membership of the respondents, and had obtained interim injunctions restraining the use of allegedly confidential information, delivery up of a laptop computer, and other relief. The judge ordered the appellant to pay the costs of the interim injunctions. The appellant appealed, arguing that the judge went wrong in principle in so ordering, and in particular failed to follow the binding authority of Desquenne.

The court (Lewison and McCombe LJJ) said:

Lastly, in Tradition Financial Services Ltd v Bilta (UK) Ltd [2023] EWCA Civ 112, the parties entered into a confidential settlement after proceedings were issued but before the trial. The agreement provided for the judge to determine limited issues, and also the costs of the whole proceedings. However, no liability was admitted by the defendants. The judge decided that he could not hold that the claimants were the successful parties, and that he could not decide who would have won if the case had gone to trial. Subject to a particular adjustment, he made no order as to pre-settlement costs. He made a nuanced order as to post-settlement costs. The costs appeal was solely in relation to the former. The BCT Software and Croydon cases, amongst others, were cited to the Court of Appeal. The court dismissed the appeal.

Lewison LJ (with whom Stuart-Smith and Falk LJJ agreed) said:

As I have already said, I was also referred to Bean, Harry and Burns, Injunctions, 14^th ed 2022, at paragraphs 5-38 to 5-42. At paragraph 5-41, in an extract set out above, the authors say:

That was a case where proceedings were brought to restrain former employees from breaching restrictive covenants in their employment contracts by working for competitors. An application for interim injunctions was dealt with on undertakings, but before the return day the claim was settled, save for costs. Each side sought an order that the other should pay its costs. The defendants said the claimants had pursued the claim too aggressively, and settlement would have occurred sooner and at less expense if they had not done so. The claimants said that they achieved a beneficial result which they would not have achieved otherwise.

HHJ Seymour QC, sitting as a High Court judge, concluded thus:

From this regrettably lengthy citation of authority, I derive the following principles, sufficient for the purposes of this case:

If the court is able on the material before it to conclude that the claims made by the claimant are an abuse of the process, because they have already been the subject of proceedings which have been settled, then it cannot be said that there is a serious issue to be tried for the purposes of granting an interlocutory injunction. Here the defendants’ complaint is that the present case substantially overlaps the first proceedings, which was settled by the acceptance of the Part 36 offer.

The rights claimed by the claimant are rights arising under the lease granted out of the freehold as claimed to have been enhanced by section 62 of the 1925 Act. The claim of enhancement of the freehold by section 62 was raised in the first proceedings, and denied by the defendants, and was accordingly settled by the compromise between the parties. The claims to use the right of way over the whole access road (and not just the short stretch between unit 4 and the main road) to use the turning circle, to be able to load and unload and to store goods in various parts of the estate, and to park in the car park, as well as to the free passage of electricity and the use of the substation, were all raised in the first proceedings, and (with the exception of the right of free passage of electricity through the cables, which was admitted) were all denied by the defendants. These issues between the parties (including the present claim) were also settled by the compromise.

The effect of the compromise was raised by the defendants’ solicitors in correspondence at least by 31 August 2022. The only coherent answer made by the claimant’s solicitors was:

In my judgment, the claims made in the second proceedings were an attempt to relitigate matters which had already been litigated and indeed settled. Accordingly, they were an abuse of the process. In these circumstances, there could not have been a serious issue to be tried for the purposes of the American Cyanamid test, and no interlocutory injunction would have been granted.

The defendants submit that the claimant would not have been able to pay substantial damages on the cross undertaking. On the assumption that that is correct (which I do not need to decide), that would not have been an absolute bar to an interlocutory injunction’s being granted. It would simply have been a factor to take into account. I am not now in a position to decide that an injunction would not have been granted on this ground. However, because of the other matters which I can decide, this is no longer important.

In the present case, the undertakings were given in lieu of an injunction which (it is clear from the claimant’s skeleton argument for 5 October 2022) would have been sought by the claimant on the basis of the American Cyanamid ‘balance of convenience’ test. Subject to the defendants’ argument that the claim was an abuse of process, and that therefore there was no serious issue to be tried, I am in no doubt that the fact that the undertakings were given at that stage and there was no contested hearing does not give the court a sufficient basis for deciding either whether to make an order for costs at all, or, if so, what order to make.

The parties disagreed, and still disagree, strongly about the underlying facts which would show where the merits lay, and to date they have neither been resolved nor determined. Nor is it a case where (in accordance with paragraph [12] of the judgment in Picnic at Ascot) the balance of convenience was so clear that the hearing would have been a waste of time. The correspondence shows that the defendants were well aware of the arguments based on abuse of process, which in the event I have held to be correct. In addition, here was the problem of the claimant’s ability to give a meaningful cross-undertaking in damages. If I had not already decided that there was an abuse of process, and therefore no serious issue to be tried, I would have decided that it was appropriate to make no order as to costs.

In my judgment, the second proceedings were an abuse of process, and the claimant must pay the costs of the defendants of the interim injunction application.