Ted Baker Plc & Ors v AXA Insurance UK Plc & Ors

Following my judgment in relation to certain preliminary issues which I delivered on 25 May 2012, this judgment now deals with costs. In particular, the claimants apply for an order that the defendants pay to the claimants the costs of the preliminary issues to be assessed unless otherwise agreed. According to a schedule put before the court these costs are said to be approximately £660,000; and the claimants seek an order for an interim payment.

The court’s discretion with regard to costs is set out in CPR Part 44.3. For the purposes of CPR Part 44.3 (2) there is and could be no dispute but that the claimants are to be regarded as the successful party in relation to the preliminary issues which I determined; and that subject to the three points that I deal with below the claimants would be entitled to an order for costs in their favour.

The three points that arise for consideration are as follows. First, the defendants contend that I should make no order for costs at all at this stage and adjourn all questions of costs until after determination of the further issues which are still outstanding, including certain further issues in relation to liability and also quantum. Second, the defendants contend that in any event, they should not have to pay a proportion of any costs that might be ordered against them on the grounds of the claimants’ unreasonable conduct in respect of disclosure. That has now been accepted by the claimants. It has also been agreed between the parties that this should be reflected in an order which would, in effect, permit the defendants to deduct the sum of £20,000 from any order as to costs that might be made against them. Third, the first defendants contend that in any event, the court should order that the claimants pay on an indemnity basis the costs wasted and thrown away by their failure until just before trial to admit that the risk was co-insured (the “co-insurance costs”). I take each of these two outstanding points in turn.

I deal first with this threshold issue. The defendants accept that the claimants have clearly been successful on the preliminary issues. However, they submit both that it does not follow that the costs should simply follow the event and that it is not possible for the court to deal with these costs fairly at this stage. In particular, the defendants submit that it is clear on the authorities that the appropriate order is to reserve the costs until after trial of the remaining issues on liability and quantum – when the court will be able to decide who has succeeded or failed overall in the action, and to what extent, and also by comparison with any Part 36 or other relevant offers of settlement which the court can then consider.

In support of such submission, the first main point advanced by the defendants is that regardless of any Part 36 or other relevant offers of settlement that might have been made, it may be proper for the court to defer any order for the costs of a split trial of the issues of liability; and in the present case that is indeed the order that should be made. In particular, the defendants rely on the decision of the Court of Appeal in Weill Mean v Fiddler Holdings[2003] EWCA Civ 1058. In that case, following a trial on liability, a decision by the trial judge to reserve costs was upheld by the Court of Appeal even though the trial had determined all issues on liability and there was no question of any offers of settlement which might have affected costs. However, in my judgment, it would be quite wrong to regard that case as establishing any general rule that in the case of a split trial the court should ordinarily reserve the question of costs until the end of the case. On the contrary, although that was indeed the decision of the trial judge in that case and although that decision was upheld by the Court of Appeal, it is quite clear that the Court of Appeal did so with some hesitation and on the rather narrow basis that it was not possible to say that the judge’s decision was clearly one which he was not entitled to reach – see paragraph 32 of the judgment of Lightman J with whom Ward and Tuckey LJJ agreed. As to the proper approach of the court in such circumstances, Lightman J further stated as follows:

The main point advanced by the defendants here is that regardless of any Part 36 or other offers of settlement (as to which see below) which might have been made, there is at least a possibility (and the defendants would say a strong probability) that the claimants will fail on one or more of the remaining issues with regard to liability which remain outstanding alternatively, even if successful on liability, the quantum of any claim will be zero. In such circumstances, the defendants contend that the claimants will not or at least may not be entitled to recover their costs in relation to the trial of preliminary issues which has just been completed.

I do not accept that submission in the particular circumstances of the present case. On the assumption that (i) all issues had been determined in a single trial and (ii) the defendants will succeed on one or more issues of liability and/or quantum and subject to the further point raised by the defendants in relation to possible “offers” that I consider further below, I can see no real prospect of the court depriving the claimants of the costs that have been incurred in relation to the preliminary issues that I have just determined. If that is right, the fact that there has been a split trial should not make any difference. These preliminary issues were entirely discrete and it was always open for the defendants, if they so wished, to concede these particular points. On the contrary, these preliminary issues have had to be determined in the course of what has been a protracted trial involving evidence from no less than 22 witnesses. As stated above, the claimants have incurred substantial costs which according to the schedule put before the court total in excess of £660,000. In my judgment, the claimants are in principle entitled to those costs even if they may ultimately fail on other issues of liability or make no more than a nil recovery, subject only to the further point raised by the defendants in relation to possible settlement offers which I now turn to consider.

The second main point advanced by the defendants is that in deciding what order for costs should be made in relation to the preliminary issues, the court should take into account any offers of settlement that may have been made either by the defendants or the claimants whether under CPR Part 36 or otherwise; and this can only properly be done at the end of the case when the terms of any such offer can be disclosed and then considered by the court.

In support of that submission the defendants relied on a number of authorities including HSS Hire Services Group v BMB Builders Merchants [2005] 1 WLR 3158; Intense Investments v Development Ventures [2006] EWHC 1628 (TCC); Multiplex Constructions (UK) v Cleveland Bridge UK and Anr [2007] EWHC 659 (TCC); Shepherds Investments v Walters and others[2007] EWCA Civ. 292, 6 Costs LR 837. As to these authorities, the high point of the defendants’ case is the passage in para 35 of the judgment of Waller LJ in HSS v BMB:

However, it is important to note that the rule referred to in that passage is no longer extant. It provided in material terms as follows:

A Part 36 offer will be treated as “without prejudice except as to costs”.

Since then, the rules with regard to offers to settle and payments into court have been substantially revised. They are now contained in CPR Part 36 and the old CPR Part 36.19 has been recast in what is now CPR Part 36.13 which provides in material part as follows:

In my judgment, that submission ignores the change of wording and, in particular, the apparent difficulties as considered in the judgment of Henderson J in AB v CD and others[2011] EWHC 602 (Ch) :

The difficulty in the present case is that I have not been told and am not aware whether any offers of settlement have been made by the claimants or by the defendants whether under CPR Part 36 or otherwise and, if so, what might be the terms of any such offer. As to this, the position of the defendants was as stated in paragraphs 17 and 18 of their skeleton argument ie

However, there has been no agreement between the parties in this regard. On the contrary, Mr Cogley QC submitted that the effect of the present CPR Part 36.13 (2) is, at the very least, that the fact that a Part 36 offer has been made must not be communicated “until the case has been decided” and that that stage has not yet been reached and will not be reached until all issues of liability and quantum have been determined. Indeed, it was Mr Cogley QC’s submission that the defendants were already in breach of that rule by virtue of putting before the court a letter--albeit in redacted form--sent by the defendants’ solicitors to the claimants’ solicitors.

In the event, it is unnecessary for me to determine whether or not the defendants have acted in breach of CPR Part 36.13 and I should make plain that both parties expressly agreed that I should continue in any event to determine the issues arising.

As to the scope and effect of CPR Part 36.13 it seems to me that two points are relatively clear. First, the prohibition in CPR Part 31.13 (2) applies only to a Part 36 offer. It follows that an offer which is not a Part 36 offer is not caught by the prohibition. I did not understand the parties to suggest otherwise although I should mention that there was some debate during the hearing whether a party who had made an offer of settlement “without prejudice save as to costs” which was not a CPR Part 36 offer could at any stage unilaterally waive the privilege that would ordinarily attach to such offer and voluntarily communicate both the fact and terms of such offer to the court. In principle, I see no reason why that should not be so. However, it is unnecessary to resolve that debate in the present case because it was not suggested by either the defendants or the claimants that any offer that might have been made was of such a type.

Second, although CPR Part 36 (2) prohibits the fact of any CPR Part 36 offer being communicated to the court in the circumstances there specified, it does not on its language appear to prohibit the fact that a CPR Part 36 offer has not been made being communicated to the court. Again, I did not understand the parties to suggest otherwise although this may seem somewhat odd if only because if that is right and the court is not told that a CPR Part 36 has not been made then the inference would seem to be that a CPR Part 36 offer must have been made; and this would appear to undermine the prohibition in CPR Part 36.13. Be that as it may, Mr Cogley QC informed the court (without objection from Mr Nicholson QC) that the court could and should proceed on the basis that no CPR Part 36 offer has been made specifically in relation to the preliminary issues.

In any event, I am still ignorant as to whether any more general CPR Part 36 offer has been made. What is the proper approach in such circumstances?

It seems to me (as it did to Henderson J. in AB v CD) that there is a “real problem” here. In my view, there is an urgent need for CPR 36.13 to be reviewed and possibly reformulated in order to deal in particular with the question of “split trials” and the kind of difficulties which have arisen in the present case. However, in the meantime I have to grapple with the rule in its present form. The view tentatively expressed by Henderson J. was that in appropriate circumstances the new wording should be construed as referring to the conclusion of the first part of a split trial so that once that part has ended, it would be permissible to communicate the fact of any Part 36 offer to the court. That interpretation of CPR Part 36.13 (2) has obvious attractions and one which is, I suppose, an interpretation consistent, or at least more consistent, with the overriding objective.

Such an approach was urged by Mr Nicholson QC. In particular, he submitted that it cannot have been the intention of the Rules Committee when recasting the old rule 36.19 to narrow the circumstances in which the fact of a CPR Part 36 offer has been made; and indeed it was his submission that the intention was to the contrary ie to widen such circumstances. Thus, Mr Nicholson QC submitted that in a case such as the present ie when the court determines only some preliminary issues and the issue of liability generally is yet to be determined, the fact of any CPR Part 36 offer could not have been communicated to the court under the former Rule 36.19 because none of the exceptions in the then subparagraph 3 (c) would apply. In particular, subparagraph 3(c)(i) on its face only applied when the “issue of liability” had been determined and ex hypothesi such liability has not yet been determined.

Mr Nicholson QC submitted that one of the reasons for the change of wording in the new CPR Part 36.13 must have been to deal with that situation and, in effect, to permit the fact of any CPR Part 36 offer to be communicated to the court after the determination of some preliminary issues but before the determination of liability generally. In particular, he submitted that the words "until the case has been decided" in the present CPR Part 36.13(2) are different from and much less specific than the wording of the old Rule 36.19(2) ("until all questions of liability and the amount of money to be awarded have been decided") – a point which obviously impressed Henderson J. However, for my part, it seems to me that the interpretation which Henderson J. tentatively suggested and urged here by Mr Nicholson J. would stretch the present wording beyond its proper limit.

In the event, it seems to me unnecessary to decide this issue ie the scope and effect of CPR Part 36.13 (2) and I propose to proceed on the assumption in favour of the claimants that the prohibition applies in the present case. Notwithstanding, both counsel accepted that I can proceed on the basis that although I may not be entitled to be informed and do not know whether or not a CPR Part 36 offer has in fact been made, I can proceed on the basis that I cannot exclude the possibility that (i) a CPR Part 36 offer has been made and (ii) any such offer might, at the very least, affect the court’s discretion in relation to costs in respect of the preliminary issues. I accept that that is all entirely speculative but it seems to me that however speculative that may be, such matters can properly be taken into account in considering what order I should make at this stage. Indeed it seems to me that I am bound to have regard to such matters by virtue of CPR Part 44.3 (4) which provides in material part as follows

On behalf of the claimants, Mr Cogley QC submitted that this approach was, in effect, misguided. In particular, Mr Cogley QC submitted that such speculative matters are not properly to be regarded as relevant “circumstances” for the purposes of the opening words of CPR Part 44.3(4) and any suggestion to the contrary would in effect be inconsistent with the CPR Part 44.3(4)(c). I do not accept that submission. I do not see why the matters which I have referred to above are not part of “all the circumstances” and it seems to me that they are, at the very least, potentially relevant. Nor do I consider that such conclusion would be inconsistent with CPR Part 44.3 (4)(c). In particular, I bear in mind that the opening words of the CPR Part 44.3(4) (in particular the last word “including”) make plain that subparagraphs (a)(b) and (c) are not exhaustive of the circumstances to which the court must have regard and that such subparagraphs are only given by way of example.

In further support of his submissions, Mr Cogley QC relied upon Kew Bettamix Limited [2006] EWCA Civ 1535 and RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co (2008 - unreported). The former case was concerned with the trial of a preliminary issue relating to limitation. The trial judge exercised her discretion to disapply the primary provisions in relation to limitation thus permitting the action to proceed. That decision was upheld in the Court of Appeal. For present purposes, the interest of the case relates to the way in which the court dealt with the issue of costs. The trial judge ordered the defendant to pay all the costs. In the event, this part of the judge’s order was reversed on appeal. As to this aspect, various arguments were raised but for present purposes, Mr Cogley QC relied heavily on paragraph 50 of the judgment of Leveson LJ (with which Walker LJ) agreed:

In the second case, RTS v Molkerei Alois Muller, Christopher Clarke J had to deal with the question of costs following a trial of preliminary issues. In the event, he decided (see pp 32-34 of the Transcript) that despite the fact that, as he was told, CPR Part 36 offers had been made, nevertheless, the claimant should pay the defendant the costs in relation to three issues but not others.

However, I do not regard either of these two cases as laying down any general principle. In Kew v Bettamix, it does not appear that any of the earlier authorities I have referred to (including HSS v BMB) had been cited and although what Leveson LJ said in paragraph 50 of his judgment does, in one sense, support Mr Cogley QC’s submission here, I do not regard it as laying down a general principle in particular because if that were so, it would be difficult, if not impossible, to reconcile with Weill Mean v Fiddler Holdings which I have already referred to earlier in this judgment. As to RTS v Molkerei Alois Muller, there is no doubt that HSS v BMB was cited, but again it seems to me that the judge was not laying down any general principle. Indeed, the fact that the judge ordered the claimant to pay the costs of some issues but not others is to the contrary.

Thus, I remain of the view that although I have not been told and do not know whether a CPR Part 36 offer has been made, the possibility that such an offer has been made and, if so, that it might affect any order as to costs are part of all the circumstances to which I must have regard in deciding what order as to costs I should make. I recognise that, as stated by Henderson J, it will often be desirable and in the wider interests of justice for the costs of the liability hearing to be dealt with at its conclusion; and that such desirability would also generally extend to the costs of a hearing dealing with preliminary issues. However, it seems to me that justice demands that in the particular circumstances of the present case I should not make any immediate order for costs nor any order for an interim payment in favour of the claimants.

In reaching that conclusion, I bear in mind, in particular, the following matters. First, the claimants’ costs are very substantial. Second, as stated above, it is common ground that I cannot exclude the possibility that a CPR Part 36 offer has been made and that any such offer might, at the very least, affect the court’s discretion in relation to the costs of the preliminary issues. Third, notwithstanding the general desirability of dealing with costs at the conclusion of this part of the case, it seems to me that it would be most unjust to make an order for costs in favour of the claimants in ignorance of any offer that might have been made in circumstances where, if a Part 36 offer has in fact been made and the court were aware of such offer, the court would make a different order. Fourth, the order for a “split trial” was essentially a matter of case management. In my judgment, this should not have an effect on the substantive rights of the parties, or at the very least, the court should, if possible, strive to avoid such a result. In my view, this is consistent with the passage from the judgment of Lightman J in Weill Mean v FiddlerHoldings cited above ie that there was much to be said for the view that the incidence of costs should be the same whether or not there has been an order for a split trial. Fifth, although the decision to reserve costs is, of course, of some prejudice to the claimants, in exercising the discretion under CPR part 44.3, it is, in my view, important to bear in mind the interests of the defendants as well as the claimants and, so far as possible, to balance such interests having regard, in particular, to the overriding objective. Here, the claimants constitute a significant trading group and there is no suggestion that the absence of an immediate order for costs and an order for an interim payment in their favour would cause the claimants any irreparable damage. Further, the defendants conceded that if the court decided not to make any immediate order, the judge who determined costs at the end of the case would have the power and discretion to order the defendants to pay interest on any costs payable to the claimants from today’s date at such rate as the court thinks just. In particular, the defendants accepted that it would be open for the court in the exercise of its discretion to order interest to be paid at the “ordinary” rate up to the judgment rate ie 8%. In my judgment, such concession goes a long way to reducing if not eliminating the prejudice which might be suffered by the claimants not having the benefit of an immediate order for costs and an interim payment in their favour.

As to the co-insurance costs, as I indicated during the hearing it seems to me plain that, in principle and subject to any offer that might have been made (whether pursuant to CPR Part 36 or otherwise), the defendants are entitled to such costs on an indemnity basis. In my view, the case originally pleaded by the claimants and advanced until shortly before the trial (viz that AXA was, in effect, the sole insurer) was hopeless from the outset. In particular, the closing sheets were plain and, in cross-examination, both Mr Page and Mr Anderson gave evidence that they knew that the risk was co-insured. Notwithstanding, Mr Marland submitted that if I were to reserve costs generally, I could not or at least should not make any specific order with regard to these co-insurance points. I do not agree. In my view, I see no reason why I should not make an order now dealing in principle with these co-insurance costs subject only to the question of any offers that might have been made and which will, if necessary, have to be considered in due course. As to the quantum of such costs, the defendants submitted a costs schedule and, initially, I thought that it might be possible to carry out a summary assessment of such costs even on a contingent basis. However, in the event, this proved impossible and, if necessary, these will have to be dealt with on a detailed assessment in the usual way.

In light of the above and subject to any further submissions that counsel may wish to make as to the precise wording, it is my conclusion that the appropriate order is as follows: “The costs of the preliminary issues shall be reserved for final determination until after the case has been decided or further order save that it is hereby declared that subject to any offers of settlement that might have been made (whether pursuant to CPR Part 36 or otherwise) (i) the defendants shall pay to the claimants the costs of the preliminary issues to be assessed in detail if not agreed less the sum of £20,000 in respect of disclosure and (ii) the claimants shall pay to the defendants the costs in respect of the co-insurance issues on an indemnity basis to be assessed in detail if not agreed.” In addition, the order should record expressly the concession by the defendants referred to above with regard to interest on any costs which the court may order in due course.

As to the costs of the hearing on 18 June, it is true that the defendants failed on certain important points in particular in relation to leave to appeal, an extension of time to serve an appeal notice and an order for payment of the co-insurance costs in any event. As to the hearing on 22 June which took place at my own initiative in the hope that the coinsurance costs could be summarily assessed, it is also true that this proved, in the event, indeterminative. However, the defendants have been largely successful in relation to the three main issues (ie reservation of costs generally, disclosure and co-insurance costs) which took up the substantial part of at least the first hearing and, having regard to all the circumstances, this should, in my view, be reflected in a substantial costs order in the defendants’ favour. Doing the best I can, it is my conclusion that the defendants are entitled to 60% of the costs (which I summarily assess in the sum of £15,000) ie £9,000 subject to the same caveat as stated above. Thus, subject to any further submissions as to the precise wording, the order should be: “The costs of the hearing on 18 and 22 June shall be reserved for final determination until after the case has been decided or further order save that it is hereby declared that subject to any offers of settlement that might have been made (whether pursuant to CPR Part 36 or otherwise), the claimants shall pay the defendants £9,000 ie 60% of the costs thereof summarily assessed in the sum of £15,000.”

In light of the above, counsel are requested to agree a draft order. Failing agreement, I will deal with any outstanding issues.